NEW YORK – A gauge of global equity markets dipped on Tuesday and the dollar strengthened as U.S. Federal Reserve Chair Janet Yellen struck a hawkish tone on the timing of an interest rate hike.
Yellen said in prepared remarks before the U.S. Senate Banking Committee that the central bank will likely need to raise interest rates at an upcoming meeting, although she expressed caution about the considerable economic policy uncertainty under the Trump administration.
On Wall Street, financial stocks moved higher following her remarks and were last up 0.5 percent. Utilities and real estate, which tend to weaken in a rising rate environment, extended declines and were last down 0.9 percent and 1.1 percent, respectively.
The Fed signaled in December that it expected to raise rates three times in 2017.
The dollar reversed course after Yellen’s comments and was last up 0.3 percent after touching a three-week high of 101.31 against a basket of major currencies.
“The tone is overall more hawkish than what the market had expected. The market seems to be under-pricing an upcoming rate hike,” said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange Inc. in Washington.
“This doesn’t mean they will move in March, but the Fed wants to have the option to move.”
Thomson Reuters data shows traders see a 17.7 percent chance of a 25-basis-point hike in rates at the Fed’s March meeting.
The greenback was initially under pressure following the resignation of President Donald Trump’s national security adviser, Michael Flynn, who quit over revelations he had discussed U.S. sanctions against Moscow with the Russian ambassador to the United States before Trump took office.
Yellen’s hawkish tone dovetailed with recent comments from other Fed officials.
Dallas Fed President Robert Kaplan on Monday argued the Fed should move soon to avoid falling behind the curve, especially as fiscal policy could drive faster growth and inflation. Earlier on Tuesday, Richmond Fed President Jeffrey Lacker said the central bank will likely have to raise interest rates more rapidly than financial markets currently expect.
The Dow Jones Industrial Average was up 3.29 points, or 0.02 percent, to 20,415.45, the S&P 500 lost 3.07 points, or 0.13 percent, to 2,325.18 and the Nasdaq Composite dropped 7.85 points, or 0.14 percent, to 5,756.11.
MSCI’s all-country world index lost 0.33 percent, putting it on track for its first decline in five session. Europe’s broad FTSEurofirst 300 index shed 0.05 percent to put a five-session winning streak in jeopardy.
Yields on benchmark U.S. 10-year Treasury notes jumped to 2.5004 percent, down 18/32 in price, after hitting a high of 2.502 percent.
Gold weakened in the wake of the Yellen comments as the greenback strengthened and was last down 0.1 percent to $1,223.90 an ounce.
Oil recouped some ground on OPEC-led efforts to cut output, though rising production elsewhere kept prices in a narrow range that has contained them so far this year. Brent crude was last up 1.1 percent at $56.22 and U.S. crude was 0.9 percent at $53.42 a barrel.
CHUCK MIKOLAJCZAK
