US Federal Reserve raises interest rates

US Federal Reserve raises interest rates”

"We think that the price of the yellow metal will fall in the remainder of the year as the Fed hikes rates by more than the market now anticipates and global risks fade", said Capital Economics in a note.

Against a basket of currencies, the dollar was a whisker firmer on Wednesday at 97.016 and little changed on the Japanese yen at 110.04.

The S&P technology sector fell 0.5 percent, continuing a slide that began last Friday.

The Fed raised interest rates, as expected, but offered a surprisingly hawkish outlook on further rate hike and detailed its plan to gradually shrink its $4.5 trillion balance sheet. The euro traded at $1.1210, after having hit a seven-month high of $1.1296.

European shares opened lower on Thursday, following falls in major indices in Asia.

As we expect a deal to be reached eventually (although most likely not until very close to the deadline whenever it precisely is), the US Treasury will likely begin to rebuild its cash buffer (which US Treasury aims at USD150-450bn) in late Q3 or in the beginning of Q4 this year, thus draining dollars from the system.

The U.S. Federal Reserve raised interest rates by a notch as expected on Wednesday and indicated further tightening before the end of the year.

Years of tepid economic recovery have Fed Chair Janet Yellen and other central bankers considering what was once unthinkable: abandoning decades-long efforts to hold inflation down and allowing price expectations to creep up.

A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its September 19-20 policy meeting.

"Investors believe that it is going to take the Fed some time to confirm that inflation is strong enough to raise rates again, and in the meantime, the Fed is going to start reducing its balance sheet at a gradual pace", said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo. The rest of them said it would make such a move at its December 12-13 meeting. Sterling weakened 0.3 percent to $1.2717 before a Bank of England policy decision expected to leave interest rates at record lows.

"In this climate, there are no incentives to buy the dollar", she said. The dollar index had fallen to as low as 96.323 on Wednesday, having shed almost six percent on the year, before bouncing back a tad on the Fed's policy tightening.

Spot gold fell 0.5 percent to $1,254.05 an ounce by 2:56 p.m. EDT (1856 GMT), after touching $1,251.18, the weakest since May 24.

The New Zealand dollar slipped 0.3 per cent to $0.7243 after touching a low of $0.7234, moving away from the previous session's four-month high of $0.7319.

It also lost ground to sterling after United Kingdom inflation data surprised on the high side and amid reports Britain's ruling Conservative Party was likely to sign a deal on Wednesday to form a minority government.

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