US Dollar Near Two Month Highs after Fed

Gold dived, briefly hitting a five-year low as sellers in China dumped the metal against the background of the USA interest rate outlook and its consequences for the dollar. The prospect of higher U.S. rates boosted the dollar to multiyear highs versus currencies from Canada to Australia and New Zealand.

Tuesday’s nuclear agreement between six world powers and Iran is expected to result in the lifting of sanctions, which have limited sales of Iranian oil for several years. In the medium term he predicted interest rates would probably rise to a level about half as high as their historical average of around 4.5 percent.

Developments in the Greek crisis justifiably diverted attention from Federal Reserve Chair Janet Yellen’s semi-annual testimony to Congress last week.

“But we have become markedly less confident in this call, and there is clearly now a very real possibility that the MPC could act before the end of 2015, most likely in November”.

Analysts also said this week’s anticipated corporate supply put pressure on U.S. Treasuries prices as traders prepared to buy corporate bonds. Though the numbers were not so good in June, prior months had been better. Inflation expectations based on the break-even rate fell to 1.75 percent on January 30, the lowest since 1999. The period can last for a year or more. Banks in Greece reopen Monday following their three-week shutdown.

In the afternoon the ECB’s Governing council opted to keep its main policy rates unchanged, as expected. However, equity markets should be able to take this in their stride. The index now stands at a level of 29.7.

Some of the drivers of the moves on October 15 included weak retail sales data, the unwinding of bearish bets on Treasurys, and a decline in market depth, as broker dealers and high-frequency trading firms reacted quickly to what was happening on their screens.

The European Central Bank held its key interest rates unchanged at a record low on Thursday for an eighth session in a row. No bank should lend money at a rate below a risk-free deposit at the Fed. To raise the rate, the Fed sold securities, shrinking those cash reserves. The measure is 1.2 per cent below a 10-year high touched in March.

Meanwhile, worries or optimism about events overseas, namely the Chinese stock-market crash and the eurozone’s economy, will continue to drive rates in the USA, Flaherty added. Hence, there is now a strong possibility that August’s meeting could see a renewed split among the nine BoE policy makers for the first time this year.

“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year”, Carney said in a speech delivered at Lincoln Cathedral in east England.

Cable retreated 0.21% to 1.5605.

In Asia, The Shanghai index rose more than 13 per cent in the past week, after falling almost a third in less than a month.

Beck noted: ‘Inflation is set to remain close to zero for much of the year and recent falls in commodity prices threaten a return to deflation.