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Asian stocks up as investors shrug off tech rout, eye Fed

14 June 2017

Under the linked exchange rate system, the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, is obliged to buy and sell U.S. dollars to prevent the currency from breaching either side of a trading band between 7.75 and 7.85.

The central bank is scheduled to release its decision at 1800 GMT on Wednesday with a news conference to follow from Chair Janet Yellen.

Soft U.S. inflation data has raised uncertainty among investors about the Federal Reserve's policy plans for the rest of the year.

To sum it up, the short answer to the question of how much would a Federal Reserve rate hike affect your next auto loan is "not much".

At this point, however, with the underlying momentum of the Fed erring toward higher rates, the hawks may simply overpower the doves at this week's discussion.

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"It's still premature to say they need to alter their policy", Rupkey said.

Inflation moved even further from the central bank's 2 per cent target in April, with the Fed's preferred inflation measure at 1.7 per cent for the latest 12 months.

Spot gold was up 0,1 percent at $1 267,49 per ounce as of 4.11am GMT, after shedding 1 percent in its biggest one-day percentage decline since May 18 in the previous session United States gold futures for August delivery fell 0,2 percent to $1 269,50.

If it goes as expected, it will be the third Fed rate hike in seven months. The Fed forecasts 2 percent for 2018 and 2019, which he expects to remain unchanged.

In order to fight back against the next recession and to build the economy with strong growth, these voices are saying that the Fed needs to revise its 2% inflation target upwards, indicating a willingness to let inflation rise higher than that. The GDP growth projection is likely to stay the same. "A not-so-good year would be one and one-half percent", McBride said. Thus, those Fed officials more concerned about the downside risks for growth and inflation going forward may be less vocal this month, waiting for further evidence of weakness before digging in their heels on policy and conceding to the notion of accumulating additional ammunition in the Fed's toolkit to eventually combat economic weakness on the back end.

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Investors fully expect a rate rise largely because Fed officials have told them to, so attention will rather be on the outlook for policy and particularly when the central bank might begin to wind down its massive portfolio of USA debt.

"[Wednesday's] universally expected hike is likely to be accompanied by fairly dovish guidance on balance that may include heightened caution toward timing the last projected hike of the year", Holt wrote in a June 8 research note.

Higher real rates are historically associated with falling commodity prices as the cost of financing energy-intensive goods rises, driving down demand, while a stronger US dollar hurts consumption in emerging-market countries.

"If the Fed is serious about reducing the size of its balance sheet this year and wishes to communicate those plans well in advance, it is running out of time to do so", said Michael Pearce, an economist with Capital Economics. "It has not been done at these levels before".

"Our baseline remains that the Fed's balance sheet adjustment will start in December, with a gradual and predictable tapering of the bank's reinvestments of maturing securities", added Nordea Bank. Get our markets daily newsletter. I know they say they're data dependent.

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