A gauge of global equity markets dipped yesterday and the dollar strengthened as US Federal Reserve Chair Janet Yellen struck a hawkish tone on the timing of an interest rate hike.
Yellen said in prepared remarks before the US Senate Banking Committee that the central bank will likely need to raise interest rates at an upcoming meeting, although she expressed caution about the considerable economic policy uncertainty under the Trump administration.
On Wall Street, financial stocks moved higher following her remarks and were last up 0.5 per cent yesterday.
Utilities and real estate, which tend to weaken in a rising rate environment, extended declines and were last down 0.9 per cent and 1.1 per cent,respectively.
The Fed signalled in December that it expected to raise rates three times in 2017.
The dollar reversed course after Yellen’s comments and was last up 0.3 per cent after touching a three-week high of 101.31 against a basket of major currencies.
“The tone is overall more hawkish than what the market had expected. The market seems to be under-pricing an upcoming rate hike,” said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange Inc. in Washington.
“This doesn’t mean they will move in March, but the Fed wants to have the option to move.”
Thomson Reuters data shows traders see a 17.7 per cent chance of a 25-basis-point hike in rates at the Fed’s March meeting.
The greenback was initially under pressure following the resignation of President Donald Trump’s national security adviser, Michael Flynn, who quit over revelations he had discussed US sanctions against Moscow with the Russian ambassador to the United States before Mr Trump took office.
Ms Yellen’s hawkish tone dovetailed with recent comments from other Fed officials.
Dallas Fed President Robert Kaplan on Monday argued the Fed should move soon to avoid falling behind the curve, especially as fiscal policy could drive faster growth and inflation.
Gold weakened in the wake of the Yellen comments as the greenback strengthened and was last down 0.1 per cent to $1,223.90 an ounce.
Oil recouped some ground on OPEC-led efforts to cut output, though rising production elsewhere kept prices in a narrow range that has contained them so far this year.
Brent crude was last up 1.1 per cent at $56.22 and US crude was 0.9 per cent at $53.42 a barrel.