New York: The dollar held near a two-month high and Treasuries slid as traders awaited minutes of the Federal Reserve’s latest policy meeting that may provide clues on the path of US interest rates. The pound rallied.
The greenback rose against most major currencies, while Treasury yields were close to the highest level in four months before the US auctions $44 billion of securities. American stocks fluctuated on concern that corporate earnings will be slow to rebound. The pound surged after UK Prime Minister Theresa May accepted that Parliament should be allowed a say on her plan for taking Britain out of the European Union. Oil slipped a second day on speculation the Opec agreement to trim crude output won’t succeed in reducing supply.
Investors preparing for faster inflation and a Fed hike have pushed up the dollar’s value while sending longer-term Treasuries toward their steepest monthly decline in more than a year. Minutes of the central bank’s September policy meeting could illuminate the degree of pressure Chair Janet Yellen faced from officials eager to raise interest rates, insights that could help guide expectations on the likelihood of a move by year end. In a speech on Sunday, Fed vice-chairman Stanley Fischer said the decision was a “close call.”
“The dollar has already received support over the recent days on comments” from Fed officials, and “the market now wants to look if the minutes are in the same direction,” said Georgette Boele, a currency and commodity strategist at ABN Amro Bank NV in Amsterdam. “If the minutes confirm it, the dollar could get a bit more support.”
Recent economic data beating forecasts and comments by Fed officials have fuelled bets that the central bank is on a path to increase rates this year. Fed Bank of New York President William Dudley said in remarks today that officials can be “quite gentle as we go in terms of gradually removing” policy accommodation. Traders currently assign about a two-thirds chance of a December rate increase, based on prices in federal funds futures contracts.
Currencies
Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2 per cent at 10:06am in New York after rising Tuesday to the highest level since July.
Sterling climbed at least 0.6 per cent against all its 31 major peers. The move by the British prime minister eased investor concerns that May would be taking a gung-ho approach to the discussions, even as she asked lawmakers to give her space to negotiate.
“It’s definitely constructive,” said Hans Redeker, Morgan Stanley’s chief global currency strategist in London. “The vote is a major concession that does reduce the room to manoeuvre for Theresa May’s government in the negotiation. That is currently read as positive for sterling.”
Rand strengthens 1.9 per cent as the head of South African prosecuting agency told lawmakers he is open to review a decision to prosecute Finance Minister Pravin Gordhan.
Thai baht tumbled amid concern over the health of the king and on the prospect of a US rate increase this year.
Bonds
The benchmark US 10-year note yield rose two basis points, or 0.02 percentage point, to 1.79 per cent, according to Bloomberg Bond Trader data. That’s the highest since June.
The difference between yields on US 10-year notes and similar-maturity TIPS, a gauge of expectations for US consumer prices, expanded to 1.69 percentage points on Tuesday, approaching the Federal Reserve’s inflation target of 2 per cent. The spread has increased from as little as 1.12 points in February.
Goldman Sachs Asset Management is recommending Treasury Inflation Protected Securities as the bond market signals consumer prices are poised to rise.
“We like them a lot,” Mike Swell, co-head of global portfolio management for fixed income in New York, said in an interview on Bloomberg Television Tuesday. “Investors are catching up to what a lot of us in markets already know, that inflation is picking up.” The firm invests or advises on more than $1 trillion of assets, according to its website.
The US will auction $24 billion of three-year notes and $20 billion of 10-year debt on Wednesday, followed by another $12 billion of 30-year bonds on Thursday.
