Dollar surges on prospect of more Fed rate hikes

AP News
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Posted: Dec 15, 2016 8:55 AM
Dollar surges on prospect of more Fed rate hikes

LONDON (AP) — The dollar surged to near-14 year highs against the euro Thursday after the Federal Reserve raised interest rates for the first time in a year and indicated that there could be another three next year.

DOLLAR SURGES: The U.S. currency has been rising across the board in the wake of the Fed's statement on Wednesday, which saw the central bank raise its main interest rate by a quarter percentage point to a range of 0.50 percent to 0.75 percent. The advance came after the Fed indicated three more rate hikes next year instead of two. That means potential returns on dollar holdings will be even higher. As a result, the euro fell to a low of $1.0395. That's the first time it's fallen below $1.04 since early 2003 when the U.S. was readying for an invasion of Iraq. Elsewhere, the dollar was up 0.1 percent at 117.78 yen while the British pound fell 0.4 percent to $1.2473.

ANALYST TAKE: "What is more important, though, is that despite the Fed signaling a desire to raise interest rates at a faster pace, there was no panic in the markets, which shows the level of confidence investors have in the economy to handle it," said Craig Erlam, senior market analyst at OANDA. "Rate hikes are finally seen as a positive once again rather than something that's going to kill any rallies."

STOCKS SOLID: That lack of panic was evident in stock markets. In Europe, Britain's FTSE 100 was up 0.1 percent at 6,952 while Germany's DAX rose 0.4 percent to 11,287. The CAC-40 in France was 0.6 percent higher at 4,799. U.S. stocks, which had their worst day in two months after the Fed announcement, were poised for modest declines at the open with Dow futures and the broader S&P 500 futures down 0.1 percent.

ASIA'S DAY: Japan's Nikkei 225 index dipped and then recovered lost ground, gaining 0.1 percent to 19,273.79. Hong Kong's Hang Seng fell 1.8 percent to 22,059.40 and Australia's S&P ASX 200 dropped 0.7 percent to 5,538.60. South Korea's Kospi was flat at 2,036.65 and the Shanghai Composite index fell 0.7 percent to 3,117.68. India's Sensex added 0.1 percent to 26,630.69.

ENERGY: Benchmark U.S. crude fell 52 cents to $50.52 a barrel on the New York Mercantile Exchange while Brent crude, the international standard, was 41 cents lower at $53.48 a barrel in London.