The US dollar rose sharply against a basket of currencies on Wednesday after the Federal Reserve signalled an interest rate hike could happen as soon as next month, while stocks on Wall Street fell despite a rally in bank shares.
The Fed will likely raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from the US central bank’s April policy meeting.
Earlier this week, markets had priced in one interest rate hike from the Fed likely late in the year. This week’s US inflation data and a more hawkish tone from several Fed policymakers led analysts to now see the Fed more willing to tighten monetary policy, as confirmed by the minutes.
Markets see the likelihood of an interest rate rise in July at 50 per cent, up from 33 per cent on Tuesday, according to the CME FedWatch tool. The June likelihood sits at 34 per cent, up from 15 pe rcent.
Bank stocks
Bank stocks, seen benefiting from higher interest rates, led gains on Wall Street, while the high-dividend paying stocks such as utilities and consumer staples weighed on the S&P 500 the most.
The Dow Jones industrial average fell 100.66 points, or 0.57 per cent, to 17,429.32, the S&P 500 lost 11.44 points, or 0.56 per cent, to 2,035.77 and the Nasdaq Composite dropped 8.46 points, or 0.18 per cent, to 4,707.28.
Banks also led European stocks higher. The pan-European FTSEurofirst 300 index ended up 0.82 per cent, while MSCI’s gauge of stocks across the globe fell 0.64 percent as Wall Street sharply cut gains after the Fed minutes.
The dollar index, which measures the greenback against a basket of currencies, rallied to a session high after the minutes. It was last up 0.60 per cent.
