London, Bengaluru: The dollar rose to a three-week high against the yen on Monday, while bond yields surged to their highest since June and stocks sold off after senior Federal Reserve officials indicated a US interest rate increase was on the cards soon.
The dollar rose 0.5 per cent to a three-week high of 102.39 yen. That followed gains of 1.3 per cent on Friday, its biggest one-day advance in almost seven weeks. The dollar index was up at 95.769 its highest in two weeks.
Wall Street rose on Monday morning, helped by financial stocks that gained a day after Federal Reserve Chair Janet Yellen said the case for an interest rate hike had strengthened.
The S&P 500 financial index rose 0.6 per cent, with Wells Fargo and JPMorgan rising about 0.8 per cent. The index was trading at its highest level since Dec. 30, shortly after the Fed raised rates for the first time in nearly a decade.
The chances of a rate hike in September jumped to 30 per cent from 21 per cent, while the measure rose to 45.1 per cent from 41.4 per cent for December, according to CME Group’s FedWatch tool.
A report from the US Commerce Department showed consumer spending, which accounts for more than two-thirds of US economic activity, rose for the fourth straight month in July.
The stronger dollar weighed on gold. Spot gold slipped 0.1 per cent to $1,319.06 an ounce after earlier touching a five-week low.
In the past few months, the Fed has been swaying back and forth on whether to raise rates this year, keeping investors across the globe on tenterhooks. But on Friday, at an annual gathering of global central bankers in Jackson Hole, Wyoming, Fed Chair Janet Yellen gave one of the clearest indications that a rate hike was probably round the corner.
She said the case for an interest rate hike has strengthened in recent months as the US labour market and economy improved.
That echoed what other senior Fed officials had been saying in the run-up to the Jackson Hole symposium.
And while she gave no hints on the timing of a hike, Fed Vice Chair Stanley Fischer said Yellen’s speech was consistent with expectations for possible rate increases this year. Fischer said Friday’s nonfarm payrolls report for August was likely to be key to the decision over a hike in the near term.
“Fischer confirmed the broad view on the Fed Open Market Committee that the economy has strengthened of late and that interest rates should be raised gradually; possibly again next month if this week’s employment report supports a rate rise,” said Stewart Richardson, chief investment officer at RMG Wealth Management.
