The dollar
shuddered to its lows for the year on Thursday as a drumbeat of hawkish
comments from major central banks signalled the era of easy money might be
coming
to an end for more than just the United States.
Support for
the dollar eroded as investors realised the U.S. Federal Reserve might not be
the only game in town when it came to higher interest rates.
In Britain,
Bank of England Governor Mark Carney surprised many by conceding a hike was
likely to be needed as the economy came closer to running at full capacity.
The Bank of
Canada went further, with two top policymakers suggesting they might tighten as
early as July.
That
followed comments earlier in the week from European Central Bank President
Mario Draghi that stimulus might need to be toned down so it does not become
more accommodative as the economy recovers.
ECB sources
tried to hose down the talk but could not stop the euro hitting a one-year high
against the U.S. dollar.
"If we
want to know what the ECB is planning, we will choose a carefully scripted
Draghi speech over anonymous sources every time," said Westpac currency
strategist Sean Callow.
"Backed
by the Eurozone's strong current account surplus and the contrast with a Fed
which could pause on rate hikes for a while, the euro looks to be on target for
$1.1500-1.1600."
On Thursday,
the single currency had already pressed on to $1.1405 having climbed three
percent in as many days.
The euro
also surged to a 16-month top on the yen as investors doubt the Bank of Japan
will be in any position to begin winding back its stimulus for a long time to
come.
The Canadian
dollar vaulted to C$1.3027, having enjoyed its biggest daily gain in three
months, while sterling rebounded to $1.2961.
Against a
basket of major currencies, the dollar sank to its lowest since October at
95.754 as volatility returned with a vengeance.
Traders at
Citi called the currency reaction "extraordinary" with turnover as
much as twice the daily average on Wednesday.
FUTURE
HEADWINDS
"Central
banks will be very cautious in their approach," said Martin Whetton, a
senior rates strategist at ANZ.
"But
once they start tightening in concert, and their bloated balance sheets start
unwinding, it is fair to say that bonds, equities, house prices and other asset
markets will face stiffer headwinds than they have for a long time."
The squall
had already driven German short-term yields to their highest in a year, while
yields on U.S. 10-year Treasuries were up 11 basis points so far this week at
2.23 percent.
Yet the
prospect of higher interest rates also bolstered banking stocks and helped the
S&P 500 score its biggest one-day percentage gain in about two months on
Wednesday.
The Dow rose
0.68 percent, while the S&P 500 gained 0.88 percent and the Nasdaq 1.43
percent.
Financials
gained further after hours as the Fed approved plans from the 34 largest U.S.
banks to use extra capital for stock buy backs and dividends.
Asia
followed on Thursday with Japan's Nikkei adding 0.45 percent and Australia
almost 1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.8 percent to its highest since May 2015.
Eurostoxx
futures gained 0.45 percent in early trade, while the FTSE added 0.54 percent.
The weaker
U.S. dollar helped boost commodities in general, with gold up 0.3 percent to
$1,252.50 an ounce. Copper, lead and zinc prices hit near three-month highs on
signs of tighter supply and optimism over Chinese demand. [MET/L]
Oil recouped
some of its recent steep losses after a weekly decrease in U.S. production
offset a surprise build in crude inventories in the world's top oil consumer.
[O/R]
On Thursday,
U.S. crude firmed 24 cents to $44.98 per barrel and Brent added 22 cents to
$47.53.
Reuters
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