Yen, Franc Rise as Hawkish Fed Outlook Shift Spooks the Markets


  • Yen, Franc rise as hawkish Fed outlook shift spooks financial markets
  • Rising borrowing costs may expose pockets of QE-linked malinvestment
  • Stock index futures hint risk-off mood to persist in European, US trade

The anti-risk Japanese Yen and Swiss Franc outperformed while commodity FX – the Australian, Canadian and New Zealand Dollars – followed shares lower as swelling Fed rate hike expectations soured sentiment in Asia Pacific trade. The 2019 tightening path implied in Fed Funds futures steeped by the most in three weeks to register at its most hawkish in almost three years.

Diminishing political risk in the Eurozone marked the move’s beginning after Italybacked away from a budget fight with regional authorities in Brussels, which traders seemed to interpret as giving the US central bank more leeway to step up stimulus withdrawal. Fed Chair Jerome Powell poured fuel on the fire, saying rates may need to rise above the “neutral” level.

The markets are probably worried that a swift rise in borrowing costs will

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