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Dollar rallies/gold falls on back of Fed’s ‘happy’ hike

The dollar surged this morning on the back of only the second Fed rate rise since the 2008 financial crisis.



As largely expected, the Fed increased rates by 25bps on Wednesday to a target range of 0.5-0.75%, while hinting of a further three hikes in 2017.

Against other currencies, the Dollar Index (DXY) climbed to as high as 102.58 early this morning, according to Bloomberg, which represents its highest point since 2003.

However, this has not been good news for gold miners – the precious metal hit a 10-month low at $1,242 an ounce bringing down shares in Fresnillo and Randgold Resources, and thus also meaning the FTSE 100 has traded lower today.

Commentators have today been comparing the potential effectiveness of this latest rate hike versus the last one a year ago.

“With the backdrop of strong economic data and record market highs, I’d call it a ‘happy hike’ in comparison to the grim backdrop of the 2015 increase,” said Thanos Bardas, head on interest rates and sovereigns, global investment grade fixed income, at Neuberger Berman.  

“The Fed is pleased about economic progress, the potential for rate normalisation and a narrowing of its expectations gap with the market.

“Although delayed from earliest expectations, the rate hike comes a bit earlier than normal in relation to the tepid jobs market.

“And it hasn’t been forced by inflation trends, as the 10-year US breakeven inflation rate remains below 2.5% (equivalent to the Fed’s 2.0% implied inflation target).”