Dollar recedes from
seven-month peak, lifts oil
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[October 19, 2016]
By John Geddie
LONDON
(Reuters) - The U.S. dollar fell from a seven-month peak on Wednesday,
combining with signs of an easing supply glut to help lift oil prices
back towards a one-year high.
A weaker dollar boosts crude prices, which gained over 1 percent to top
$52 a barrel, since it makes fuel cheaper for countries using other
currencies [O/R].
The bounce in oil pushed a key market gauge of long-term euro zone
inflation expectations to a multi-month high, keeping bond yields
elevated above record lows seen in the wake of Britain's vote in June to
leave the European Union.
Wall Street was set to open a touch higher but neither the rise in
commodity prices nor a barrage of data confirming China's economy, the
world's second largest, was stabilizing could prevent a dip in euro zone
stocks after a series of poor earnings results. [.EU]
"Oil is a good indicator of expectations for growth next year," said
Frederik Ducrozet, a senior European economist at Swiss wealth manager
Pictet. "It is comforting for markets that oil is above $50 a barrel and
looking stable at those levels."
Against a basket of major currencies, the U.S. dollar fell 0.2 percent
to 97.665, off Monday's seven-month high of 98.169, after consumer price
data showed underlying inflation had moderated. That prompted markets to
trim bets on a Federal Reserve rate hike later this year. [FRX]
Traders said that had helped lift oil, which was also supported by a
report of a drop in U.S. inventories and declining production in China.
An upbeat OPEC statement on its planned output cut also supported the
market.
International Brent crude futures were at $52.35 a barrel at 1040GMT, up
67 cents, or 1.3 percent, and heading back towards a one-year high of
$53.73 seen earlier this month.
U.S. West Texas Intermediate (WTI) crude oil futures were trading at
$50.96 per barrel, also up 1.3 percent, having been below $40 a barrel
at the start of August.
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DISAPPOINTING EARNINGS
European shares fell early on Wednesday after a slew of weak updates
weighed on British companies Travis Perkins and Reckitt Benckiser. Akzo
Nobel's results were hit by a weak pound. [.EU]
The pan-European STOXX 600 index edged down 0.1 percent, following a 1.5
percent rise in the previous session.
Earlier, Asian shares edged up for the second straight day after data
showing Chinese gross domestic product expanded 6.7 percent in the year
to September, exactly as forecast.
Other data showed retail sales rising 10.7 percent and urban investment
8.2 percent. Industrial output disappointed by growing only 6.1 percent.
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"The
upshot from today's data is that economic activity seems to be holding up
reasonably well, with few signs that a renewed slowdown is just around the
corner," said Julian Evans-Pritchard, China economist at Capital Economics.
"Nonetheless, the recent recovery is ultimately on borrowed time given that it
has been driven in large part by faster credit growth and a property market
boom, both of which policymakers are now working to rein in."
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.4 percent on
top of Tuesday's 1.4 percent jump.
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The
recent bounce in oil prices has helped lift a key market gauge of long-term euro
zone inflation - the five-year, five-year forward rate - above 1.44 percent, its
highest level since early June.
That remains well below the European Central Bank's inflation target of just
below 2 percent, but it has taken the heat off the bloc's policymakers - who
meet on Thursday - to introduce more easing measures.
Worries that they may eventually scale back their stimulus has seen German
30-year bond yields climb more than 20 basis points in the last fortnight,
already on track for their biggest monthly rise in fourteen months.
DOLLAR RETREAT
The
retreat in the dollar came after a report on U.S. consumer prices showed
underlying inflation - stripping out food and energy - moderated slightly in
September to 2.2 percent, leading the market to slightly pare back bets on a
December rate hike.
Fed fund futures <0#FF:> imply around a 65 percent probability of a move, down
from 70 percent.
Federal Reserve Chair Janet Yellen said last week the U.S. central bank could
allow inflation to run above its target.
The euro was slightly higher against the weakening dollar at $1.0985 <EUR=>.
Sterling, which plunged to a record low on a trade-weighted basis last week <=GBP>,
continued to recover and hit an eight-day high on Wednesday after a UK
government lawyer said that parliament would have to ratify any deal to take
Britain out of the EU. [GBP/]
(Additional reporting by Wayne Cole in Sydney; editing by Mark Heinrich)
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