Economy

Dollar hits 8-week high

There was relief the weekend passed with no new provocation by North Korea, though Pyongyang's nuclear ambitions will be center stage when President Donald Trump addresses world leaders at the United Nations on Tuesday.

The Fed is seen likely to announce a plan to start shrinking its balance sheet at the meeting, but is widely expected to keep interest rates unchanged - for now. Bank of England governor Mark Carney will be speaking later on Monday.

Euro zone wages grew at their fastest rate in two years in the second quarter, data released on Friday showed, increasing the chances that the European Central Bank will set out plans next month to rein in its economic stimulus.

Yet persistently subdued inflation despite a pick-up in global growth remains the "trillion dollar" question for central banks looking to normalise policy, a report from Bank for International Settlements said on Sunday.

"The primary reason U.S. yields are creeping up is after thinking about it clearly the market has decided that the Fed is unlikely to change the December 2017 dot - still saying they expect one more rate hike in 2017", BMO's Mr Anderson said.

The dollar hit an eight-week high against the yen as data showing a pick up in US consumer prices increased bets that the Fed could raise rates again in December.

"When you press investors on the why, the standard reply is the lack of inflationary pressures". "With US yields creeping up, the dollar-yen is creeping up", said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY.

In Europe, the eye-catching move was a sharp slide in Portuguese yields - and rise in prices - after the country regained an investment grade rating after 5-1/2 years.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9 percent to reach heights not visited since late 2007.

"If early elections are confirmed in the next days, the increased domestic political uncertainty could be another factor weighing on the yen, besides the latest risk-on environment", Pissouros said.

But although the dollar has since risen sharply versus the yen, against a basket of major currencies it gained only half a percent last week.

Sterling touched its highest since the Brexit vote on Monday after notching its best week in nearly nine years against a currency basket.

That fueled expectations the BOE will raise interest rates before the end of the year, instead of sometime in 2018 as previously expected.

Talk of monetary tightening and a bounce in the dollar put gold on the defensive. USA gold futures for December delivery fell 0.4 per cent to $1,320.60 an ounce.

"The market is fundamentally bullish for dollar/yen, with a combination of higher risk sentiment and higher US yields", said Societe Generale currency strategist Alvin Tan, adding that a holiday in Japan meant there was less yen liquidity than usual.



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