Dollar gains on lower rate cut expectations, stocks flat

NEW YORK (Reuters) - The dollar edged higher and European shares fell on Wednesday as traders curbed expectations of an aggressive U.S. interest rate cut in July, while Wall Street traded little changed on mixed signals over China-U.S. trade talks at the G20 summit in Japan.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 4, 2019. REUTERS/Brendan McDermid/File Photo

Gold fell about 1% a day after Federal Reserve Chairman Jerome Powell said the U.S. central bank is “insulated from short-term political pressures,” suggesting policymakers would not bow to President Donald Trump’s call to sharply cut rates.

Trump said Powell was doing a “bad job” and he urged the Fed to lower rates so that U.S. exports can compete with countries that he said are devaluing their currencies.

A pullback in the Japanese yen and Swiss franc was limited amid doubts the U.S.-China trade spat will be resolved soon. Bidding for both safe-haven currencies persisted amid tensions between Iran and the United States.

“Our expectation is that there will be some sort of trade truce or some goodwill signs coming out of the G20 meetings” between Trump and Chinese President Xi Jinping, said David Kelly, chief global strategist at JPMorgan Funds.

“But neither side is ready to end the war,” Kelly said, predicting trade tensions would linger until the U.S. presidential election in November 2020.

Earlier Wednesday, Trump told Fox Business Network he would impose additional duties on Chinese imports if he does not clinch a deal with Xi.

MSCI’s gauge of stocks across the globe shed 0.2% and the FTSEurofirst 300 index of leading European shares closed down 0.3%.

U.S. stocks rose through much of the session, but Wall Street gave back gains and the benchmark S&P 500 and Dow industrials closed lower.

The Dow Jones Industrial Average fell 11.4 points, or 0.04%, to 26,536.82. The S&P 500 lost 3.6 points, or 0.12%, to 2,913.78 and the Nasdaq Composite added 25.25 points, or 0.32%, to 7,909.97.

Gold dipped, snapping a six-session streak of gains. Prices hit a six-year peak of $1,438.63 on Tuesday, mostly on expectations the Fed would cut rates.

U.S. gold futures settled 0.2% lower to $1,415.40, but remained above $1,400.

The Fed is still on target to cut rates in July but that will not spur the economy, Kelly said.

“If they start to cut rates it will not boost economic growth and very likely it’s the start of serious cuts, not just one,” he said.

Bitcoin jumped to an 18-month high, as investors looked for alternative investments amid geopolitical tension, and cheered prospects that Facebook Inc’s Libra token could push cryptocurrencies into the mainstream.The greenback traded at break-even against the euro at $1.1365, and the dollar index edged up 0.09%.

The Japanese yen weakened 0.58% versus the greenback at 107.79 per dollar.

The benchmark 10-year U.S. Treasury note fell 16/32 in price to lift its yield to 2.0485%.

Germany’s 10-year bond yield nudged off record lows, with the Bund yielding minus 0.306%, just above record lows hit Tuesday at almost minus 0.34%.

Oil prices rose more than 2%, buoyed by U.S. government data that showed a much larger-than-expected drawdown in U.S. crude inventories and surprise drops in refined product stockpiles.

Brent crude futures settled up $1.44 at $66.49 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose $1.55 to settle at $59.38 a barrel.

Reporting by Herbert Lash; Editing by Susan Thomas and Lisa Shumaker