Federal Reserve Chair Janet Yellen, right, and European Central Bank President Mario Draghi
A dollar rally ran out of steam and moves in financial markets were generally slight ahead of a speech today by Federal Reserve Chair Janet Yellen that may shed light on the likely scale and timing of U.S. interest-
rate increases. European stocks fell for the first time this week.
The Bloomberg Dollar Spot Index snapped a four-day winning streak that was fueled by hawkish comments from Fed officials, while the Stoxx Europe 600 Index retreated from a one-week high. Fluctuations in the MSCI Asia Pacific Index over the past two weeks have been the most muted since 2012 and volatility gauges for U.S., European and Japanese equities are near their lows for the year. Crude oil traded near a one-week low following an unexpected rise in American stockpiles.
A rally that drove global equities to their highest level in a year fizzled out since the start of last week amid rising expectations the Fed will raise interest rates in 2016. Monetary tightening in the U.S. risks destabilizing financial markets as central banks in the major economies of Asia and Europe lower borrowing costs and step up stimulus to bolster growth, policies that have led to negative 10-year bond yields in Germany and Japan.
“Everybody is waiting for Yellen, and I’m not sure whether Yellen will provide the impetus all traders are looking for,” said Nicholas Teo, a strategist at KGI Fraser Securities in Singapore. “The Fed rhetoric so far has been balanced although the last two weeks we’ve seen quite hawkish comments.”
U.S. economic data yesterday are forecast to show durable goods orders rebounded in July and services output picked up this month. Gauges of business sentiment in Germany and U.K. retail sales are also scheduled, while Brazil’s Senate opens an historic impeachment trial that is expected to result in President Dilma Rousseff’s permanent ouster.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, declined less than 0.1 percent, after climbing 0.8 percent over the last four trading sessions. Fed funds futures indicate a 54 percent chance of a U.S. interest-rate hike this year, up from 36 percent at the start of August. The yen was little changed at 100.45 per dollar and South Korea’s won gained 0.6 percent.
“The market’s just trying to get through the whole event risk” of Yellen’s speech, said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “But after that, what’s driving the market is back to the search for yield and it’s good for emerging markets in general.”
Goldman Sachs Group Inc. sees the pound, the yen and the kiwi as most vulnerable to a potential surprise from Yellen’s speech at the annual monetary-policy symposium in Jackson Hole, Wyoming. Bloomberg
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