Stocks fall, yields and dollar rise after Fed minutes

Cornelia Mascio
Febbraio 22, 2018

The U.S. dollar continued to be higher against its major counterparts in the European session on Wednesday, as investors awaited the minutes from the Fed's recent policy meeting for more insights about future interest rate hikes this year.

The dollar index, tracking the unit against key world currencies, rose 0.59 percent, continuing its rebound from three-year lows. It inched up 1.84 points, or 0.1 percent, to 1,531.84.

"The return of China will be closely watched for any renewed physical interest in Asia to stem the weakness".

"If Chinese shares rise when trading resumes tomorrow, that could lift the region further".

Chinese financial markets will resume trading tomorrow after being shut for the past week for the Lunar New Year.

Pressured by higher yields, Wall Street's main equity indexes fell after six straight days of gains as the market reopened following the Presidents' Day holiday on Monday. Hong Kong's Hang Seng rose 1.2 percent.

Japanese shares led Asian markets higher after a weak start on Wednesday, with Japanese export focused companies attracting investors as the US dollar gained against the yen thanks to US Treasury debt yields hovering near highs not seen in four years.

Increased government borrowing has put upward pressure on Treasury yields. The 10-year Treasury has hit a high of around 2.91 per cent recently but has retraced this move somewhat over subsequent sessions, now at 2.88 per cent.

Other major indexes also fell, but the sell-offs weren't as steep.

On Tuesday, the Treasury sold $51 billion of three-month bills at an interest rate of 1.63 percent and $45 billion of six-month bills at an interest rate of 1.82 percent.

Adding to these concerns was a two-year US budget deal reached this month that would increase spending on military and entitlement programs by $300 billion.

But the greenback managed to find bids once the dust began to settle after last week's tumble.

The last several months has not been good for the United States dollar.

The Federal Reserve releases minutes of its January 30-31 meeting at 2 pmET, as investors look for further insight on inflation and interest rates under new chairman Jerome Powell. The Fed now forecasts three rate rises this year, and persistent weak inflation readings had given most policymakers pause against upping the pace of rate hikes even in an economy with strong growth and ultra-low unemployment.

The dollar extended an overnight surge and gained 0.45 percent to 107.800 yen. More importantly, the core US CPI, excluding volatile components such as food and energy, rose by 0.349 per cent compared to the previous month, significantly above the 0.2 per cent increase analysts had expected.

The Australian dollar lost 0.4 percent to $0.7852 and the New Zealand dollar dipped 0.2 percent to at $0.7333.

The stronger dollar weighed on commodities, with Brent crude futures losing 1 per cent to US$64.61 per barrel and U.S. crude oil futures also slipping 1 per cent to US$61.16.

US crude hit a near two-week high the previous day on news of inventory declines at a key storage hub and from expectations that top OPEC producers could extend cooperation beyond 2018.

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