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Wall St mixed as Fed seen on track for June hike

05 May 2018

Volume on USA exchanges was 7.56 billion shares, compared to the 6.61 billion average over the last 20 trading days.

As speculation about interest rate rises and policy "normalisation" in the euro zone, Japan, Britain and China falls away rapidly, the U.S. Federal Reserve's now lonely monetary tightening has suddenly supercharged the dollar.

The Fed's overnight lending rate in already in a target range of 1.50-1.75 percent compared with the European Central Bank's closely watched deposit rate benchmark at minus 0.4 percent while the Bank of Japan pledges to guide short-term interest rates at minus 0.1 percent.

The Fed recognizes the recovery in growth and the rise in inflationary pressures.

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"The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labour market conditions will remain strong", it said in a statement after concluding its two-day policy meeting.

The biggest development in the statement, however, was a tweak in the Fed's language with respect to inflation.

Inflation is a growing concern as businesses are starting to raise prices.

Data published last month showed the Fed´s favourite gauge of consumer inflation had jumped in March.

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Fundamentally, concerns around twin-deficits (Current account and fiscal balance) for the United States continue to weigh on the dollar even as the pickup in inflationary pressures is proving to be beneficial (through rise in interest rate expectations).

Excluding the volatile food and energy prices, the core PCE price index rose 1.9 percent in March, also the largest increase since February 2017.

And RDQ Economics said the wording changes looked like "a signal that the Fed is not likely to react in a hawkish manner to inflation moving above 2 percent". The U.S. dollar was down to 0.9953 Swiss franc from 0.9964 Swiss franc, and it fell to 1.2830 Canadian dollars from 1.2848 Canadian dollars. Looking at US Treasury bond yields, the 10-year is now flat and yielding 2.973%.

Fed officials otherwise acknowledged recent economic developments, noting a modest slowdown in household spending in the first quarter, but also mentioning the impressive recent pace of business investment and the still-strong labor market. Singapore is not seen as being as sensitive to higher U.S. interest rates in comparison to its regional peers, which does provide some light behind why the Singapore Dollar is trading somewhat higher against the USD after the FOMC statement.

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In just two weeks the dollar has surged almost four percent against a basket of the most traded currencies, erasing all the losses it had suffered since the start of 2018 .DXY .

Wall St mixed as Fed seen on track for June hike