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 The euro's fall follows remarks from a European Central Bank board
member on Tuesday that the central bank could increase the pace of
its bond-buying in May and June, bringing its losses against the
dollar this week to as much as 3 percent.
"With Greek government liquidity particularly tight and reports
suggesting the IMF payment on June 5th is under question, then we
expect further turmoil ahead before any deal is ultimately reached,"
Royal Bank of Scotland rates strategists said in a note on
Wednesday.
The euro fell as low as $1.1065 early on Wednesday, off almost three
cents since ECB Executive Board member Benoit Coeure said this week
that the bank may "moderately" increase its bond-buying programme in
May and June.
It was last down 0.3 percent on the day at $1.1110.
The Greek government's parliamentary speaker said on Wednesday that
Athens will not make a payment to the IMF that falls due on June 5
unless it has reached a deal with its creditors by then.
Euro zone government bond yields were also lower, widening the gap
between benchmark U.S. and German yields further in favour of the
dollar.
The 10-year yield spread moved out to around 169 basis points ,
marking an increase of almost 20 basis points in just two days.
The dollar was broadly stronger as a result, also supported by
punchy U.S. housing data on Tuesday. The greenback rose to a
two-month high against the yen above 121.00 yen.
JUST A MINUTE
European shares were unable to draw support from the weaker currency
and lower yields, and mirrored the sticky performance of Asian
bourses.
MSCI's broadest index of Asia-Pacific shares outside Japan, fell 0.4
percent. But Japan's Nikkei stock index ended up 0.9 percent at a
fresh 15-year peak, helped by a weaker yen and data showing the
economy grew at a 2.4 percent annualised rate in the January-March
period.
That was the fastest pace of growth in a year, beating the consensus
estimate for 1.5 percent.
After Tuesday's 1.65 percent surge, European shares paused for
breath on Wednesday, unable to get a boost from the euro's weakness
against the backdrop of increasing uncertainty over Greece.
The FTSEurofirst 300 index of leading shares was flat at 1606
points, while Germany's DAX, France's CAC 40 and Britain's FTSE 100
were all down around 0.2 percent.
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European bank shares were in focus were in focus after Switzerland's
UBS <UBSG.VX> paid $545 million to settle with U.S. authorities over
currency rigging. Four other global banks are expected to settle
later on Wednesday.
U.S. futures pointed to a flat open on Wall Street, following its
mixed performance on Tuesday. The Dow Jones industrial average <.DJI>
eked out a slight gain to close at a fresh record high, while the
S&P 500 <.SPX> edged down, although not before touching a record
intraday high.
Data showed that U.S. housing starts in April jumped to their
highest level in nearly 7-1/2 years and building permits soared,
raising hopes that the economy was regaining strength after stalling
in the first quarter but also rekindling fears the Fed would raise
interest rates sooner rather than later.
"We believe the minutes may describe a conversation regarding the
criteria for a rate hike – specifically, a discussion of the
developments required to make Fed officials 'reasonably confident'
that inflation will accelerate to 2 percent over the next
two-to-three years," Credit Suisse analysts said in a note on
Wednesday.
The consensus among economists and traders points to the Fed raising
rates in September.
Crude oil futures were off session highs but still took back some
lost ground after sinking more than 3 percent overnight as the
dollar strengthened.
Brent jumped 1.4 percent to $64.90 a barrel while U.S. crude
rose about 1.1 percent to $58.61, after both shed more than $2 a
barrel on Tuesday.
(Editing by Hugh Lawson; To read Reuters Global Investing Blog click
on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog
click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog
Hub click on http://blogs.reuters.com/hedgehub)
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