United States stocks add to gains after hawkish Fed minutes

The main pointers to a rate rise are robust employment reports earlier this month, as well as the Federal Reserve removing its stance on global growth risks from its October policy statement, as analysts price in a 70% expected chance of a rise.

The dollar’s strength was even more impressive against precious metals and commodities. The euro fell 0.4 percent to $1.0735, having gained 0.3 percent last week.

“It’s doom and gloom here, the biggest bears are the Chinese, the general view is that little will improve next year”, said a fund source in Shanghai, which is hosting the year’s biggest copper industry meeting in Asia this week. The yen was down less than 0.1 per cent at 123.28 per dollar.

The greenback rose 0.5 percent against the Swiss franc to 1.0143 francs. That signalled a housing market stabilisation that could help re-energise the listless economy.

Wall Street shares ceded earlier gains to end nearly flat on Tuesday after German authorities called off a soccer game which German Chancellor Angel Merkel was due to attend, citing threats of bombing, sparking fears of another attack coming only days after the deadly assault in Paris.

“There has been no major upturn in market volatility, but no doubt the attacks in Paris will raise further the uncertainty over the outlook for the euro zone economy”, said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi.

European investors edged back into safer assets on Wednesday as a shootout between French police and militants suspected of involvements in the Paris attacks kept the market focused on worldwide security issues.

In contrast with the Fed’s expected course of action, the Bank of Japan (BoJ) is expected to hold steady at its two-day policy meeting that began on Wednesday.

“With a further widening of the U.S. Treasury/German bund yield spread, the odds of traders buying the United States dollars ahead of the 16 December FOMC meet and then selling once we get confirmation of the hike seems elevated, ” Weston said.

US Treasuries also bounced back on safety bids, with the 10-year yield slipping to 2.273 per cent from day’s high of 2.313 per cent. It stood at 2.274 percent in Asian trade, compared with its U.S. close of 2.261 percent.

Data showing USA inflation at 0.2 percent in October added to a string of comments out of the Fed in recent weeks hinting at a December rate hike, which would be the first since 2006. Monthly US consumer prices increased in October after two straight months of declines, putting annual core inflation at 1.9 percent.

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.

Against the yen, the dollar inched down about 0.1 percent to 123.50 yen after scaling a three-month peak of 123.77 yen after the Fed minutes. Today’s move took EUR/USD beyond its previous multi-month low 1.0674 and as indicated in the chart below, there is no support for the currency pair until 1.0520, the April low.