Dollar at three-week
high, bonds and stocks sell off on hawkish Fed
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[August 29, 2016]
By Anirban Nag
LONDON (Reuters) - The dollar rose to a
three-week high against the yen on Monday, while bond yields surged
to their highest since June and stocks sold off after senior Federal
Reserve officials indicated a U.S. interest rate increase was on the
cards in the near term.
In the past few months, the Fed has been swaying back and forth on
whether to raise rates this year, keeping investors across the globe
on tenterhooks. But on Friday, at the Fed's annual gathering for
global central bankers in Jackson Hole, Wyoming, Fed Chair Janet
Yellen gave one of the clearest indications that a rate hike was
probably round the corner.
She said the case for an interest rate hike has strengthened in
recent months as the labor market and economy improved. That echoed
what other senior Fed officials had been saying in the run-up to the
Jackson Hole symposium.
And while she gave no hints on the timing of a hike, Fed Vice Chair
Stanley Fischer said Yellen's speech was consistent with
expectations for possible rate increases this year. Fischer said
Friday's nonfarm payrolls report for August was likely to be key to
the decision over a hike in the near term.
"Fischer confirmed the broad view on the Fed Open Market Committee
that the economy has strengthened of late and that interest rates
should be raised gradually; possibly again next month if this week's
employment report supports a rate rise," said Stewart Richardson,
chief investment officer at RMG Wealth Management.
The odds of a hike in September rose to 33 percent following the
comments, from 21 percent on Thursday, according to CME Group's
The prospects of higher U.S. interest rates saw European shares lose
ground. Germany's DAX <.GDAXI> was 1.2 percent lower, while the
blue-chip Euro Stoxx 50 <.STOXXE> was down 0.6 percent. British
markets are closed for a holiday.
Earlier, Japan's Nikkei <.N225> bucked the trend in Asia, closing
2.3 percent higher, the biggest one-day gain in three weeks, as the
yen weakened against the resurgent dollar.
The dollar rose 0.5 percent to a three-week high of 102.39 yen <JPY=>.
That followed gains of 1.3 percent on Friday, its biggest one-day
advance in almost seven weeks. The dollar index was up at 95.724 <.DXY>
its highest in two weeks.
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A man walks past a screen displaying the Nikkei average outside a
brokerage in Tokyo, Japan, June 24, 2016. REUTERS/Thomas Peter
Treasury yields rose, to their highest since June, dragging German
Bund yields higher. The yield on Germany's benchmark 10-year bond
briefly rose more than 6 basis points to minus 0.025 percent
<DE10YT=TWEB> -- the highest level since June 24 when the result of
Britain's EU referendum sent shockwaves through markets.
"We're still cautious about the scope for a September rate hike, but it is
increasingly becoming a close call," said Martin van Vliet, senior rates
strategist at ING.
Investors will turn their focus to a slew of U.S. data this week before the
all-important jobs report on Friday. Among the releases to be scrutinized will
be U.S. consumer confidence for August, due on Tuesday, while productivity,
manufacturing and construction figures are due on Thursday.
Global factory activity surveys will also be released on Thursday.
In commodities, crude prices fell on the back of a rally in the dollar and
concerns about growing output after exports from Iraq in August exceeded July
Iran also said late last week that it would only cooperate in upcoming producer
talks in September if other exporters recognized Tehran's right to regain market
share lost during international sanctions that were only lifted in January.
U.S. crude futures dropped 1.7 percent to $46.84 while Brent crude also
fell by a similar margin to $49.08.
The stronger dollar weighed on gold. Spot gold <XAU=> slipped 0.1 percent to
$1,319, after earlier touching a five-week low.
(Additional reporting by Dhara Ranasinghe in London, editing by Louise Heavens)
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