Published: Sat, March 04, 2017
Markets | By Terence Owen

USA dollar climbs on Fed officials' comments

Dr Yellen's strongly-worded message barely budged markets, which had reset earlier this week to price in a March rate hike after several of her colleagues in recent days also put a rise at the next rate-setting meeting firmly in view.

Gold prices were on track for their weakest session since December on Thursday, buoyed by a firm dollar and rising USA rate hike expectations in March following buoyant U.S. economic data and hawkish comments from Federal Reserve governors. The question is whether the official who matters most - Chair Janet Yellen - will add her own voice to that impression.

"If that's the case, they stop reinvesting the coupons and maturities into the long end of the yield curve which would place some upward pressure on long bond yields in the U.S.", said Richard Grace, chief currency and rates strategist at Commonwealth Bank.

India's February gold imports surged more than 82 percent from a year ago as consumers ramped up purchases for weddings, provisional data from consultancy GFMS showed.

John Williams, president of the San Francisco Fed, said a rate increase was very much on the table for serious consideration at the March meeting given full employment and accelerating inflation.

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On Wednesday, Lael Brainard, a Fed board member and previously a leading advocate of delaying rate increases, said she thought the case for another hike was strengthening. Federal funds futures, which reflect the implied probability of a rate hike, at one point Tuesday signaled a 62% chance of an increase this month, doubled from the day before. And Fed policymakers in December projected three quarter-point rate increases this year and as many as three each and 2018 and 2019, which would bring the rate to 2.9%, according to their median forecast. Fed rate hikes - or the anticipation of them - tend to boost the currency. On Thursday, for example, the government reported that first-time applications for unemployment benefits - a proxy for the pace of layoffs - fell last week to their lowest level in almost 44 years. In early 2016, lower than anticipated growth and inflation, as well as a worldwide events such as the slowdown in the Chinese economy and Britain's exit from the European Union, again encouraged the committee to move more cautiously than anticipated. Platinum was down 3.2 per cent at US$982.50, after falling below its 200-day moving average, while palladium dropped 1.2 per cent at US$765.65.

Underpinned by higher steel prices, the benchmark iron ore spot price has now risen 17.1% in 2017, extending its gain from the all-time low of $38.30 a tonne struck in mid-December 2015 to 141%.

What is clear, however, is that if and when the Fed does embark on this process, it should have a significant cushion of standard official interest rate leeway to address any untoward consequences on the financial sector and the real economy.

Also, economic data indicated inflation was close to the Fed's target of 2 percent.

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