Dollar rises on USA fiscal hopes, hawkish Yellen

Federal Reserve Bank of Chicago President Charles Evans speaks during a meeting in Madrid Spain

The euro EUR=EBS slipped 0.5 percent to $1.1740 in early trades, its lowest level since August 23.

(Kitco News) - The recent retreat in gold prices probably is not over, with the Federal Reserve sending a message to markets that policymakers are not done hiking interest rates just yet, analysts said.

"We should be wary of moving too gradually", Yellen said in a speech to the National Association for Business Economics meeting in Cleveland. The Euro remained under a bit of pressure but EUR/USD was above the 5-week low hit Tuesday when investors anxious about more fractured European politics in the wake of Germany's election.

The US dollar index posted a rise by 0.40 percent to 93.04 at 18.20 GMT. The retreat follows back-to-back session gains on the heels of tensions between the US and North Korea.

The greenback is also benefiting from talk that United States tax reform announcements are imminent.

Republicans in the U.S. Congress and the White House called for slashing tax rates on businesses and the wealthy on Wednesday, as part of a new tax plan that offers few details about how to pay for tax cuts without expanding the federal deficit.

There were those who argued - like New York Fed president William Dudley - that normalisation should go ahead because the current low inflation environment is due to "temporary, idiosyncratic factors".

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The U.S. Dollar rose on Yellen's statements and U.S. interest rate futures prices dipped further to price in about 70 percent chance of a rate hike by December compared to near 60 percent on Monday.

Overall, Yellen still expects inflation to move toward the 2% target over the medium term, but there is no timeframe for this and the slower pace will not cause the Fed to stray from further normalizing its policy stance. He thinks President Donald Trump wants a "reformer" heading up the central bank.

Gold is highly sensitive to rising US interest rates, as they increase the opportunity cost of holding non-yielding bullion versus the dollar.

Both policymakers nodded to the three devastating hurricanes that have struck parts of the USA south and the Caribbean, noting their effects will likely make it more hard to interpret economic data in coming months. The S&P 500 added 8.07 points, or 0.32 percent, to 2,504.91. The euro was at $1.1756-1757, down from $1.1812-1813, and at ¥132.48-49, up from ¥132.01-02. German 10-year benchmark yields rose 6 basis points to 0.47 percent.

The aussie extended its losses for the third day reaching a six-week low of $0.7835 on the back of a stronger dollar and decreasing metal prices.

In oil markets, Brent crude traded at around $58.23 a barrel on Wednesday morning, down 0.36 percent, while US crude was flat at $51.89 a barrel.

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