GLOBAL MARKETS-Dollar hits five-week low on Fed caution, Wall St sags

Fri Jul 26, 2013 11:10am EDT

* Dollar hits five-week low vs basket of currencies
    * Wall Street opens lower as profit taking sets in


    By Leah Schnurr
    NEW YORK, July 26 (Reuters) - Wall Street sagged on Friday
as a slew of corporate earnings prompted investors to take a
pause, while the dollar fell to a five-week low on speculation
the U.S. Federal Reserve will underline next week its intention
to keep interest rates low for a long time.
    Moves by Fed officials to soothe concerns about its stimulus
withdrawal plans have seen the dollar tumble this month as
equities markets have recovered.
    Last month the Fed said it expects to start slowing down the
pace of its $85 billion in bond purchases later this year. Fed
Chairman Ben Bernanke has since stressed that the timeline is
not set in stone and could change if the economic outlook
shifts, comments that soothed Wall Street and the bond market.
    Setting the greenback on its latest fall was a Wall Street
Journal report published online Thursday that the Fed may debate
tweaking its forward guidance message to hammer home its signal
that it will not be raising rates any time soon.
    Focus is now on next week's two-day policy meeting. The
dollar's slide began on July 10, when minutes of the Fed's June
meeting gave investors second thoughts about when the bank would
start reducing stimulus. 
    "Folks are just treading water. They just want to see the
big numbers next week to get some directional guidance," said
Samarjit Shankar, director of market strategy at BNY Mellon in
Boston.
    As well as the Fed's policy meeting on Tuesday and
Wednesday, next week features a round of economic indicators,
culminating in the U.S. government's report on non-farm payrolls
on Friday.
    Against a basket of currencies the dollar was down
0.4 percent. The greenback earlier hit 81.548, its lowest since
June 20 and just above chart support at 81.506 - its 200-day
moving average.
    The dollar's weakness left the euro at a five-week
high of $1.3296.
    U.S. stocks were lower about an hour after trading started
as investors took in earnings results from big names including
Amazon.com and Starbucks. 
    With the S&P 500 up about 18 percent for the year, Friday
also provided an opportunity for some minor profit taking.
    For the week, the S&P is down about 0.5 percent, its first
down week in five, but the benchmark is up 4.7 percent so far
this month, its best month since January. The Nasdaq is up 5.5
percent for July so far, its best monthly gain in a year and
half.
    "There were two days this week, Tuesday and Wednesday when
we came strikingly close to the 1,700 (on the S&P 500) but
didn't quite move up. There is profit taking here and there as
we face this resistance," said Randy Frederick, director of
derivatives at the Schwab Center for Financial Research in
Cincinnatio, Ohio.
    The Dow Jones industrial average slipped 92.00
points, or 0.59 percent, to 15,463.61. The Standard & Poor's 500
Index fell 8.30 points, or 0.49 percent, to 1,681.95. The
Nasdaq Composite Index was off 11.28 points, or 0.31
percent, to 3,593.91. 
       
 
 
    SUPER MARIO
    The pan-regional FTSEurofirst 300 fell 0.2 percent
and was facing the prospect of its first weekly drop in over a
month. World stocks slipped 0.3 percent.  
    Nevertheless, it was a milestone day for Europe, marking one
year since ECB President Mario Draghi's "Whatever it takes"
speech that turned the tide in the euro zone debt crisis.
    Italy and Spain have seen their 2-year bond yields fall from
5 and 6.4 percent, respectively, before Draghi's speech to under
2 percent, saving them immense amounts in interest payments.
   "Draghi's speech was a real game changer. Investors'
perception of the euro zone dramatically changed, and many
people stopped shorting Europe. The systemic fears about
Europe's debt crisis are gone," said Pierre-Yves Gauthier, head
of strategy at AlphaValue, in Paris. 
    With both the Fed and the European Central Bank meeting next
week, plus some significant political events in Europe including
Spanish prime minister Mariano Rajoy facing questions in a
corruption scandal, BNP Paribas economist Ken Wattret said
investors were likely to remain cautious. 
    "You look at the equity markets and the data in the U.S. and
Europe has been good yet we are flat, so that probably tells you
that we have had a good run and there is a bit of a pause going
on," he said.
    Gold slipped but was still on course for a third
weekly gain. Spot gold fell 0.5 percent on the day to
$1,326.70 per ounce as buyers cashed in on the day's $1,340
peak, around $150 up from the three-year low hit on June 28.