U.S. dollar strengthens on rate hike hopes after Yellen's hawkish comments

US STOCKS-Wall St slips on mounting N. Korea tensions

U.S. dollar strengthens on rate hike hopes after Yellen's hawkish comments

In other safe-haven assets, yields on U.S. 2-year treasuries reached the highest level since October 2008 and gold dipped to a one-month low of $1,283.68 per ounce. With regard to the labor market, Yellen commented that there is a risk of overheating and this could lead to an inflationary problem.

The Fed's preferred gauge of inflation has retreated from the central bank's 2 percent target for much of this year and now stands at 1.4 percent.

The US Dollar index, up 0.50% just ahead of Yellen's speech, pared gains to be quoted just 0.38% higher at 93.01 a short time after the remarks were delivered.

The Republican tax plan being released Wednesday will open the door to a top individual tax rate that is higher than the 35% that has been in previous plans, according to people familiar with the discussions. With President Trump due to reveal tax reform plans, the rally may extend to the next resistance at the 94 level.

Investors also sold their holdings of government paper after Federal Reserve Chairwoman Janet Yellen on Tuesday outlined the Fed's reasoning for an additional rate increase this year. After interest rate hikes in July and September, markets will be looking for clues as to how aggressively the bank may tighten from here.

President Donald Trump warned North Korea on Tuesday that any United States military option would be "devastating" for Pyongyang, but said the use of force was not Washington's first option to deal with the country's ballistic and nuclear weapons program.

-The U.K.'s FTSE 100 index fell 0.2 percent, while Germany's DAX Index gained less than 0.1 percent.

Speaking in Cleveland, Ohio, Yellen said: "My colleagues and I may have misjudged the strength of the labour market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation".

Traders of short-term interest-rate futures see about a 76 percent chance of a December rate hike, but are betting on only one rate hike next year.

"The divergence between USA and euro zone data surprises is closing rapidly and while the once popular dollar parity forecasts still look ridiculous, the euro looks past its peak", said Sean Maher, an independent macro-strategist based in London.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent.

India's Sensex was declining 0.9 percent and benchmark indexes in Indonesia and Malaysia were down around 0.1 percent, while Singapore's Straits Times index was rising 0.9 percent and the Taiwan Weighted rose 0.7 percent. The S&P 500 added 8.07 points, or 0.32 percent, to 2,504.91.

The dollar was higher against the yen, trading at 112.34. The euro fell to $1.1788 from $1.1791.

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