Greenback Rises After Fed Minutes Present Most Agree On December Hike

The pick-up in risk sentiment combined with the dip in the dollar gave commodities a brief reprieve from recent selling, with oil, copper and other industrial metals and gold up for a while before losing their traction.

After fluctuating in afternoon trading, Frankfurt stocks ended the day down 0.1 per cent at 10,959.95, while London managed a small gain of 0.2 per cent to close at 6,278.97 points thanks to a rebound in mining shares.

“Everyone may not be in agreement that rates should rise but there is a general acceptance now that it’s happening and the market seems capable of dealing with it. Minutes from the Fed’s October 27-28 monetary policy meeting showed most officials expect a rate hike in December and have moved past worries about slowing global growth that had prevented a hike in September”.

Participants in the meeting “generally agreed”, the minutes showed, “that it would probably be appropriate to remove policy accommodation gradually”, making it likely that the path of rate increases would be shallow after liftoff.

The immediate impact on the us dollar and its currency pairs are more than likely limited to this month’s ranges.

“That is the success of the Fed really”.

The rate-setting council expressed concern that the current low rate of inflation – an annual 0.1 percent in October – could continue for longer than expected.

Longer-term debt outperformed and the yield curve flattened noticeably.

Benchmark 10-year Treasury prices rose 7/32 for a yield of 2.2447 percent, while the price for the 30-year note rose 24/32 for a yield of 3.0040 percent. The premium offered by US two-year debt over its German counterpart yawned out to 124 basis points, the fattest margin since 2006 and a positive for the dollar.

“If the Fed is successful in convincing investors that the up move in rates will be very gradual, it would be less favorable for the dollar, particularly against risk currencies which will benefit from the tailwind from accommodation elsewhere”, said Todd Elmer, a Singapore-based currency strategist at Citigroup Inc. The euro added about 0.4 percent to $1.0703, pulling away from Wednesday’s seven-month low of $1.0617, with its upside capped by expectations that the European Central Bank will take fresh monetary easing steps next month continuing to pressure the common currency. Against the yen, the dollar fell about 0.3 percent to 123.25 yen, down from a three-month peak of 123.77 yen scaled after the Fed minutes.At his post-meeting briefing later in the session, BOJ Governor Haruhiko Kuroda is expected to reiterate that tightening labor markets will push up wages and help Japan recover from a temporary soft patch.

US data showed fewer Americans filed for unemployment benefits last week, further supporting a view that the Federal Reserve will raise interest rates in December.

Peter Praet, the ECB’s chief economist kept up the speculation saying the so called “zero lower bound” for interest rates was lower than most had originally thought.

The dollar index was up 0.1 percent at 99.693, after hitting a high of 99.745 on Tuesday, within sight of its 12-year peak of 100.39 set in March.

Zinc, lead and nickel fell, to around their lowest points in five to seven years, as fears persisted over waning demand in top metals user China.

Oil prices rose from three-month lows on short-covering.