European markets rise as Fed loses patience

Emma Haslett
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Yellen notably left the word "patient" out of her statement last night, suggesting a rate rise is imminent (Source: Corbis)

European markets rose this morning, despite last night's indication from the US Federal Reserve that it could begin to raise interest rates over the coming months.

In a statement following a meeting of the Federal Open Markets Committee last night, Fed chief Janet Yellen dropped the word "patience" from the wording of her statement, indicating it is preparing to hike rates.

The FTSE 100 was up 0.32 per cent in early trading, while Germany's Dax rose 0.47 per cent and the Cac 40 rose 0.32 per cent.

Although the dollar fell sharply on the news last night, this morning it reversed some of its losses, climbing 0.91 per cent against the pound. A dollar is now worth 67p.

Meanwhile, the euro, which in recent days has come increasingly close to reaching parity with the dollar, climbed briefly after the statement, before falling back to $1.0669 this morning.

When will the Fed raise rates? Some analysts have argued weaker-than-expected data from the US and low oil prices could combine to further delay a rise. However, Rick Rider, chief investment officer of fundamental fixed income at BlackRock, suggested a rise will come sooner, rather than later.

We think the Fed currently has a window of opportunity to move, with stable markets, payrolls growth at extremely high levels (and momentum improving), and foreign central banks (most notably the European Central Bank and the Bank of Japan) taking the reins of policy accommodation.

We strongly suggest that Fed rate normalisation will not only be borne well by the economy, but that it may actually hold a positive impact, while keeping rates excessively accommodative almost certainly holds an increased risk for markets.

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