US Dollar Advances On Fed Rate Hike Signal In Dec.

Aubin Brasseur
Septembre 23, 2017

Global stock markets traded in fairly narrow ranges Tuesday as investors paused for breath, a day after U.S. stock markets struck a record high and geared up for the latest interest rate decision from the U.S. Federal Reserve.

The greenback advanced to more than a 2-month high of 112.72 versus the yen and more than a 5-week high of 0.9743 against the Swiss franc, from Wednesday's closing values of 112.21 and 0.9698, respectively. That was the lowest level since August 2016.

The New Zealand dollar fell as the US Federal Reserve signals on balance sheet unwinding and interest rate hikes outweighed gains made earlier in the week after a poll showing the National Party in the lead ahead of tomorrow's vote.

"We had suspected that the recent softness of core inflation would persuade officials to hold off on the next rate hike until next year", says Andrew Hunter, a US economist at Capital Economics. The Federal Open Market Committee is also expected to reveal the dot plot which will show the Fed's expectations regarding the interest rates in the coming months or period. In late New York trading on Wednesday, the euro fell to $1.1895 dollars from 1.1998 dollars in the previous session, and the British pound lost to $1.3485 from $1.3523 in the previous session, Xinhua news agency reported.

"Instead, the US central bank decided to look past low inflation and said the harm of the Hurricanes would have no lasting economic impact", he said. "Not much today, though as we noted yesterday, this happier more stable backdrop brings central banks back into play", said Rob Carnell, head of research in Asia of ING.

Markets are pricing in a 56 percent probability of the Fed raising rates in December.

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Insurers were in demand as well, with T&D Holdings climbing 3.0 per cent and Sompo Holdings jumping 4.7 per cent. The move will gradually increase long-term borrowing rates. We still think EUR-USD corrections will remain contained and the area around 1.1850 should prove to be a strong support zone.

In energy markets, oil prices retreated from near-five-month highs ahead of this week's meeting between key oil producers on the outlook for further supply cuts.

Chinese shares ended a tad lower as losses in the realty and material sectors overshadowed gains in financials.

The jump in the dollar against the yen boosted Japanese exporters, which helped the Nikkei index close the morning session 0.8 per cent higher.

Interest rate futures traders now price in about a 70 percent chance of a December Fed rate hike, up from above 50 percent before the meeting, according to CME's FedWatch tool. Australia's S&P/ASX 200 fell 0.1 percent to 5,709.10.

Brent crude, used to price international oils, gained 24 cents to $55.38 per barrel in London.

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