Gold hits one-month low as Fed rate hike hint drives dollar

In her first comments since the Fed last week made a decision to keep the benchmark interest rate on hold, Yellen again said gradual rate hikes will be appropriate, but she warned against “moving too gradually” and risk fueling inflation.

With little corporate or economic news to focus on, investors turned their attention to a speech by Federal Reserve Chair Janet Yellen for clues about the Fed’s thinking on interest rates.

The economy is likely to remain on a slow-growth track with subdued inflation, meaning the Federal Reserve can hold interest rates steady, St. Louis Fed President James Bullard said Wednesday. Therefore she said she’s sticking to her “gradual” approach to raising the target interest rate and was also “wary of moving too gradually”. So, a December rate hike is back on the table as the option #1 for policymakers, with multiple follow-ups in 2018.

President Donald Trump warned North Korea on Tuesday that any U.S. 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.

Republicans in the U.S. Congress and the White House called for slashing tax rates on businesses and the wealthy on Wednesday, as part of a new tax plan that offers few details about how to pay for tax cuts without expanding the federal deficit. The press conference supported the dollar, which managed to rise by nearly half a percent against the euro, reaching levels of 1.1756 euros per dollar. According to the ANZ Business Outlook survey, the September result is down from a net 18.3 percent of firms that expected general business conditions to improve over the coming year in August. With regard to the labor market, Yellen commented that there is a risk of overheating and this could lead to an inflationary problem. Market expect the EIA to report a fourth-straight weekly riseof 1.3 million barrels for crude inventories, while gasoline stockpiles are seen down by 100,000 barrels and distillates down 2.1 million barrels.

U.S. light crude futures declined by 34 cents to 51.88 dollars a barrel.

In a Treasury auction which closed Tuesday afternoon, USD26 billion in two-year notes auctioned at 1.462 percent, with 45.6 percent at high yield and a bid-to-cover of 2.88. In other safe-haven assets, yields on United States 2-year treasuries reached the highest level since October 2008 and gold dipped to a one-month low of $1,283.68 per ounce.

Asked about how long-term loan rates might respond to reductions in the Fed’s bond portfolio, Yellen cited a study that estimated that the increase in its bond holdings had lowered such rates by about 1 percentage point.

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