Dollar steadies as Fed minutes weigh on
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[October 18, 2018]
By Tom Finn
LONDON (Reuters) - The dollar held near a
one-week high on Thursday and stocks were mixed after minutes showing
the Federal Reserve may favor more rate hikes next year.
S&P 500 futures pointed to a softer open after a flat session on
Wednesday, while stocks in Europe resisted earlier declines in Asia to
rise on the back of strong earnings.
The 10-year Treasury yield rose to as high as 3.21 percent after minutes
showed Fed officials appeared to favor an eventual move in rates above
the level they see as neutral for the U.S. economy.
China's stock markets were hit hard in a gloomy session for Asian
equities. The yuan fell to a two-month low as the U.S. Treasury
refrained from naming China a currency manipulator, while at the same
time increasing scrutiny of Beijing's exchange-rate policy.
China's premier warned of risks to the economy from an escalating tariff
war with the United States.
European shares, though, largely shrugged off the disappointment in
Asia. Frankfurt's DAX and Paris's CAC both rose 0.3 percent and London's
FTSE traded 0.1 percent lower. A pan-European equity index rose 0.6
Minutes of the Federal Reserve's Sept. 25-26 meeting showed every Fed
policymaker backed raising interest rates last month and also generally
agreed that borrowing costs were set to rise further.
That reinforces expectations that U.S. yields will rise further despite
President Donald Trump's view that the Fed is tightening too much.
"Corporates have done incredibly well but it's clear we are going into
monetary tightening in the U.S. and that makes people worried about
global debt having gone up so much in recent years," said Peter Lowman,
CIO at Investment Quorum, a UK wealth manager.
At a time of simmering trade war tensions, "people are perhaps taking
chips off (the) table and maybe going into cash and short-dated bonds,"
Overall, third-quarter earnings for S&P 500 companies are seen growing
21.8 percent, according to I/B/E/S Refinitiv.
The greenback held on to gains on Thursday. Against a basket of its
rivals, the dollar rose for a third consecutive day, trading broadly
flat at 95.517. That checked emerging-market gains.
"The last thing emerging markets, or the U.S. yield curve or equities,
want is a reminder that U.S. rates are going to keep going up," Rabobank
analysts told clients in a note.
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A U.S. Dollar note is seen in this June 22, 2017 illustration photo.
REUTERS/Thomas White/Illustration/File Photo
The euro changed hands at $1.1518, holding steady versus the
greenback, after losing 0.65 percent on Wednesday. The euro has lost
just under 3 percent of its value versus the dollar over the last
Major currencies have shown limited reaction after the U.S.
government late on Wednesday refrained from naming China as a
In its semi-annual currency report, the U.S. Treasury Department
said a recent depreciation of China's yuan currency will likely
exacerbate the U.S. trade deficit, and U.S. officials found Beijing
appeared to be doing little to directly intervene in the currency's
"The U.S. refrained from labeling China a currency manipulator, but
dialed up the rhetoric against its currency practices," said Sue
Trinh, Head of Asia FX Strategy, RBC Capital Markets.
The yuan fell 0.2 percent to 6.9443 per dollar in offshore trade.
That is the weakest level since a 1-1/2-year low of 6.9587 touched
In Europe, an EU leaders' summit with British Prime Minister Theresa
May yielded little obvious progress on a Brexit deal being
negotiated between Britain and the bloc.
Sterling did, however, turn positive on Thursday after May confirmed
she was open to discussing an extension of the transition period
Oil steadied on Thursday as support from ongoing tensions over the
disappearance of a prominent Saudi journalist offset a big drop
overnight due to a jump in U.S. crude stockpiles.
U.S. West Texas Intermediate crude for October delivery was up 1
cent at $69.56 a barrel by 0840 GMT, after falling 3 percent in the
previous session to settle below $70 for the first time in a month.
(Additional reporting by Tomo Uetake in Tokyo; Editing by Mark
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