MONEY MARKETS-U.S. rate futures rise as Fed signals dovishness
By Luciana Lopez NEW YORK, Aug 22 (Reuters) - U.S. short-term interest rate futures rose on Wednesday as traders bet dovish minutes of the Federal Reserve's last policy meeting could mean more stimulus for the world's biggest economy in coming weeks. In minutes of the July 31-Aug. 1 meeting, the Fed said that "many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery." The Fed's remaining policy tools include a third round of quantitative easing in the form of large-scale bond purchases -- known as QE3 -- and lowering the interest it pays banks on excess reserves (IOER) they leave with the central bank. After the minutes were released, traders saw the first chance of the Fed hiking interest rates in September 2014, based on futures trading at CME Group Inc's Chicago Board of Trade , compared to previous expectations of a hike in July 2014. The Fed has held its target for the federal funds rate in a range of zero to 0.25 percent since December 2008. "This is a fairly surprising discussion by the Fed, probably different than the expectation," said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York. "Specifically, that many Fed officials think an asset purchase program would benefit, or boost the recovery. Continuing to lower longer term interest rates was also a surprise here. The minutes were a significant support for a QE3 package," he added. The December 2014 Eurodollar contract last traded up 8 basis points at 99.285, off slightly from a session high of 99.300. Eurodollar futures for 2016 to 2019 edged slightly higher, as well. Benchmark three-month dollar Libor fell to 0.43075 percent, its lowest level since late October, when it fixed at 0.42944 percent. The three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, eased to 0.31 percent from 0.318 percent on Tuesday. Across the Atlantic, the European Central Bank is expected to cut its refinancing rate by another 25 basis points to 0.5 percent at its next meeting on Sept. 6., according to a Reuters poll of economists. Expectations the European Central Bank will take steps to lower Spanish and Italian borrowing costs and calm the debt crisis that has driven much of the euro zone into recession has helped drive money market rates higher.
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