Dollar Climbs on Fed Odds
The dollar rose versus all its major peers as bonds dropped after investors boosted expectations for a Federal Reserve interest-rate increase this year
The Bloomberg Dollar Spot Index is climbing for the sixth time in seven trading sessions as expectations build that the Fed will tighten policy in December for the first time since the same period in 2015. Stocks in Asia reversed initial gains as investor nervousness remains amid concern that potential U.S. interest-rate increases and the U.K.’s planned departure from the European Union will weigh down fragile global growth.
U.S. dollar gains are “entirely linked to the fact that the market has been upwardly rerating expectations of a December rate hike,” said Sue Trinh, head of Asia foreign-exchange strategy for Royal Bank of Canada in Hong Kong. “Three weeks ago, the implied probability of a December hike discounted by fed funds futures was under 50 percent, today it is close to 70 percent.”
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2 percent.
Fed's Evans sees benefits to overshooting inflation target
The U.S. Federal Reserve should engineer monetary policy to spur inflation to rise above its two-percent target because the costs of doing so are less than in past decades, Chicago Federal Reserve Bank President Charles Evans said on Tuesday.
"I see benefits to trying to engineer policy to allow for the strong possibility of inflation overshooting its target," Evans said at an event in Sydney, Australia.
"I also think it would help to indicate that policymakers would be willing to accept the increased inflationary risk that might accompany further declines in unemployment," he added, citing his view that the U.S. economy is not yet at full employment and is in unprecedented territory compared to past cycles.
Oil prices fall from one-year highs on output cut doubts
Oil prices on Tuesday fell from one-year highs touched the previous day as there were doubts that a planned production cut would have the desired effect of reining in over two years of global oversupply.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $51.09 a barrel, 26 cents lower than their last close, down from Monday's high of $51.60.
Oil prices jumped as much as 3 percent on Monday, with Brent hitting a one-year peak, after Russia and Saudi Arabia both said a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members like Russia in curbing crude output was possible.
However, Goldman Sachs said in a note to clients on Tuesday that despite a production cut becoming a "greater possibility", markets were unlikely to rebalance in 2017.
"Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017," the U.S. bank said, and added that even if OPEC producers and Russia implemented strict cuts, higher prices would allow U.S. shale drillers to raise output.
Reference: Bloomberg,Reuters
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