Dollar Hits Speed Bump in Fed-Driven Rally; Bonds Stem Declines

Commentary, News
  • Euro rises versus greenback after falling to lowest since 2003
  • European stocks drop from 11-month high, gold advances

The dollar’s advance stalled as the dust settled on a new financial-market landscape created by the Federal Reserve’s shift to a tighter policy path in 2017.

The greenback fell against the euro after touching the highest since 2003 on Thursday while stocks rose. Treasuries stemmed six days of declines underpinned by the Fed’s more hawkish outlook for interest-rate increases next year. Gold trimmed its sixth weekly drop, and copper fell.

The moves mark a step back after a dramatic week in which the U.S. central bank unveiled its outlook for an accelerated series of rate increases in 2017. That steeper path comes as President-elect Donald Trump prepares a spending agenda that may fuel fast growth and inflation in the world’s biggest economy. Volumes are expected to thin in coming weeks as traders close positions before the December holiday season and end of the year.

“Today’s move is a minor correction,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “We could easily head a bit lower until the end of the year, but all the arguments are on the dollar’s side. Interest rate expectations in the U.S. show the Fed has regained most of its credibility and the market is now convinced there will be an aggressive rate-hiking cycle.”

Currencies

  • The dollar slipped 0.4 percent to $1.04526 per euro as of 7:09 a.m. in New York. It reached $1.0367 on Thursday, its strongest level since January 2003.
  • The yen was little changed, set for a slump in the week of 2.4 percent, its sixth straight weekly drop.

Stocks

  • Euro Stoxx 50 advanced as much as 0.8 percent to highest level since December 2015 and erasing 2016 drop.
  • The Stoxx Europe 600 Index added 0.3 percent; still down 1.8% on the year.
  • Actelion Ltd. jumped 8 percent, after people with knowledge of the matter said Sanofi is in talks to acquire the Swiss drugmaker.
  • Rentokil Initial Plc rose 6.2 percent after forming a joint venture with Franz Haniel & Cie. for its workwear and hygiene businesses in central and eastern Europe.
  • The expiration of some futures and options on stocks and indexes Friday, known as triple witching, may add to stock volatility and trading volume in European markets.

Bonds

  • The yield on 10-year Treasury notes fell four basis points to 2.56 percent, the first time it has fallen in seven days. Borrowing costs for U.S. debt due in a decade touched the highest level since September 2014 on Thursday.
  • German’s 10-year yield fell five basis points to 0.31 percent.

Commodities

  • West Texas Intermediate crude gained 0.3 percent to $50.06, and gold for immediate delivery added 0.6 percent to $1,135.09 an ounce.
  • Copper headed for the biggest weekly drop since August after stockpiles tracked by the London Metal Exchange jumped the most since 1970 in the period.

Read this article in its original format at Bloomberg.com


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