Yellen's case for rate hike boosts dollar, stocks surrender gains
U.S. equities gave up early gains on Friday, hurt by a surging U.S. dollar after Federal Reserve Chair Janet Yellen said that the case for raising U.S. interest rates has strengthened in recent months.
European stocks advanced, however, while oil and Treasury prices came off highs as investors across asset classes parsed the details of Yellen`s presentation, markets` central focus of the week.
In her much-awaited speech during an international gathering of central bankers in Jackson Hole, Wyoming, Yellen did not indicate when the U.S. might hike rates, but her comments reinforced the view that such a move could come later this year. The Fed has policy meetings scheduled in September, November and December.
"The dollar`s reaction was almost instantaneous - it rallied pretty quickly off her hawkish comments," said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.
"The overall takeaway, not just from Yellen but for the week, is that all the Fed officials - the voter and no-voter alike - have all taken a hawkish bent. The only downside I see is that there are only three meetings left this year and time is running out. Given the Fed`s history, it`s difficult to see them hiking more than once this year."
The greenback hit 1-week highs against the euro and yen and was last up 0.5 percent at $95.232 versus a basket of major currencies.
Recent comments from other Fed officials have raised expectations of a U.S. rate hike this year, though markets are not fully pricing one in until 2017.
On Thursday, San Francisco Fed President John Williams and Kansas City Fed President Esther George defended the need to raise rates, albeit gradually, to keep the U.S. economy from overheating.
With the dollar`s advance, oil prices turned marginally lower despite reports of Yemeni missiles hitting Saudi Arabia`s oil facilities.
Brent crude futures was trading at $49.58 a barrel. West Texas Intermediate (WTI) crude dipped slightly to $47.31 per barrel.
The Dow Jones industrial average fell 75.4 points, or 0.41 percent, to 18,373.01, the S&P 500 lost 6.11 points, or 0.28 percent, to 2,166.36 and the Nasdaq Composite dropped 11.83 points, or 0.23 percent, to 5,200.38nL3N1B7485]
European stocks closed higher with a late boost from Yellen`s remarks. The pan-European STOXX 600 closed up 0.56 percent.
Euro zone government bond yields, including Germany`s 10-year bond, fell after Yellen remained vague on timing and were down overall on the day.
U.S. Treasuries extended price gains as investors saw the Fed as unlikely to raise rates at its September meeting, with yields on the 30-year bonds falling to 2.22 percent.
(Additional reporting by Atul Prakash, Dhara Ranasinghe and Abhinav Ramnarayan in London, Jason Lange and Ann Saphir in Jackson Hole, Gertrude Chavez-Dreyfuss and Devika Krishna Kumar in New York; Editing by Nick Zieminski)