Dollar briefly dives below ¥113 on Fed rate forecasts

S&P 500 e-minis were up 2.75 points, or 0.12 per cent, with 53,199 contracts traded.

The ICE Dollar Index was down 0.2% (http://www.marketwatch.com/story/dollar-trades-in-narrow-band-ahead-of-crucial-day-for-currency-markets-2017-03-15) ahead of the Fed's announcement.

April gold GCJ7, +0.22% rose $2.60, or 0.2%, to $1,229.70 an ounce, which marks it highest trading level since early March. Prices hovered just below the Thursday session high, when the metal reached US$1,233.13, its highest since March 6.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

The S&P 500 Index lost 0.2 percent to 2,381.38 at 4 p.m.in NY, while the Dow Jones Industrial Average fell 16 points to 20,934.55.

The 10-year yield was at 2.5402 percent in early trade, from its last close of 2.524.

The euro got an added bonus when returns showed the anti-EU party of Geert Wilders won fewer seats than expected in Dutch elections, soothing fears that public opinion was swinging inexorably towards a break-up of the union. After the United Kingdom vote last summer to leave the European Union, investors were anxious about whether a wave of nationalism across the continent could eventually break the European union apart. The bank cited the Fed's rate hike and improved Chinese economic conditions.

The central bank yesterday raised rates by a quarter point to 0.75-1.00 per cent, nodding to the continued strength in the labour market and a pickup in inflation. Sterling, which may be at the heart of the bank's concern over inflation and would benefit from any rise in interest rates, jumped by a full cent to $1.2361 and by more than half a percent to 86.83 pence per euro. Groundbreaking for new homes rose 3% to a seasonally adjusted 1.288 million units.

European shares also rallied, with the pan-European STOXX 600 index climbing half a per cent to its highest level since December 2015 on relief over the Fed's cautious tone, as well as the Dutch election result.

"Although bulls have exploited dollar's weakness to elevate gold, gains could be limited in the longer term if the Fed readopts an aggressive stance", said Lukman Otunuga, analyst at FXTM in a Friday research note. "While the dollar sell off may last for a day or two our thinking is that buying these. dips is still a good strategy".

At German lender Commerzbank AG, currency analyst Antje Praefcke also said that "the euro seemed unimpressed" Thursday, but warned that the euro remains vulnerable because "political risks in the eurozone remain high with a view to the French elections".

  • Elsie Buchanan