GLOBAL MARKETS-Dollar at 3-year high after U.S. boost, shares gain

Mon Jul 8, 2013 8:33am EDT

* Dollar hits 3-year high vs basket, 6-week high vs yen
    * European shares gain 1.4 pct, Wall Street seen opening
higher
    * Bunds steady after Friday sell-off; Greece aid deal in
focus
    * Egyptian tensions keep oil near 3-month high

    By Marc Jones
    LONDON, July 8 (Reuters) - The dollar hit a three-year high
on Monday and gold was hovering near a three-year low after last
week's strong U.S. jobs data fanned expectations that the
country's central bank could soon start scaling back its
stimulus.
    Wall Street  was seen opening roughly 0.5
percent higher with momentum still intact after last week's
strong finish and with focus on the first flurry of Q2 company
earnings reports.  
    European shares were up 1.4 percent ahead of the Wall Street
restart as investors took comfort that while the U.S. may be
shifting out of crisis mode, the European Central Bank and Bank
of England plan to keep support firmly in place.
    The dollar's strength remained the main focus, however,
after the DXY index, which measures the greenback against
a basket of major currencies, rose to 84.588, its highest since
July 2010, before a slight slip put it back at 84.400.
    Friday's upbeat U.S. jobs data bolstered the view that the
Federal Reserve could soon start reducing its $85 billion a
month stimulus, but analysts are now wondering whether the
dollar's rise can continue at its recent pace. 
    "Clearly the dollar is on the front foot and so the question
is: can it sustain the momentum?" said Rabobank senior currency
strategist Jane Foley.
    "As it gains ground it acts as implicit monetary tightening
so that could make some of the Federal Reserve governors quite
nervous. I do think there will be plenty of opportunity to take
some profits in these dollar positions."
    Europe's broad FTSEurofirst 300 stock index was up
1.1 percent ahead of the U.S. restart, as jumps of 2.3 and 1.7
percent on Frankfurt's DAX and Paris's CAC 40 
helped it some of ground lost at the end of last week.
    Focus was also on Brussels where Greece was expected to
reach a deal over its latest aid payment at a meeting of euro
zone finance ministers later in the day, and there was relief
after weekend moves to calm Portugal's political crisis.
 
   
 
    BOND CALM    
    After last week's turmoil in Portugal and Greece and
Friday's volatility following the strong U.S. jobs data,
Europe's bond markets were largely calm, with benchmark German
Bunds steady and euro zone periphery debt all higher
 
    "I think the break above the May high for the DXY index has
reassured people that we are seeing a return to normality across
for markets after some of the pretty indiscriminate selling we
saw in June," said Nick Parsons, Global Head of Foreign Exchange
at National Australia Bank.
    "I'm encouraged by today's price action... We have got bond
yields a couple of ticks lower, we've got currencies stable
against a background of a strong dollar and we have got some
stability in equities."     
    The Fed's plans to cut back its stimulus programme as the
U.S. economy recovers has been the main driver of financial
markets over the last month, pushing up global bond yields and
triggering big swings in other asset markets.
    Gold, often favoured as a hedge against inflation which can
be a by-product of stimulus programmes, was up 1 percent at
$1,227.59 an ounce but remained near a three-year low after its
recent sharp sell-off. 
    
    EMERGING VOLATILITY
    Emerging markets have also been particularly hard hit by the
Fed's policy shift. Investors had directed much of the cheap Fed
cash into emerging assets in search of higher yields and that
trend is now reversing as investors look to increase their
exposure to the United States again. 
    The Indian rupee hit a record low on Monday, leading
declines among emerging currencies, with sentiment also bruised
by a plan by China to choke off credit in a bid to force
consolidation in industries plagued by over capacity.
    
    Elsewhere, the rising U.S. dollar nudged Brent crude oil
futures below $108 a barrel, although an escalation of political
tensions in Egypt prevented too much slippage. 
    State television said 42 people were killed on Monday in
Cairo, when the Muslim Brotherhood said shots were fired at
supporters of deposed President Mohamed Mursi near the military
building where he is being held. 
    "What's underpinning the strength in the oil market is the
tensions out of the Middle East," said Ben Le Brun, an analyst
at OptionsXpress in Sydney. "That's going to continue to put a
floor under oil prices."
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.