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Markets, gold hit by Fed's rate hike

This article is more than 12 months old

US Federal Reserve signals it will lift interest rates at a faster pace going forward

Bourses across Asia slid, gold sank to a 10-month low and the greenback surged against most currencies.

The reason was not so much the US Federal Reserve's widely anticipated decision to lift its benchmark interest rate for the first time in a year and only the second time since the 2008 global financial crisis.

Rather, investors were spooked by the Fed's signalling of a faster pace of rate hikes ahead - as many as three hikes next year, when in September it had flagged only two.

The Fed on Wednesday lifted its benchmark cash rate by a quarter point to 0.5 per cent to 0.75 per cent - still historically very low.

Except for Japan, Asian bourses lost ground, partly on concerns that a massive US stimulus programme could trigger more capital outflows from Asia towards US dollar assets.

A sustained outflow not only makes US goods more expensive in this part of the world, but is also detrimental to local stock markets.

Regional markets, which had enjoyed a robust run-up in recent weeks, are now consolidating.

In Singapore, the Straits Times Index slid 0.79 per cent. Hong Kong fell 1.77 per cent, while Shanghai shed 0.73 per cent. Japan, a beneficiary of the strong greenback, rose 0.1 per cent, as a weak yen makes the country's exporters more competitive.

The greenback soared to its highest level against most currencies in nearly 14 years, gaining 3.4 per cent against the Singdollar since the US elections last month.

One US dollar could buy S$1.4388 yesterday, compared with S$1.3901 on Nov 8.

Gold sank to its lowest level in more than 10 months to US$1,131.42 an ounce as money was sucked away from commodities and into the greenback.

On Wall Street, stocks opened higher yesterday, with the Dow Jones Industrial Average up 30 points.

Depending on upcoming job and other economic data, the next US rate hike could come in March.

Some analysts see the Fed waiting until May or June, by when it is hoped new US President Donald Trump's fiscal plans will be clearer.

CIMB economist Song Seng Wun said: "If the US economy gets better, that will have positive spin-off for exports in this region.

"But this may only be more apparent in the second half of next year and depending on what fiscal policies kick in."

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