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 The dollar soared to a fresh eight-year high against the yen after
having fallen back earlier on Wednesday following its biggest rally
in two years the day before. But its renewed strength against the
Japanese currency sent ripples across other asset classes.
At midsession in Europe, the dollar was up 0.5 percent against the
yen at 123.68 yen <JPY=>, its highest since June 2007.
This pushed the euro back well below $1.09, meaning the single
currency was unchanged on the day having been up as much as 0.4
percent earlier.
On Tuesday, the dollar index, a measure of the greenback's value
against a basket of six currencies, rose 1.3 percent, its biggest
rise since July 2013.
"Dollar/yen is the cleanest way to track dollar bullishness, and
this is currently proving to be the case. The fact that bets against
the yen have been so much less crowded than bets against the euro
recently also helps," Morgan Stanley currency analysts said in a
note on Wednesday.
There were no major U.S. or European economic data due on Wednesday,
leaving traders to ruminate on the timing of the first U.S. interest
rate hike and the latest twists in the Greek debt talks saga.
Greece and its European creditors have played down fears that Athens
would default on a payment to the International Monetary Fund next
week. Greece could avoid the June 5 payment without defaulting if it
lumps together all IMF repayments due in June and pays them at the
end of the month.
But U.S. Treasury Secretary Jack Lew warned that a miscalculation
could lead to a new crisis, and that it would be a mistake to think
this would have no consequence for the wider world.
The FTSEuroFirst 300 leading index of 300 top European shares was up
half of one percent at 1610 points <.FTEU3> and Britain's FTSE
<.FTSE> rose 0.6 percent to 6,988 points.
France's CAC <.FCHI> was up 0.5 percent at 5,108 points and
Germany's DAX <.GDAXI> was up 0.1 percent at 11,639 points.
Asian shares took their cue from Wall Street's weakness on Tuesday,
and the MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> retreated by 0.8 percent. But Tokyo's Nikkei
<.N225>, supported by the yen's fall, bucked the trend and rose 0.2
percent.
U.S. futures pointed to a broadly flat open on Wall Street after
Tuesday's 1 percent slide, its biggest fall in three weeks.
U.S. NORMALISATION
In bond markets, the 10-year German Bund yield fell two basis points
to 0.53 percent, while the comparable Spanish yield was also down
two basis points at 1.83 percent, having shot up the previous day on
political concerns.
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Voters in Spain punished the ruling Popular Party in local elections
over the weekend after years of austerity policies.
The 10-year U.S. Treasury yield was up two basis points at 2.15
percent, and the two-year yield up four basis points at 0.65
percent.
Indicators on Tuesday showed that U.S. business spending plans
increased, consumer confidence improved and house prices extended
gains. The data supported the stance taken by Federal Reserve Chair
Janet Yellen, who said on Friday the central bank could hike rates
this year if the economy keeps improving.
"Conditions have normalised considerably in recent years. As Yellen
noted, if this process of normalisation continues, then monetary
policy is likely to normalise correspondingly," said Goldman
economist David Mericle.
Commodities took heart from the dollar's weakness on Wednesday.
After tumbling nearly 3 percent on Tuesday, U.S. crude <CLc1>
recovered some ground but gains were limited by the dollar's renewed
upswing in European trading. It was last up two thirds of one
percent at $58.40 a barrel, while Brent <LCOc1> gained a third of
one percent to $63.97 a barrel.
Gold gave up earlier gains and was last down at a two-week low of
$1,184 an ounce.
(Additional reporting by Anirban Nag in London; Editing by Mark
Heinrich; 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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