LONDON: The dollar hit 6-week lows yesterday as recent weak US data cast doubt on the pace of monetary tightening, while prospects for a new reforming government in Italy and better eurozone growth boosted the bloc’s periphery.
World stocks rose to 3-1/2 week highs, helped by encouraging news on Chinese lending, but volumes were thin due to a US market holiday.
A run of weak US data, including an unexpected fall in January manufacturing output on Friday, has caused some investors to revise their expectations of how fast the Federal Reserve will scale back stimulus and tighten monetary policy.
“There’s been a very patchy data outlook for the past six weeks to two months and expectations of a rate rise from the Fed have been curtailed,” said Peter Kinsella, strategist with Commerzbank in London.
Higher-yielding emerging markets, which have suffered as US investors bring their money home in anticipation of tapering, also rose to 3-1/2 week highs.
Data at the weekend showed Chinese banks disbursed the highest volume of loans in any month in four years in January, a surge that suggests the world’s second-biggest economy may not be cooling as much as some fear.
The dollar hit a six-week low against a basket of currencies and three-week lows against the euro following recent upbeat eurozone economic readings. It edged off those lows by 1500 GMT, to 80.149 and $1.3704 per euro.
It rose against the yen after data showed Japan’s economy grew just 0.3 percent in the fourth quarter, confounding forecasts of a 0.7 percent gain.
Meanwhile, sterling’s strong rally since last week took a breather yesterday as investors booked profits after it scaled its highest peak in over five years against a trade-weighted basket of currencies earlier in the day.
Despite the drop, its bullish outlook remained intact as investors positioned for merger and acquisition inflows and growing expectations of interest rate hikes by the Bank of England (BoE).
The pound jumped two percent against the dollar last week, its best weekly performance since June, as investors brought forward expectations of when the BoE will tighten monetary policy — something highlighted by the short sterling futures.
According to RBC Capital Markets, based on the short sterling strip and the sterling overnight interbank money market rates (SONIA), the first rate hike is being priced in by February next year, compared with 15 months’ time in the middle of last week.
Those expectations remained despite weekend assurances from BoE Governor Mark Carney that a number of measures from jobs to wages have to show the economy is firing all cylinders before interest rates can be raised.
Agencies
