18 August, 2017
LONDON, Aug 17 (Reuters) - Most euro zone government bond yields fell on Thursday, tracking an earlier move in U.S. Treasuries after minutes of the Federal Reserve's last meeting showed some policymakers called for halting interest rate hikes until inflation improves.
USA shares were set to follow suit, extending losses a day after a similarly downbeat message in minutes from the Federal Reserve, where some policymakers cautioned against rate rises while US inflation remained weak.
Spot gold reversed course and added 0.8 per cent to $1,281.23 an ounce as the dollar fell and investors turned back to safe haven assets.
"Many participants, however, saw some likelihood that inflation might remain below two percent for longer than they now expected, and several indicated that risks to the inflation outlook could be tilted to the downside", the minutes said.
The Japanese yen strengthened against the dollar as Fed rate hike expectations faded and data showed Japanese exports rose for an eighth straight month in July amid strong demand in China.
Others, however, cautioned that such a delay could cause an eventual overshooting in inflation given a tightening labour market "that would likely be costly to reverse".
Fed funds futures prices show traders see just a 42 percent chance of an interest rate increase by year-end and now see a marginal chance of a rate cut, according to CME Group's FedWatch tool.
"On the other hand, we do have to take into account that we have had weak readings on inflation", Mester added.
Amid steady job creation and the falling jobless rate, the Fed has dismissed weak price pressures, blaming them on one-off "transitory" and "idiosyncratic" factors, such as falling mobile phone plan and medication prices.
Wall Street was set to open lower on Thursday as minutes from the Federal Reserve's July meeting showed growing concerns over weak inflation, while investors anxious about President Donald Trump's ability to pursue his pro-growth policies.
Northey said he expects the Fed to signal it will begin reducing its $4.2 trillion bond holdings in September and sees a "high probability" they will raise US interest rates in December.
The dollar (.DXY) was weaker against a basket of currencies.
European markets also pushed higher on Wednesday to extend their recovery to a third straight session as exporters got a boost from a weaker euro and encouraging Eurozone GDP and United Kingdom unemployment data.
Fed policymakers at last month's meeting also cast a keener light on financial stability and agreed it was important to look for signs of declining market volatility or concentration of investors in particular assets.
The minutes indicated the Fed could announce "relatively soon" the start of efforts to reduce the central bank's multi-trillion-dollar investment holdings.
Several policymakers were prepared to announce a start date last month, but the Fed chose to wait as "most preferred to defer that decision until an upcoming meeting".
Officials have been priming markets for a probable move at their next policy meeting on September 19 and 20.
