Fed talk spurs dollar gains, energy weighs on stocks

Wed Mar 23, 2016 4:12pm EDT
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By Chuck Mikolajczak

NEW YORK (Reuters) - Global equity markets fell and the dollar advanced on Wednesday as hawkish comments by Federal Reserve officials put investors on guard for the possibility of more U.S. interest rate hikes this year than currently anticipated.

The dollar .DXY was up 0.47 percent against a basket of major currencies, headed towards its first weekly gain in four weeks.

Last week, U.S. central bank policymakers halved the number of rate hikes projected in 2016 to two, weakening expectations for a move at either the April or June policy meetings. Fed Chair Janet Yellen later told reporters "caution is appropriate" when it comes to raising rates.

But in the past two days, several Fed officials have expressed views that suggest an appetite for more hikes regardless of the volatility that has been the hallmark of financial markets this year.

"You can see the trade occurring, not necessarily that equities in and of themselves are worried about another quarter-point increase, but equities are worried about oil prices," said Keith Bliss, senior vice-president at Cuttone & Co in New York.

"You see the relationship as the Fed makes noises about going ahead and raising again in April, that is going to give a boost to the dollar which had been selling off, therefore higher dollar prices drag down oil prices."

The stronger dollar also dampened demand for oil, while a report showing U.S. crude stockpiles soared to record highs for a sixth straight week, and triple what analysts had expected, rekindled worries of a glut and further pressured the commodity.

Philadelphia Fed President Patrick Harker, who is not a voting member of the policy-setting Federal Open Market Committee this year, said on Tuesday the central bank should consider another rate hike as early as next month. He is scheduled to speak again at 5:30 p.m. EDT (2130 GMT) on Wednesday.   Continued...

A trader works on the floor of the New York Stock Exchange (NYSE) March 22, 2016. REUTERS/Brendan McDermid