The odds of a December rate hike in the US increased to over 90% yesterday, leading the US dollar to surge to a 13-year high against major currencies and a renewed sell-off in Treasuries.
Minutes from the Fed's November meeting said it would be appropriate to raise rates "relatively soon" reinforcing the case for a rate hike next month.
A tool created by CME Group named FedWatch started to predict a 100.2% chance of a December increase in rates, but this was soon to be found as a glitch and odds were corrected to 93.5%, with a 0.25bp rise expected.
As a result of the hawkish tone of the Federal Open Market Committee, the US dollar surged to its highest level since March 2003. Reuters reported the dollar index rose 0.6% to 101.67, after earlier soaring to an almost 14-year peak of 101.90.
It has climbed more than 3% since Donald Trump's victory in the US elections a fortnight ago.
US Treasuries began to plummet with 10-year yields climbing as much as 10bps to over 2.4% in early trading, but the debt managed to claw back some of its losses, and yields ended 4bp higher at 2.35% on the day.
During the week of the elections, bond markets across the world wiped $1trn off their market value as investors expected a boost to inflation.
Menawhile, the dollar strength also meant gold fell below $1,200/oz for the first time since February, with investors selling out of exchange-traded funds backed by the metal.
The price of the precious metal has dropped over 7% since the election of Trump, which sent the dollar soaring on hopes he would boost growth through infrastructure spending and tax cuts.
The US dollar is close to peaking and the risks now seem to be on the downside.
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