Hong Kong's central bank raises base rate by 25 basis points

Xavier Trudeau
Mars 19, 2017

In early Asian trading on Friday, Tokyo's Nikkei 225 was 0.5 per cent down to 19,494.1, and Sydney's S&P/ASX 200 added 0.2 per cent to 5,841.6. That cooled speculation among some investors that the Fed could move more aggressively. "The Fed chair had reiterated that the committee expects a "gradual increase" in rates on the back of evolving economic conditions and monetary policy "remains accommodative" at present".

DOLLAR AT FRONTLINE: Should the Fed sound more aggressive about rate increases than the markets are anticipating, the dollar could be a big gainer as traders price in the likelihood of more interest rate hikes in coming months.

DUTCH ELECTIONS: Dutch Prime Minister Mark Rutte's party won a parliamentary election victory over anti-Islam lawmaker Geert Wilders in the year's first test for populism in Europe. U.S. President Donald Trump has repeatedly promised to declare that Beijing improperly manipulates its exchange rate, a move that could lead to trade sanctions. Wilders campaigned on pledges to close borders to migrants from Muslim nations, close mosques, ban the Quran and take the Netherlands out of the EU.

The U.S. central bank looks set to raise interest rates by a quarter of a percentage point when policymakers wrap up their two-day meeting on Wednesday.

China Unicom jumped 5.2 percent, shaking off profit drop to settle at a near one-year high.

A worrying drop in global oil prices, hoever, has cast doubt on how much Asian policymakers are likely to raise interest rates this year to maintain their premium over U.S. rates.

The strong move came after the Fed raised the target range for the federal funds rate by 25 basis points to 0.75 to 1 percent.

The move was matched by Hong Kong's central bank, as the city's currency is pegged to the USA dollar, but some commercial banks kept their best lending rates unchanged.

With the outcome of policy meetings at the U.S. Federal Reserve, the Bank of England and the Bank of Japan coupled with a Dutch election vote all due within the next 36 hours, there is no shortage of event risks in financial markets.

Stock markets in Europe and Wall Street futures eked out modest gains Wednesday ahead of an expected interest rate increase by the U.S. Federal Reserve.

CURRENCIES: The dollar slipped to 114.62 yen from 114.76 yen late Tuesday. The central bank is buying about 80 trillion yen ($700 billion) a year of Japanese government bonds to inject cash into the economy. On Wednesday, oil prices bounced after a slump in US trading fueled by oversupply concerns. Brent crude, used to price worldwide oils, added 57 cents to $52.38.

CURRENCY: The dollar weakened to 113.29 yen from Wednesday's 113.38 yen. The euro rose to $1.0633 from $1.0605.

Other reports by CampDesrEcrues

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