- Interest Rate: Dollar Gains After Yellen Boosts Expectations
The U.S. dollar climbed higher after Janet Yellen, the Federal Reserve Chair, validated other policy-makers predictions for an increase in rate hike this December. Coming ahead of tax reform plan due on Wednesday, the dollar outlook improved and weighed on emerging Stocks.
Dollar Index advanced for a third consecutive day on Wednesday following the series of hawkish comments from policymakers and call for gradual rates hike to allow substantial room for adverse shocks should they hit the economy, according to Janet Yellen.
The U.S. dollar rose 0.29 percent against the Euro common currency to $1.1759 as of 3:00 pm China time. This is more than a month high and projected to gain further once tax plan reform is passed by the parliament. A possibility doubted by most experts.
The Yen plunged by 0.37 percent against the U.S. dollar to 112.65 as of 3:03 pm China time.
While, the odds of the Federal Reserve raising rates in December climbed to 70 percent from 63 percent prior to Yellen’s speech.
“If she wants markets to be prepared for the December hike she needs to pump up the probability of what the markets are pricing in a little bit higher yet,” Hartmut Issel, UBS Wealth Management’s head of APAC equity and credit, said. “We can see the probabilities have moved, but probably not quite where they should be, so therefore marginally a bit of an impact yet, especially on the dollar in the short term.”
President Trump is expected to announce his tax reform plan on Wednesday. But people familiar with the details said the president will propose 15 percent corporate tax cut from 35 percent to 20 percent to aid economic growth towards 3 percent target and topped individual tax rate of 35 percent. A plan most experts believe won’t stand a chance in the parliament, especially with the ongoing NFL issues.
Overall, the U.S. economy remains healthy but with a high level of uncertainties. These uncertainties are impacting market response to balance sheet normalization announcement and hawkish comments as most investors doubt the success of the proposed fiscal policy.