Dollar Rallies on Hawkish Fed Speculation

US stocks declined while Treasuries rallied across the curve as investors remained cautious following yesterday’s terrorist attacks in Brussels.  The dollar strengthened for a fourth straight day, its longest winning streak in a month, on speculation that the Fed is closer to raising interest rates again.  CNBC’s Steve Liesman authored an article today titled “Fed Chair Yellen Has a Mini Revolt on Her Hands”.  His thesis was that four of the 17 members of the FOMC have recently publicly disagreed with the dovish guidance in last week’s policy statement and press conference.  The most recent committee member to speak out was new Philadelphia Fed President Harker, who said “it is appropriate to consider every meeting live”, including April.  Harker joins Williams, Lockhart, and Lacker who have all spoken out this week in support of a rate hike at one of the next FOMC meetings.  Liesman also mentioned Kansas City Fed President George, who was the lone dissenter at last week’s meeting.  George is the only one of the dissenters who is a voter this year, so it remains to be seen if the hawks will have enough support to make a policy change in the near term.

Today’s US economic data revealed new home sales rebounded in February off the back of strong gains in the West.  Home sales rose 2.0% to a seasonally adjusted 512,000 units, and January’s pace was revised up to 502,000 from the previously reported 494,000.  The location distribution of sales was extremely uneven, with a 38.5% gain in the West, but a 24.2% decline in the Northeast and 17.9% fall in the Midwest.  Economists attributed some of the weakness to a drop in contract signings due to bad winter weather.

All three major US stock indexes are down less than 1%, while Treasury yields and swap rates are down 2-6 bps across the curve.  Gold and crude are down 2% and 3%, respectively.

The US bond market closes early tomorrow at 2pm Eastern and is fully closed on Friday in honor of Good Friday.