United States stocks open higher after Yellen's comments

28 September, 2017, 00:30 | Author: Pamela Mathis
  • Canary Wharf skyline

The greenback, which rose on Tuesday after Federal Reserve Chair Janet Yellen said the Fed needs to continue gradual rate hikes despite broad uncertainty about the path of inflation, added to gains on Wednesday after better-than-expected USA core capital goods data.

The Dow slid 0.1 percent to extend losses for the fourth straight session, while the S&P 500 closed marginally higher and the Nasdaq Composite edged up 0.2 percent.

The Canadian dollar weakened against its USA counterpart ahead of a speech by Bank of Canada Governor Stephen Poloz.

"A persistent undershoot of our stated 2 percent goal could undermine the Federal Open Market Committee's (FOMC) credibility, causing inflation expectations to drift and actual inflation and economic activity to become more volatile", Yellen said.

Gold is highly sensitive to rising USA interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

The greenback is also benefiting from talk that United States tax reform announcements are imminent.




If passed, the plan would be Trump's first significant legislative win since taking office in January. Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. A weaker euro - a boon for exporters - pushed European equities higher. The sharp drop in the USA dollar index supports this view, as it appears that currency speculators also called the Fed's bluff in 2017.

Cyclical sectors that had surged on the prospect of "Trumpflation" resulting from the president's pro-growth campaign pledges were the day's top gainers, with miners up 1 percent.

Dollar buying grew also on media reports that the Trump administration plans to lower the federal corporate tax rate to 20 percent from the current 35 percent, market sources said. The yellow metal could fall back into a range of between $1,250 to $1,200 an ounce, he said.

Heightened expectations that the U.S. Federal Reserve will raise interest rates again this year drove gold to a one-month low on Wednesday, extending losses after the biggest one-day loss in nearly two years during the previous session. All of this means higher bond yields and a higher dollar, Bhar explained.

Oil fell on Tuesday after investors gained profits from strong black gold at the end of last week. It traded at 80.80 yen from 80.78 yen, fell to 53.55 British pence from 53.73 pence and rose to 91.29 Australian cents from 91.17 cents.

On inflation expectations, while the Fed's central view is for longer-run inflation expectations to remain stable, "there is a risk that inflation expectations may not be as well anchored as they appear and perhaps are not consistent with our 2% goal".

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