Inflation puts pressure on Fed to raise rates

US EZ Growth

US EZ Growth

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The Federal Reserve will announce its latest monetary policy decision on Wednesday, though this announcement is widely expected to keep its interest rate policy unchanged in a range of 1.5%-1.75%.

Gold slid to a four-month low as the dollar strengthened.

Miners, automakers, and technology shares led the Stoxx Europe 600 Index toward its best gain this week. U.S. Treasury yields edged lower. The government reported last Friday that wages and salaries recorded their biggest increase in 11 years in the first quarter.

A hardening in expectations for Fed rate rises contrasts with signs that other central banks are taking a lower gear on the road away from easy monetary policy.

"The market has priced the Fed for this year", David Riley, chief investment strategist at BlueBay Asset Management, said in interview with Bloomberg's Anna Edwards.

The dollar attracted attention as it turned positive for 2018 just ahead of a statement Wednesday from the Fed.

The US Federal Reserve's two-day meeting kicked off on Tuesday. The move raises questions about whether it may devalue further to counter American import tariffs.

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But the asset that's most sensitive to inflation showed little concern.

The Eurozone's GDP number is due Wednesday.

The economics calendar will bring the monthly jobs report, which should show the US economy continues to create jobs in the 10th year of the economic recovery.

Incomes rose 0.3% from the prior month, the same as February and less than the projected 0.4% gain; adjusted for taxes and inflation, disposable income was up 0.2% after a 0.1% rise.

Futures on the S&P 500 Index gained 0.1 percent.

The US dollar bought 109.80 Japanese yen, higher than 109.29 Japanese yen of the previous session.

Germany's DAX Index surged 1 percent to the highest in three months. On Tuesday, the Dow Jones Industrial Average fell 0.27 percent while the Nasdaq Composite rose 0.9 per cent.

The dollar also pushed past key levels against the Australian dollar, the Swedish crown, Swiss franc and the British pound.

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Most still believe the dollar will weaken over the medium to long term, however, with the euro and yen seen as the main beneficiaries.

Core euro zone bonds, on the other hand, have picked up demand in recent days sine a European Central Bank meeting on expectations that policymakers will adopt a relatively cautious stance.

Sterling also skidded more than half a percent, although most of the move was down to more weaker-than-expected economic news.

The recent sharp increase in United States 10-year bond rates to over 3% should be offering a cautionary tale for the Fed.

US crude fell $1.32 to settle at $67.25 a barrel, while Brent dropped $1.56 to $73.13.

That sweet spot is two percent.

To contact the reporter on this story: Todd White in Madrid at twhite2@bloomberg.net.

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