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Gold tumbles as chances rise of USA rate hike in March

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"The main theme doing the rounds this week was the increasing hawkishness of Fed members, which clearly pointed to a rate hike in March", said TreasuryOne currency dealer Andre Botha. Fed fund futures contracts were quick to price in the commentary, with the odds of a March rate hike rising to 98%, the odds of a second rate hike in September rising to 76%, and the odds of a third rate hike this year in December rising to 56%.

MSCI's global stocks index was down 0.4 percent after touching an intraday record high.

The Dow Jones Industrial Average (.DJI) rose 2.74 points, or 0.01 percent, to 21,005.71, the S&P 500 (.SPX) gained 1.2 points, or 0.05 percent, to end at 2,383.12 while the Nasdaq Composite (.IXIC) added 9.53 points, or 0.16 percent, to reach 5,870.75.

Having priced in only around a 30 per cent chance that the Fed would move this month before the Fed comments, investors moved to price in around a 68 per cent probability of a March hike, according to Reuters data. The personal consumption expenditures price index, the Fed's favored measure of inflation, rose 1.9 percent in the 12 months ending in January, almost reaching the Fed's 2 percent inflation target.

On Wednesday two other fed reserve officials including New York Fed President William Dudley and San Francisco Fed chief John Williams who both gave positive comments on the next interest rate hike.

The U.S. dollar index (.DXY) fell 0.8 percent against a basket of six major currencies as investors took profits but it was still on track for its fourth straight weekly gain.

During her speech, Yellen outlined the Fed's policy strategy for much of the past decade, since the financial crisis and Great Recession.

"A stronger US dollar, after hawkish comment from the Federal Reserve's Dudley is also offering helpful weakness in the pound and euro to boost the FTSE and DAX".

"The dollar and yields are moving higher as next theme of the market, the "Fed" overrides the Trump effect".

U.S. Treasury prices also ended little changed after Yellen's remarks, with the 10-year yield ending up a basis point at 2.49% and the two-year yield lower by 3 bps at 1.29%; for the week, the 10-year yield jumped by the most since mid-November, and yesterday's two-year yield of 1.32% was the highest since 2009.

The decision helped French stocks, already doing well after strong earnings reports, climb 1.7 per cent to a 15-month high.

The hardening prospect of a U.S. rate rise this month together with some disappointing manufacturing data saw the pound weaken to six-month lows against the dollar today. On Friday, the kiwi dollar was down 0.41 percent. At the same time, a key measure of inflation has risen almost to its target rate of 2 percent, a low level that Fed experts say helps the economy grow.

In commodity markets, oil prices edged up as investors took heart from strict OPEC compliance with its pledge to cut output, though evidence of increasing US production capped gains.

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