Dollar Rise Hits Commodities as Fed Talks of Tightening
The dollar
advanced for a fifth straight session on Thursday, pressuring
commodities and Asian shares after yet another Federal Reserve official
talked up the chance of more than one increase in U.S interest rates
this year.
If the dollar can keep its footing here .DXY it will notch up the first weekly gain in a month against a basket of major currencies. [USD]
The euro eased to $1.1171 EUR, leaving it well off last week's top of $1.1342. Sterling GBP also slid to $1.4096 GBP on concerns the attacks in Brussels would aid the campaign to leave the European Union in June's "Brexit" vote.
Equity investors tend to dislike any hint of tighter U.S. policy and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.9 percent.
The resource-heavy Australian market lost 1 percent and Shanghai .SSEC 0.9 percent.
A softer yen helped Japan's Nikkei .N225 recoup its early losses and nudge up 0.1 percent, though trading house Mitsui & Co (8031.T) dived 7 percent after suffering its first ever loss.
On Wall Street the Dow .DJI ended Wednesday with a loss of 0.45 percent, while the S&P 500 .SPX eased 0.64 percent and the Nasdaq .IXIC 1.1 percent.
St.
Louis Fed President James Bullard joined a chorus of officials in
highlighting the risk of at least two rate hikes this year, with the
first perhaps as soon as April.
Markets imply only one increase and dealers suspect an orchestrated attempt by the Fed to shift that thinking.
"There is now some speculation on April, as Bullard adds to the relatively optimistic Fed rhetoric this week,"
"The
focus now turns to Fed Chair Yellen who will be speaking at the
Economic Club of New York next Tuesday, which could give further clarity
on the matter."
Yet for all the
Fed's chatter about multiple hikes, the market seemed far from
convinced. Fed fund futures simply almost zero chance of a
move in April and a rate of just 61.5 basis points by year end. The
current effective funds rate is 37 basis points.
It was also notable
that Treasury yields actually fell in response, with the 10-year
US10YT=RR back down at 1.88 percent from a high of 1.95 percent on
Wednesday.
Still, the rise in the dollar sparked profit-taking in a range of commodities from oil to gold to copper.
Oil
took a further knock when data showed crude stockpiles had risen by
three times the amount expected in the latest week. U.S. crude CLc1 fell
a further 6 cents to $39.73 a barrel, after sliding 4 percent on
Wednesday. Brent LCOc1 inched up 10 cents to $40.57. [O/R]
Gold XAU was down at $1,216.80 an ounce, after hitting its lowest since late February at $1,214.70. (Reporting by Wayne Cole; Editing by Simon Cameron-Moore)