Fed tees up March rate hike as key policymaker shifts tone

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Several of Yellen's USA central bank colleagues in recent days had also put a rise at the next rate-setting meeting on March 14-15 of the committee firmly in view. The chances of the Fed raising short-term interest rates in March now sits at 90 per cent, according to market pricing, and has triggered a five-day slide in the 10-year Treasury price.

On Feb. 14, Fed chief Janet Yellen struck a somewhat hawkish tone before Congress, warning against waiting "too long".

The reality is that the current environment-whether it is low financial stress, ultra-low market volatility, good U.S. dataflow, firmer U.S. inflation, the fact the United States dollars has given up half of its post-election gains, stocks at the all-time highs, Treasury yields well off the recent highs (even after the latest move), and the fact that the global economic backdrop has improved-makes a March hike extremely "digestible".

"If Yellen's and Fischer's comments are equally optimistic as those of their colleagues, we could see that probability increase further, something that could add more fuel to the latest dollar rally, at least ahead of next week's employment report", Pissouros said.

India's February gold imports surged more than 82 percent from a year ago as consumers ramped up purchases for weddings, provisional data from consultancy GFMS showed.

On Tuesday, William Dudley, president of the Fed's NY regional bank and a close Yellen ally, said the case for raising rates had "become a lot more compelling".

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The developments sent the pound lower by 0.62 per cent to sit at $1.22 as currency traders bet that a hike will be voted through at the Fed's march monetary policy meeting.

The U.S. non-farm payrolls next Friday is another crucial factor to decide on the possibility of a March rate hike. The Atlanta Fed's revised estimate of Q1 growth inched up to 2.5% (as of February 27), based on the bank's GDPNow model - a modest improvement over the sluggish 1.9% increase in last year's Q4. Policymaker forecasts after the Fed's December 2015 rate hike pointed to four more rate hikes in 2016.

The Bank of Canada on Wednesday held steady on interest rates, citing uncertainties about the domestic economy.

But that was before some Fed officials began suggesting that the strengthening USA economy, signs of higher inflation and a surging stock market had bolstered the case for a rate hike. Brent crude, the worldwide benchmark, was up one-quarter of 1 per cent at $55.22 a barrel, while West Texas Intermediate gained 0.3 per cent to $52.75.

And inflation, which had been lagging at chronically low levels, has been edging steadily up, reflecting in part a rebound in gasoline prices and higher wages. The price index for PCE excluding food and energy also rose 1.7%, with both indices approaching the target 2% growth rate.

Despite the anticipated pickup, that pace of rate increases would still be measured by historical standards and Yellen repeated that the Fed expects to raise rates gradually, noting she sees no signs of a coming acceleration in inflation that could prompt an abrupt rise in rates that risks derailing the recovery.

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