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Dollar surges on prospect of more Fed rate hikes

Last Updated Dec 15, 2016 at 6:20 am PDT

A woman walks past an electronic board showing Hong Kong share index outside a local bank in Hong Kong, Thursday, Dec. 15 2016. Shares bounced in and out of negative territory in Asia on Thursday after the Federal Reserve raised interest rates overnight. The quarter percentage point rate increase, the second in a decade, was widely expected although investors were surprised to see the Fed project three more increases for 2017. (AP Photo/Vincent Yu)

LONDON – The dollar surged to near-14 year highs against the euro Thursday after the Federal Reserve raised interest rates for the first time in a year and indicated that there could be another three next year.

DOLLAR SURGES: The U.S. currency has been rising across the board in the wake of the Fed’s statement on Wednesday, which saw the central bank raise its main interest rate by a quarter percentage point to a range of 0.50 per cent to 0.75 per cent. The advance came after the Fed indicated three more rate hikes next year instead of two. That means potential returns on dollar holdings will be even higher. As a result, the euro fell to a low of $1.0395. That’s the first time it’s fallen below $1.04 since early 2003 when the U.S. was readying for an invasion of Iraq. Elsewhere, the dollar was up 0.1 per cent at 117.78 yen while the British pound fell 0.4 per cent to $1.2473.

ANALYST TAKE: “What is more important, though, is that despite the Fed signalling a desire to raise interest rates at a faster pace, there was no panic in the markets, which shows the level of confidence investors have in the economy to handle it,” said Craig Erlam, senior market analyst at OANDA. “Rate hikes are finally seen as a positive once again rather than something that’s going to kill any rallies.”

STOCKS SOLID: That lack of panic was evident in stock markets. In Europe, Britain’s FTSE 100 was up 0.1 per cent at 6,952 while Germany’s DAX rose 0.4 per cent to 11,287. The CAC-40 in France was 0.6 per cent higher at 4,799. U.S. stocks, which had their worst day in two months after the Fed announcement, were poised for modest declines at the open with Dow futures and the broader S&P 500 futures down 0.1 per cent.

ASIA’S DAY: Japan’s Nikkei 225 index dipped and then recovered lost ground, gaining 0.1 per cent to 19,273.79. Hong Kong’s Hang Seng fell 1.8 per cent to 22,059.40 and Australia’s S&P ASX 200 dropped 0.7 per cent to 5,538.60. South Korea’s Kospi was flat at 2,036.65 and the Shanghai Composite index fell 0.7 per cent to 3,117.68. India’s Sensex added 0.1 per cent to 26,630.69.

ENERGY: Benchmark U.S. crude fell 52 cents to $50.52 a barrel on the New York Mercantile Exchange while Brent crude, the international standard, was 41 cents lower at $53.48 a barrel in London.