Dollar shares climbs on assumption for a U.K rate increase
LONDON: Growing expectations of the Federal Reserve raise UK interest rates this year pushed, the dollar up for a seventh time in eight days on Tuesday, stocks rose.
The dollar reached a 2 1/2-week high in against other top currencies. DXY in European trading. The pan-regional FTS Euro first rose 0.5 percent as banking and industrial stocks advanced.
Doubts remain when UK monetary policy will change, especially with an election in November. But both Fed Chair Janet Yellen and Vice Chair Stanley Fischer suggested on Friday the case for a rate increase was strengthening, and Fischer is due to speak later on Tuesday . “The market is now pricing around a 36 percent probability of a hike in September and it has moved from about 50 to 60 for December, which is considerably higher than a week ago,” said Rabobank’s UK-focused economist, Philip Marey.
“Now we are waiting for the next big thing, which is payrolls UK jobs data on Friday,” he added, saying the first batch of Q3 GDP data at the end of October would be key.
The focus on UK rates put bonds under pressue, with German Bund yields pulled up by 10-year Treasury’s rise to 1.5850 percent. The yield on Italy’s 10-year BTP bond raised 1.5 basis points to 1.13 percent before its planned sale of up to 7.75 billion euros of three bonds later. The sales will be the first major test of sentiment since Prime Minister Matteo Renzi staked his future on a referendum on parliamentary reform.
Data from German states suggested inflation was little changed in August from July and around 0.5 percent compared with a year ago, adding to the debate on whether the European Central Bank will continue to cut rates.
Bank of England figures showed lending to British consumers slowed in July, the month after Britain voted to leave the European Union. Mortgage approvals dropped to their lowest since January, although tax changes may have distorted the figures.
The Confederation of British Industry said investment plans among services firms, the largest sector of the British economy, were at their lowest in more than four years.
“Looking ahead, the service sector faces a challenging environment in which to grow and invest, with uncertainty about demand weighing on firms’ minds,” said the CBI’s head of economic analysis and surveys, Anna Leach. The signs of weakness in the economy and the uncertain outlook for UK monetary policy led sterling to slip back towards $1.30. The pound has fallen more than 1 percent against the dollar since Friday’s comments by the Fed’s Yellen and Fischer.