GLOBAL MARKETS-Dollar under pressure as central bank meetings loom

Mon Jul 29, 2013 8:55am EDT

* Dollar under pressure at five-week low ahead of Federal
Reserve
    * European shares boosted by M&A activity
    * Nikkei plumbs four-week lows, other Asian markets also
softer
    * Data, Fed, ECB, Bank of England meetings pose hurdles this
week

    By Marc Jones
    LONDON, July 29 (Reuters) - Expectations the Federal Reserve
will reaffirm its pledge to keep U.S. interest rates near zero
left the dollar at a five-week low on Monday, while concerns
about China's stuttering economy pressured commodity markets.
    The Federal Reserve, the European Central Bank and the Bank
of England meet this week. All are expected to repeat or refine
their "forward guidance" that borrowing costs will remain
extraordinarily low as long as growth is sub-par and inflation
poses no threat. 
    The Fed will be most closely scrutinised, having signalled
plans to begin phasing out its money-printing stimulus this
year. Most economists are eyeing a September start but markets
have scaled back views of any aggressive changes.    
    It is a shift that has seen the dollar give back
three-quarters of June's 5 percent gain and the greenback
remained under pressure as U.S trading began, having earlier hit
a five-week low against a basket of currencies and
one-month low against the yen. 
    "The dollar faces a lot of key event risk in the week ahead
with the release of the U.S. Q2 GDP report and the latest FOMC
policy meeting on Wednesday, followed by the release of the U.S.
employment report for July on Friday," said Lee Hardman,
currency strategist at Bank of Tokyo Mitsubishi.
    Wall Street was expected to open lower with falls of between
0.15-0.25 percent seen for the S&P 500 and Dow Jones
Industrial Average. 
    European share markets remained buoyant as two more giant
merger deals, this time in the media and pharmaceuticals
sectors, added to a flurry of M&A activity in recent
weeks. 
    The FTSEurofirst 300 index of top European shares
was off its peak as the U.S. open neared, but was still up 0.3
percent, with London, Frankfurt and Paris all 0.2-0.3 percent
higher.
    European shares have started to outperform those in other
major regions in recent weeks and the splurge in corporate deals
has added to signs that business confidence and economic growth
may be finally picking up after almost 18 months of recession.
    "These big M&A deals are a big boost for the market,
although the buzz is usually short-lived," said Philippe de
Vandiere, analyst at Altedia Investment Consulting in Paris.   
    
    DELICATE CHINA 
    The lower dollar helped commodities markets gradually erase
falls but both oil and copper were at or near
three-week lows. Concerns about demand weighed on crude, while
nervousness ahead of Chinese manufacturing data on Thursday hit
copper.
    With investors bracing for another round of disappointing
economic news from the world's No. 2 economy, Asian markets had
been generally weaker earlier.  
    Japan's Nikkei dropped 3.3 percent to hit a four-week low as
those jitters were compounded by a stronger yen, which is
negative for the country's exporters, and concerns that plans to
increase the country's sales tax - Japan's most significant
fiscal reform in years - could be watered down. 
  
    "A sense of caution is looming in the market, especially
because investors are worried about a slowdown in the Chinese
economy. And when they see a risk in Asia, they tend to buy the
yen, and the Japanese market is hit by that," said Kyoya
Okazawa, head of global equities at BNP Paribas.
  
    
    CENTRAL BANK CAUTION
    On Wall Street, investors may use the uncertainty over
central bank stimulus to cash in recent gains.
    With just three trading days left, the S&P 500 is set to
post its best month since October 2011. The Nasdaq's advance
makes July so far the best month in a year and a half. 
    In debt markets, euro zone periphery bonds eased but U.S.
Treasuries and German Bunds were little changed in thin trade as
investors refrained from placing big bets before this week's
monetary policy decisions and data. 
    Meanwhile, gold seen as a hedge against central bank
money-printing, shook off a subdued start, edging up to $1,333
an ounce as it extended the 11.5 percent rally it has enjoyed
since the Fed has softened its stimulus withdrawal message.
    "This week offers several opportunities to test whether the
rally can be sustained, with the central banks' meetings and the
U.S. non-farm payrolls on Friday," Saxo Bank senior manager Ole
Hansen said.