The dollar rose to a three-week high against the yen on Monday, while bond yields surged to their highest since June and stocks sold off after senior Federal Reserve officials indicated a U.S. interest rate increase was on the cards in the near term.
In the past few months, the Fed has been rocking back and forth on whether to raise rates this year, keeping investors across the globe on tenterhooks. But on Friday, at the Fed’s yearly assembly for international central bankers in Jackson Hole, Wyoming, Fed Chair Janet Yellen gave one of the clearest indicators that a rate rise was probably round the corner.
She said as economy and the labor market improved the case for an interest rate hike has strengthened in recent months. That echoed what other senior Fed officials have been saying in the run-up to the Jackson Hole symposium.
And while she gave no hints on the time of a rise, Fed Vice Chair Stanley Fischer said Yellen’s speech was consistent with expectations for rate increases that were potential this year. Fischer said Friday’s nonfarm payrolls report for August was likely to be vital to the decision over an increase in the near term.
“Fischer confirmed the broad perspective on the Fed Open Market Committee that the market has strengthened of late and that interest rates should be raised slowly; perhaps again next month if this week’s employment report supports a rate rise,” said Stewart Richardson, chief investment officer at RMG Wealth Management.
The odds of a rise in September increased to 33 percent following the opinions, from 21 percent on Thursday, in accordance with CME Group’s FedWatch tool.
The prospects of higher U.S. interest rates found European shares lose ground. Germany’s DAX .GDAXI was 1.2 percent lower, while the blue chip Euro Stoxx 50 .STOXXE was down 0.6 percent. British markets are closed for a holiday.