20 hrs ago
Dollar rises as oil boosts yields before expected Fed hike
The U.S. dollar became a little stronger against several other currencies.
Oil prices stayed very high, which raised worries about inflation.
Those worries pushed U.S. government bond yields higher.
The 10-year yield reached its highest level since 2007.
Investors think the Federal Reserve will probably raise interest rates on Wednesday.
However, traders are also listening closely to what officials say about future rate increases.
The euro, pound, and yen all weakened against the dollar.
The yen briefly fell past 155 yen for one dollar.
Markets were also affected by attacks in the Gulf region and falling stock prices.
The dollar gained against most major currencies as higher oil prices lifted Treasury yields and rate-hike expectations.
The U.S. 10-year Treasury yield reached 5.041%, its highest level since 2007.
Markets assigned a 95% probability to a Federal Reserve rate increase on Wednesday.
Oil prices remained above $105 a barrel after attacks linked to Yemen’s Houthis and postponed Gulf-Iran talks.
The yen weakened past 155 per dollar, while investors focused on the Federal Reserve’s press conference for future-policy signals.
- Who
- The Federal Reserve, currency investors, and traders in the dollar, euro, pound, and yen markets.
- What
- The dollar rose as oil prices and Treasury yields increased ahead of an expected Federal Reserve interest-rate hike.
- Where
- Global currency and financial markets, including the United States, Europe, Japan, and the Gulf region.
- When
- Tuesday, ahead of the Federal Reserve decision expected on Wednesday; the report was dated September 15.
- Why
- Higher oil prices increased inflation concerns and Treasury yields, while strong U.S. economic data reinforced expectations of further rate increases.
Rate hike likely
Policy outlook remains uncertain
Wednesday’s decision
Rate hike likely
Markets viewed a Federal Reserve rate increase as nearly certain, with the CME FedWatch tool showing a 95% probability.
Policy outlook remains uncertain
Analyst Juan Perez said investors should remain alert for surprises and that a decision to hold rates was not unthinkable.
Future rate path
Rate hike likely
Strong U.S. jobs and inflation data led economists surveyed by Reuters to expect at least one more hike by the end of March.
Policy outlook remains uncertain
Analysts said much of the dollar’s positive news may already be priced in, making the Federal Reserve’s press-conference tone crucial.
Meaning of the policy shift
Rate hike likely
Some investors may interpret another increase as the start of a new hiking cycle, potentially affecting risk assets.
Policy outlook remains uncertain
Others may view the move as calibration of monetary policy rather than the beginning of a new cycle.
Key facts
- Dollar index
- Rose 0.15% to 99.631, near a roughly two-week high.
- U.S. 10-year yield
- Reached 5.041%, its highest level since 2007, and was later just below 5.004%.
- Federal Reserve hike probability
- Markets priced a 95% chance of an interest-rate increase on Wednesday.
- Oil price
- Remained above $105 a barrel, near a four-month high.
- Euro
- Fell 0.1% to $1.1541.
- Sterling
- Fell 0.2% to $1.3477.
- Yen
- Weakened 0.5% against the dollar and briefly moved past 155 per dollar.
Quotes
Juan Perez
Senior director of trading at Monex USA in Washington
“What tone are you giving us? ... Can we then think about December, think about the remainder of the year ... that's really what's going to affect the direction of the currency”
livemint.com
“You have to be prepared for the unexpected ... this is a time of volatility”
livemint.com
Gabriele Foà
Portfolio manager at Algebris Investments
“If the Fed is viewed as beginning a new hiking cycle rather than calibrating monetary policy, monetary policy could have spillovers to risk assets”
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