USA dollar firms on rate hike hopes

He was the third Fed official to support higher interest rates.


Market punters will be watching out for signals from Federal Reserve chair Janet Yellen and other Fed officials as they discuss the rationale and implications of their decision to hold fire at their policy meeting last week. The Australian dollar decreased to 0.7136 dollar from 0.7218 dollar.

“However, it won’t take much to derail some of the optimism if the September Chinese PMI due tomorrow is on the bearish side, and this may in turn take some pricing of a tightening out of the US rates market“, he said.

Atlanta Fed President Dennis Lockhart said on Monday last week’s decision was largely a “risk management” exercise to be sure recent market volatility would not become a drag on the United States economy.

But the Fed maintained its bias towards a rate hike sometime this year, while lowering its long-term outlook for the economy.

A rate hike will restore asset allocations and prices, and the Fed’s policy should not be affected when the risk of a systemic crisis does not increase significantly because of these adjustments, Hong said.

Speaking at a weekend conference on the China-U.S. financial system, San Francisco Fed President John Williams stated that the next appropriate step is a gradual rate hike, likely starting sometime later this year, given continued growth in economic and labor market.

The euro rose 0.1 percent to $1.1200, but was down more than 2 percent from last week’s peak of $1.1460.

The Federal Reserve is sending mixed messages to the stock market.

“The reason we feel that the Fed will achieve the necessary confidence levels to boost rates later this year is that China, Dr Yellen’s preeminent current concern, should start to see a cyclical economic upswing into the year end”.

“The dollar should struggle to gain significant upside traction this week because USA interest rate expectations are unlikely to adjust much higher”, said Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia.

European and USA stock markets were higher on Monday, which did pull some interest away from the safe-haven gold market.

“As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment”, Lockhart said.


But given the possibility that the ECB and the Bank of Japan may eventually step up monetary stimulus, traders will be reluctant to sell the dollar too aggressively, analysts said.

Janet Yellen head of Fed