Hong Kong:The battered dollar rose yesterday, edging further away from a 10-month low, while Asian stocks pulled back from a two-year high as markets awaited details of a widely expected easing in US monetary policy.
Major European stock markets opened lower, with Britain's FTSE 100 down 0.3 per cent, France's CAC 40 down 0.5 per cent and Germany's DAX falling 0.4 per cent.
Federal Reserve chief Ben Bernanke cemented expectations on Friday of more US stimulus to fend off deflation, prompting a reversal of trades that had been pushing the dollar lower and most Asian stocks higher for weeks.
The prospect of the Fed pumping billions of dollars into its economy has sparked huge capital flows into high-yielding emerging markets, pushing up their currencies and prompting some countries to take steps to control the inflows from destabilising their economies. The Fed reviews policy on November 2-3.
In focus
Rising global currency tensions, pitting the developing world against the developed world, will be the focus of a meeting of Group of 20 (G20) finance leaders in South Korea, starting on Friday.
Asian stocks outside Japan, which have rallied steadily since last August, fell 1.4 per cent yesterday.
The dollar index rose 0.5 per cent, as traders covered some short-positions and as investors bet the Fed would be successful in generating more inflation. The index is still down more than 6 per cent following a sell-off from a September high.
"Expectations of QE2 are fully priced in for November or December. Questions remain exactly on the extent of that QE2," said Sue Trinh, senior currency strategist at Royal Bank of Canada, referring to a second round of quantitative easing.
"Overall, with the downside and the bad news pretty much fully factored in for the US dollar, the risk is towards more of a dollar squeeze, especially given how skewed positioning is ultimately," Trinh added.
Japan's Nikkei average pared all its gains to close flat, pressured by the yen, which stayed near a 15-year high against the dollar, and as investors turned cautious ahead of US banks reporting earnings.
The US earnings season picks up steam this week, with 109 S&P 500 companies and 11 Dow components scheduled to report results, with investors closely watching for corporate profitability to sustain the recent rally in stocks.
Among the companies scheduled to report later yesterday were Citigroup, IBM and Apple.
The greenback extended a rebound that started late last week, with the euro retreating further from an eight-month high and the Australian dollar backing off from Friday's peak above parity that was the highest since it was floated in 1983.
