US dollar hits 13-year high

Treasury 10-year note yields rose three basis points, or 0.03 percentage point, at 2.25 per cent as of 9.28am in London yesterday, according to Bloomberg Bond Trader data.

“Were the Federal Open Market Committee to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals”, Yellen will tell the Congress later today (17 November). The DJIA closed 0.3% lower, while the S&P 500 index eased 0.2% on Wednesday.

Those policies also will factor into the Fed’s thinking about the appropriate level of interest rates.

Even so, the Fed expects “the economy will warrant only gradual increases in the federal funds rate over time”. The central bank’s target is 2 per cent.

Yellen could also be asked about her own future, following criticism of her by the president-elect in recent months.

Bond investors may have another reason to worry after Donald Trump’s election last week: Some of his allies are not fans of the Federal Reserve’s big balance sheet of bonds and want the central bank to shrink it. What’s more interesting to markets is when the ensuing rate hike will be and it’s here that Trump’s victory could impact.

Trump’s election could affect Yellen’s Fed in other ways, too. Trump’s new appointees potentially could affect that consensus.

Trump’s proposals to cut taxes and raise infrastructure spending are expected to boosteconomic activity and inflation, raising the possibility of more interest rate hikes.

The Australian government bonds gained Thursday as investors remained cautious ahead of the United States consumer inflation data and Federal Reserve Chair Janet Yellen’s testimony, in an attempt to estimate the Fed’s most likely policy step. It said its full-year performance will depend on a good performance over the Christmas holidays, as it reported lower profit but higher revenue for the first half of its financial year. “We think that’s the right move given how strong labor markets have been, however, equities don’t look cheap based on a number of valuation metrics”, said David Carter, chief investment officer at Lenox Wealth Advisors.

The housing market, whose meltdown triggered the 2008 financial crisis and the recession, has largely recovered, though.

United States dollar steadied just off an 11-month high against a basket of currencies on Wednesday, with major banks sounding slightly more divided on its immediate prospects after a week-long rally driven by the post-election surge in USA bond yields.

Overall, economic growth also picked up to almost 3% in the third quarter after averaging a mere 1% in the first half of the year.