United States dollar strengthens on rate hike hopes after Yellen's hawkish comments

Emilio Banks
September 28, 2017

Shortly after the opening bell, the Dow Jones Industrial Average rose 62.10 points, or 0.28 percent, to 22,346.42.

USA stocks crept higher as Janet Yellen warned that the Federal Reserve should be wary of tightening monetary policy too gradually.

Yellen's remarks attempt to resolve a debate that has split members of the central bank among those anxious that inflation may be permanently anchored below the Fed's 2 percent target because of structural changes in the global economy, and those who feel it is only a matter of time before tight labor markets lead wages and prices to rise.

The Fed increased its benchmark lending rate twice in March and June, leaving it at a still-low range of 1 percent to 1.25 percent.

Rabobank strategists say that if the tax reforms raises the chances of the US sustaining a 3 percent growth rate, then it will be a significant boost for the dollar which has suffered this year and is poised for its biggest annual drop since 2004. The retreat follows back-to-back session gains on the heels of tensions between the US and North Korea.

Gold prices fell in Asia on Wednesday as investors took positions ahead of an expected roll-out of the Trump administration's plan for tax cuts and after noting what some are seeing as a more hawkish Fed after a speech by the central bank's chief. The rising potential for the Federal Reserve to raise interest rates at the end of the year has pressed the noble metal down.

Investors appeared to shrug off comments from Federal Reserve Chairwoman Janet Yellen, who cautioned against moving too slowly on interest rates. President Donald Trump has not said whether he plans to re-appoint Yellen or overhaul the central bank's seven-member board of governors.

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Fed Chair Janet Yellen said Tuesday that the Fed may have overstated the strength of the labor market and the rate of inflation.

USA stocks traded mixed on Tuesday, as markets weighed a strong signal from Fed Chair Janet Yellen that interest rates will soon rise.

The yen fell 0.6 percent to 112.92 per dollar, close to an 11-week low, and sterling lost 0.3 percent to $1.3420 against the resurgent greenback, picking up from as low as $1.3363.

Both policymakers nodded to the three devastating hurricanes that have struck parts of the US south and the Caribbean, noting their effects will likely make it more hard to interpret economic data in coming months.

U.S. Treasury yields extended their rise in European trade, with 10-year yields hitting an eight-week high of 2.30 percent US10YT=RR .

-The S&P 500 was little changed at 2,496.84, the Nasdaq 100 Index added 0.2 percent and the small cap Russell 2000 Index gained 0.3 percent to reach a record high. The euro was at $1.1756-1757, down from $1.1812-1813, and at ¥132.48-49, up from ¥132.01-02.

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