European shares made solid progress as bank stocks jumped over 2.5 percent on the prospect of a boost to their lending profits [.EU], but the main action was elsewhere, Reuters reports.
Bond markets saw yields on short-term U.S. debt surge to the highest since 2009, sending the dollar to peaks last seen in early 2003, which in turn prompted China’s central bank to set the yuan at its weakest against the greenback in eight years.
The Fed’s anticipated policy path, and expectations that Donald Trump as U.S. president will get growth motoring, are keeping emerging markets on edge as capital gets sucked from more fragile, export-dependent economies toward dollar-based assets.
The Fed’s rate rise of 25 basis points to 0.5-0.75 percent was well flagged but investors were spooked when the “dot plots” of members’ projections showed a median of three hikes next year, up from two previously.
The Fed’s economic projections have hardly been upgraded, suggesting it could accelerate the monetary tightening even further if policymakers see firmer evidence of higher growth or inflation.
Fed fund futures <0#FF:> slid to imply an almost 50 percent chance that the Fed would raise rates three times, with two hikes fully priced in already.
Those U.S. yields rose as far as 2.63 percent, having already risen more than 0.8 of a percentage point since Trump was elected last month. The jump in 2-year Treasury paper was the biggest daily rise since early 2015 as it topped 1.29 percent.
