London: The dollar cruised to its third straight week of gains on Friday and stocks and commodity markets showed signs that they too might be able to handle another US interest rate hike in the coming months.
Traders’ risk appetite was gradually returning after a jittery few days and Wall Street was expected to rise as much as 0.3 per cent, albeit remaining on course for what would be its fourth week and longest spell in the red since 2014.
Around 1030 GMT, London’s benchmark FTSE 100 index rallied 1.3 per cent compared with Thursday’s close.
Frankfurt’s DAX 30 index won 0.9 per cent and the Paris CAC 40 jumped 1.2 per cent.
Europe’s main stock markets had slumped on Thursday, with London shedding 1.8 per cent in value, as traders reacted to concerns about a possible US rate hike next month.
Britain’s sterling meanwhile topped the weekly leaderboard of the major currencies as Brexit bets continued to fade.
The dollar, a dominant global market force for weeks now, was keeping close to two-month highs having passed both $1.12 per euro and 110 yen, buoyed by the week’s sharp jump in rate hike speculation and US Treasury yields.
“The question for traders now is whether this Fed rate hike issue is a ‘risk-on’ or a ‘risk-off’ situation,” said Saxo Bank FX strategist John Hardy.
“Our interpretation is that they want to do a June move, especially now Brexit chances seem to have dropped right off.” The Swiss franc, the largest beneficiary among currencies of the shakiness that has clouded the global economy since the 2008 financial crash, was set to close at its weakest since a dramatic revaluation in January of last year.
German Bund yields were heading for their biggest weekly rise in a month while the euro was on course for its weakest week against the revitalised pound since October.
Currencies are likely to be a topic at the G7 finance leaders’ meeting in Japan on Friday and Saturday. The meeting could expose differences on a range of issues from FX tinkering to broader fiscal and interest rate policies.
One thing seems sure, the talks are likely to spend plenty of time on the potential impact of high US rates and potentially the dollar.
New York Federal Reserve President William Dudley, a permanent voting member of the central bank’s rate-setting committee, said on Thursday there was a strong sense among Fed officials that markets were underestimating their rate hike plans.
Dudley said he was “quite pleased” investors had apparently increased bets that a rate hike would come soon.
Markets are now pricing in a 32 per cent chance of a rate hike in June, according to the CME FedWatch tool, up from 15 per cent on Tuesday. A majority now expect a rate hike at the July meeting.
“The Fed has regained the upper hand here,” strategists at Brown Brothers Harriman said. “Moreover, the response by the dollar and the interest rate markets suggest monetary policy still matters.” $50 IN SIGHT FOR OIL Continuing fears about supply outages in Canada and Nigeria bolstered crude oil even as the prospect of a higher dollar, prompted some investors to take profits after recent gains.
US crude hovered at $48.11 a barrel, up over 4 per cent for the week, while Brent crude looked to have given up on reaching $50 again as it stumbled at $48.65, up nearly 1.7 per cent for the week and 75 per cent since January.
The dollar’s weight remained on gold as it headed for its biggest weekly decline in two month.
Spot gold hovered at $1,256 in Europe after losing 2 per cent over the previous two sessions and roughly 1.5 per cent for the week. Key industrial metal, copper was also on track for a third weekly fall.
Emerging market stocks were also feeling the pressure as they managed only a minor 0.5 per cent rebound after a fourth straight week of losses. Hungary however was hoping to become the first emerging market in years later to see its credit rating lifted to investment grade.
MSCI’s broadest index of Asia-Pacific shares outside Japan ended pretty much flat on the week having seen currencies there largely bow to the dollar.
Japan’s Nikkei recovered from an early stumble to end the day up 0.5 per cent and 2 per cent on the week. Chinese shares were down for a fourth week though on nagging concerns about its economic health.
