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US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017

15 Juin 2017

A Washington Post report that US President Donald Trump was under investigation for possible obstruction of justice added to investor concern and undermined their appetite for riskier assets.

The news came just after the No. 3 Republican in the House of Representatives, Steve Scalise, was shot by a gunman angry with Trump and other Republicans.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.24, weaker than the previous day's 94.26.

The US Federal Reserve on Wednesday raised its benchmark interest rate to between 1 and 1.5 per cent and hinted at further hike this year as the Federal Open Markets Committee made a decision to tighten monetary policy despite growing concerns over weak inflation.

United Kingdom retail sales and core retail sales figures for May will be released at 09:30 BST today followed by the Bank of England's rate decision and monetary policy statement at 12:00 BST.

The yield on the benchmark 10-year Treasury, rose almost 1-1/2 basis points to 2.15 percent, the super-long 30-year bond yields climbed 1 basis point to 2.79 percent and the yield on short-term 2-year note traded 1 basis point higher at 1.35 percent by 11:10GMT. Household spending has picked up in recent months, and fixed investment by business has continued to expand. The kiwi rose to 79.69 yen from 79.47 yen and gained to 64.81 euro cents from 64.36 cents.

Concerns about slowing in the USA economy, the world's largest, also showed up in the oil market following a smaller-than-expected decline in crude stockpiles.

The 10-year US Treasuries yield had slipped to as low as 2.103 percent and last stood at 2.134 percent.

The Fed has announced that at some point this year it is likely to begin the process of gradually reducing its massive holdings of USA treasuries and mortgage backed securities, now worth $4.5 trillion.

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JANET YELLEN: We anticipate further increases this year and next year for the federal funds rate. But the central bank remained adamant that economic growth is raising moderately while inflation will start to rise to the bank's 2% target over the medium term.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace.

Fourteen of the 21 primary dealers surveyed said the Fed would announce the start of its balance sheet normalization at its September 19-20 policy meeting.

"There was a stale short of the commodity bloc and the move in the CAD has dragged them higher", said Stephen Gallo, head of European FX strategy with Bank of Montreal in London. The Federal Open Market Committee also maintained its forecast for one more rate hike this year.

"The plan is one that is consciously meant to avoid creating market strains, and to allow the market to adjust to a very gradual and predictable plan", said Fed chairwoman Janet Yellen in a press conference on Wednesday, in regard to the plan to reduce the central bank's balance sheet.

She said: "While a tighter labour market could ultimately put upward pressure on wages and prices, there is a high degree of uncertainty around the timing and the magnitude of this". It is a strong sign that the US central bank believes the economy in the country is solid.

KEEPING SCORE: Japan's Nikkei 225 stock index fell 0.2 percent to 19,838.86 and South Korea's Kospi sank 0.6 percent to 2,358.66. USA employers continue to add jobs at a steady rate.

Data showed that New Zealand's economy grew 0.5 percent in the three months to March, lower than the 0.7 percent growth forecast in a Reuters poll and well below the central bank's forecast for 0.9 percent growth.

US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017