* Dollar index firmer, but down from near 3-year high
* Yen dips after minister says seeks 'balance' for currency
* European shares fall on fears Fed may scale back stimulus
By Marc Jones
LONDON, May 21 The dollar firmed, gold fell and
shares slipped off five-year highs on Tuesday as investors
postioned for an update on the future of the U.S. Federal
Reserve's stimulus programme.
A slowdown in British inflation sent sterling to a 7-week
low on the view it could give the Bank of England more leeway to
support the UK economy, and the yen lost ground after a Japanese
minister rowed back on remarks suggesting the currency had
The constant drip of global central bank stimulus during the
financial crisis has pushed many financial markets to their
highest levels in years, but in recent weeks Fed officials have
started talking more openly about scaling back the bank's
That has made Wednesday's release of minutes from the
central bank's last meeting and Fed chairman Ben Bernanke's
testimony in Congress the main focus for markets waiting for the
first signs of a clear shift change in attitude.
The usually dovish Chicago policymaker Charles Evans said on
Monday that while the pickup in the U.S. jobs market continued
he was "open-minded" about slowing the bank's bond-buying, and
mentioned the idea of simply halting it.
The dollar was up 0.4 percent against a basket of
major currencies at midday in Europe, comfortably below its
recent three-year high. U.S stock futures pointed
to steady open on Wall Street.
Economists expect Bernanke to deliver a steady message on
the bank's policy when he speaks to Congress. But any hint that
it plans to scale back its support could unsettle markets.
Having hit a five-year high on Monday, top European shares
were 0.4 percent lower by 1130 GMT as traders took the
uncertainty as a cue to lock in some of the recent sharp gains.
"With the economic numbers being pretty good in the States,
there may be an easing back of QE (bond-buying stimulus) sooner
rather than later," said Berkeley Futures associate director
"The DAX and Euro STOXX 50 have moved ahead a lot more than
the UK, so in the event of any profit-taking in the U.S., the
European markets may drop just that little bit more."
If the Fed does tighten policy by slowing its bond-buying,
benchmark bond yields would be pushed up, and in the debt
market, safe-haven German Bund futures lost ground.
In Greece, 10-year yields fell below 30-year ones for the
first time in three years - popping its bond curve back into a
more normal shape in a sign that some are starting to believe
the worst may be over for the euro zone's most troubled economy.
"The perception of investors has changed," said ING
strategist Alessandro Giansanti in Amsterdam. "There has been a
change in trend in public finance policies. If the trend of
reduction in the deficit continues we cannot rule out that even
next year (Greece) can come back to the market."
YEN, METALS YO-YO
Earlier in the day, Japan's Nikkei share index crept to a
5-1/2 year high. The yen shed some of Monday's gains
after Japan's economy minister said his comments the previous
day that the government was satisfied with the level of the
currency had been misinterpreted.
A recent downward slide in precious metals also resumed.
Gold was down 1 percent at $1,376 an ounce as the
stronger dollar left it facing its eighth fall in nine sessions.
Silver dropped as much as 2.2 percent to trade near the
2-1/2-year lows hit during a 6 percent slide on Monday, when an
unidentified investor sold off a large holding.
While low inflation prospects has dulled demand for
traditional hedge gold, silver has fallen out of favour with
investors recently as demand from the solar energy sector has
also sagged and mining of the metal has increased.
"The market was caught horribly short yesterday, so there
was some buying this morning. But the dollar started to get
stronger and gold didn't manage to break above $1,400, so sales
started again," Marex Spectron head trader David Govett said.