US dollar up, banks boost stock indices

The US dollar rose to a three-week high yesterday on heightened expectations that the Federal Reserve will raise rates earlier or more times than anticipated this year, while stocks on Wall Street rose led by financial shares.

Markets have priced in one interest rate hike from the Fed before the end of the year, but this week’s US inflation data and a more hawkish tone from several Fed policymakers have led to analysts now seeing the Fed more likely to tighten monetary policy.

Markets see the likelihood of an interest rate rise in September at 57 per cent, up from 49 per cent Tuesday. Bank stocks, seen benefiting from higher interest rates, led gains on Wall Street while the high dividend payers like utilities and consumer staples weighed on the S&P 500 the most.

The Dow Jones industrial average rose 16.06 points, or 0.09 per cent, to 17,546.04, the S&P 500 gained 3.37 points, or 0.16 percent, to 2,050.58 and the Nasdaq Composite added 24.90 points, or 0.53 percent, to 4,740.64.

Bank stocks also led European stock indices higher. The pan-European FTSEurofirst 300 index rose 0.75 per cent and MSCI’s gauge of stocks across the globe fell -0.01 per cent.

The US dollar index, which measures the greenback against a basket of currencies, hit its highest since April 25 and was last up 0.13 per cent. The Japanese yen was down 0.42 per cent versus the greenback at 109.58 per dollar and the euro fell 0.27 per cent to $1.1280.

Sterling hit a three-month high against a trade-weighted basket of currencies after a UK poll about the chances of Britain voting to leave the European Union next month showed the “In” campaign 18 points in front.

Crude oil futures were little changed in volatile trading as investors focused on a large gasoline drawdown in US government oil inventory data, ignoring a surprise build in crude stockpiles.

US crude was recently up 0.6 per cent at $48.60 and Brent crude last traded at $49.56, up 0.6 per cent on the day.

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