Monday 21:00 BST. Another round of hawkish “Fedspeak” ahead of this week’s gathering of central bankers in Jackson Hole, Wyoming, helped push up the dollar in early trade and drove shorter term Treasury yields to their highest since the day of the Brexit vote.
But those moves largely unwound in holiday-thinned trading conditions, while equity indices on both sides of the Atlantic were reined in by steep falls for oil prices after Brent’s advance last week to a 10-week high above $51 a barrel.
It was the turn of Stanley Fischer, the vice-chairman of the Federal Reserve’s Board of Governors, to grab the headlines after he delivered an upbeat assessment of the US economy, saying the US central bank was “close to meeting its targets” of full employment and price stability.
In a speech on Sunday, Mr Fischer said core inflation was within “hailing distance” of the Fed’s 2 per cent target while employment had increased “impressively” since its nadir in 2010,.
“While Mr Fischer did not comment specifically on the timing of the next Fed rate increase, a number of Fed officials recently have been keen to keep alive the view that the Open Market Committee may tighten policy this year,” said Jane Foley, senior currency strategist at Rabobank.
Last week, several Fed policymakers appeared to suggest that the markets were mispricing the risks of the central bank raising official interest rates this year and that it was still possible it could act as early as next month.
“The chances of a move in either September or December is seen to be limited and although the implied probably of a move in December is stronger, this still stands at just 51 per cent,” Ms Foley noted.
Divyang Shah, global strategist at IFR Markets, said it was likely that Mr Fischer’s optimistic tone would be echoed by Janet Yellen, Fed chair, when she speaks on Friday at the Jackson Hole symposium.
“It is unlikely that Ms Yellen and Mr Fischer would send conflicting signals and also unlikely that we will get much clarity with regards to rate guidance,” said Mr Shah.
“The market reaction to Mr Fischer likely reflects the quiet nature of the market as much as it does concerns that Ms Yellen’s speech could be more hawkish.”
Anthony Karydakis, chief economic strategist at Miller Tabak, also warned against expecting “great clarity” from Ms Yellen.
“Those who are looking for the Fed chair to offer a somewhat less vague timeframe for the next policy action may be disappointed,” he said.
“The diverse opinions held within the FOMC on the issue and the noisy tone of the high-frequency economic data limit her room to take the initiative of offering a more assertive take on the crucial timing issue; that is, September vs December, or later still.”
Nevertheless, dollar bulls initially took heart from Mr Fischer’s upbeat tone.
The US currency rose as high as ¥100.93 against the yen before easing back to stand just 0.1 per cent firmer at ¥100.31, while the euro fell to a low of $1.1272 before rallying back to $1.1319, down just a fraction on the day.
The dollar index, a measure of the currency against a basket of peers, rose as much as 0.5 per cent before drifting back to trade only marginally higher at 94.53.
The yield on the two-year Treasury note, meanwhile, climbed to 0.783 per cent, the highest since June 23, before falling back to 0.75 per cent, flat on the session.
The sharp early fall for the yen against the dollar gave a lift to Japanese equities with the Nikkei 225 rising 0.3 per cent.
But there was limited follow-through in Europe and the pan-regional Stoxx 600 ended less than 0.1 per cent higher, with the London and Frankfurt markets shedding 0.4 per cent and 0.5 per cent respectively.
Syngenta stood out with a 10.6 per cent jump after ChemChina’s bid for the Swiss chemicals group was cleared by a US watchdog.
On Wall Street, the S&P 500 slipped less than 0.1 per cent to 2,182 — leaving it 0.4 per cent short of a record closing high set a week ago.
Energy was the worst-performing equity sector on both sides of the Atlantic as oil prices were pressured by the dollar’s early strength and profit-taking after last week’s stellar gains.
Brent — which rose more than 8 per cent last week, hitting $51.22 a barrel in the process — the highest since June 10 — on Monday tumbled 3.4 per cent to settle at $49.16. US West Texas Intermediate was 3 per cent lower in late trade at $46.81.
Gold trimmed an early $9 decline to trade $4 lower at $1,337 an ounce.
For market updates and comment follow us on Twitter @FTMarkets
Get alerts on Asia when a new story is published