Dollar Slides, Bonds Trim Declines on Rate Bets: Markets Wrap

  • S&P 500 in first two-day slide since January after record
  • Dollar falls after five-day rally, 10-year near 2.5 percent

Will Fed's Yellen Settle the March Rate Hike Debate?

The dollar fell, while stocks erased losses after Janet Yellen said the Federal Reserve has not fallen behind with its monetary policy even as she signaled rates were “likely” to rise at its March meeting.

The dollar halted a five-day rally with its biggest drop since January as the Fed chair did little to alter perceptions for the pace of future tightening. Gold futures edged higher in late trading. The S&P 500 Index narrowly averted its first two-day slide since January and the Dow Jones Industrial Average ended the week above 21,000. The yield on the 10-year Treasury was little changed after falling back below 2.5 percent.

While the Fed chair joined a chorus of officials suggesting growth remains on track to warrant tighter monetary policy -- statements that this week have pushed U.S. equities to records, sparked a rally in the dollar and sent bonds tumbling -- Yellen tempered the hawkish tone.

“I currently see no evidence that the Federal Reserve has fallen behind the curve, and I therefore continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate,” Yellen said Friday.

A March 10 employment report is the most significant data standing between officials and decision day, and the central bank will get a Consumer Price Index inflation reading the day of the decision. While officials have moved forward market expectations for a hike, they have done little to signal that the pace of tightening will quicken.

“The March Fed meeting is no longer ‘live’ -- it is alive,” Quincy Krosby, market strategist at Prudential Financial, wrote in a note to clients. Yellen confirmed economic conditions “have met the Federal Reserve’s duel mandate,” she said. “Yellen has passed the baton of monetary policy underpinning the economy and by extension the markets, to the fiscal policy agenda as outlined by the Trump administration.”

Read our Markets Live blog this week.

Here are the main moves in markets:

Stocks

  • The S&P 500 rose less than one point to 2,382.86 at 4 p.m. in New York, climbing back from losses that reached 0.3 percent. The index added 0.7 percent in the week.
  • The Dow Jones Industrial Average rose 2.53 points to 21,005.50. The index crossed the round-number milestone for the first time on Wednesday.
  • Small caps in the Russell 2000 Index slid 0.1 percent.
  • The Stoxx Europe 600 slipped 0.1 percent, paring its weekly gain to 1.4 percent.
  • South Korea’s Kospi Index fell 1.1 percent, the most since November, as Korean newspapers reported that China ordered travel agencies to stop selling travel packages into the country.

Currencies

  • The Bloomberg Dollar Spot Index slipped 0.7 percent after a five-day rally. The measure advanced 0.5 percent in the week.
  • The euro strengthened 1 percent to $1.0613. The pound slipped 0.1 percent, falling for a sixth day, its longest losing streak since December 2015.

Bonds

  • Treasuries extended losses to a fifth day, as 10-year yields rose one basis points to 2.48 percent. The yield ended Feb. 24 at 2.31 percent.
  • German bonds retreated as demand for safety abated on receding political risk in neighboring France. Yields on 10-year benchmarks rose four basis points to 0.36 percent after a poll that showed anti-euro presidential candidate Marine Le Pen lost her lead in the first round of voting next month.

Commodities

  • Gold settled lower for a fourth straight session, capping the biggest weekly drop since November. 
  • Futures for April delivery slipped 0.5 percent to settle at $1,226.50 an ounce in New York. Bullion fell 2.5 percent this week, the largest such loss in three months.
  • West Texas Intermediate crude added 1.1 percent to $53.16 a barrel.
  • Iron ore tumbled 3 percent, heading for the lowest close since Feb. 10.

— With assistance by Sid Verma, Jeanna Smialek, Dennis Pettit, Luzi-Ann Javier, and Mark Shenk

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