US dollar weakens on doubts over interest rate hikes
Wednesday, June 18, 2008
THE US dollar weakened and US Treasury yields fell yesterday as investors reconsidered whether central banks, including the Federal Reserve, will raise rates this year.
European stocks gained on the mood as well as on hopes for solid earnings from Goldman Sachs. Wall Street futures pointed to a flat to positive start.
The Financial Times, Wall Street Journal and Washington Post have run articles this week suggesting senior Fed officials were questioning the market's pricing of aggressive US interest rate increases to curb inflation.
"It appears that there's a coordinated effort from the Fed to get the message across it's not engaging on a tightening cycle at the moment," said Nicola Chadwick, international economist at CBA.
However, the US dollar trimmed some losses against the euro and Bund futures rose in European trade after European Central Bank executive board member Lorenzo Bini Smaghi said a quarter-point euro zone rate hike should suffice to bring inflation below the bank's 2 per cent target.
The ECB has signalled it will probably raise rates next month, but markets have also priced in further tightening later this year from the current 4 per cent.
Rate rise expectations were further depressed by the Bank of England even after reports of UK inflation rising to 3.3 per cent in May.
In a letter to the government explaining the number, the UK central bank said while inflation could yet spike above 4 per cent this year on soaring food and fuel bills, the focus was on bringing inflation back to the 2 per cent target in two years' time.
The euro rose 0.2 per cent against the US dollar to US$1.5491. The US dollar was flat to lower against a basket of major currencies.
European stock prices firmed as investors grew more comfortable ahead of second-quarter earnings from US investment bank Goldman Sachs.
The FTSEurofirst 300 index of top European shares was up 0.9 per cent and Britain's FTSE 100 was up 1.8 per cent.
The MSCI index of stocks in the Asia-Pacific region outside of Japan also rose three-quarters of a per cent.
However, China's main stock index tumbled nearly 3 per cent to a 15-month closing low because of concern about domestic inflation and the market's ability to absorb fresh supplies of equity.Reuters
European stocks gained on the mood as well as on hopes for solid earnings from Goldman Sachs. Wall Street futures pointed to a flat to positive start.
The Financial Times, Wall Street Journal and Washington Post have run articles this week suggesting senior Fed officials were questioning the market's pricing of aggressive US interest rate increases to curb inflation.
"It appears that there's a coordinated effort from the Fed to get the message across it's not engaging on a tightening cycle at the moment," said Nicola Chadwick, international economist at CBA.
However, the US dollar trimmed some losses against the euro and Bund futures rose in European trade after European Central Bank executive board member Lorenzo Bini Smaghi said a quarter-point euro zone rate hike should suffice to bring inflation below the bank's 2 per cent target.
The ECB has signalled it will probably raise rates next month, but markets have also priced in further tightening later this year from the current 4 per cent.
Rate rise expectations were further depressed by the Bank of England even after reports of UK inflation rising to 3.3 per cent in May.
In a letter to the government explaining the number, the UK central bank said while inflation could yet spike above 4 per cent this year on soaring food and fuel bills, the focus was on bringing inflation back to the 2 per cent target in two years' time.
The euro rose 0.2 per cent against the US dollar to US$1.5491. The US dollar was flat to lower against a basket of major currencies.
European stock prices firmed as investors grew more comfortable ahead of second-quarter earnings from US investment bank Goldman Sachs.
The FTSEurofirst 300 index of top European shares was up 0.9 per cent and Britain's FTSE 100 was up 1.8 per cent.
The MSCI index of stocks in the Asia-Pacific region outside of Japan also rose three-quarters of a per cent.
However, China's main stock index tumbled nearly 3 per cent to a 15-month closing low because of concern about domestic inflation and the market's ability to absorb fresh supplies of equity.Reuters
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