Euro Sees Biggest Monthly Loss Since March Amid ECB Outlook

1 Dec 2015 | Author: | No comments yet »

Dollar near multi-year peak as euro hangs in the balance.

The dollar was on the cusp of reaching its highest in nearly 13 years against a basket of currencies on Tuesday, with the euro pinned down by expectations of aggressive policy easing from the European Central Bank.

U.S. stocks retreated, whittling down their November advance as investors prepared for a raft of economic data due this week along with policy decisions from central banks. The euro capped its worst month versus the dollar since March on prospects Europe will bolster economic stimulus just as the U.S. considers tightening policy. The yield gap between German and American bonds widened to the most in nine years, while emerging-market stocks posted their biggest monthly slump since August.

The prospect of an end to America’s era of near-zero borrowing costs has propelled the greenback to its best month since July while weighing on assets from gold to developing-nation stocks. OPEC members also meet this week. “This is a fairly big week between the ECB Thursday and the jobs number on Friday,” Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading LLC, said by phone, referring to American payrolls data. “These are going to be a pivotal two weeks to set us up through the end of the year.” Compared with where they were leading up to the last Fed meeting in October, U.S. equities are in a much improved state. Three weeks ahead of the forthcoming meeting, shares in the benchmark gauge are back in the range they were trading in weeks before the correction started.

Recent commentary from the central bank suggested it was in no hurry to move the cash rate, which has been sitting at a record low 2.0 percent since the last cut in May. “A case for a further rate cut could still emerge at next February’s Board meeting, particularly if the hoped for Fed rate rise doesn’t deliver a lower AUD,” analysts at CitiFX wrote in a note to clients. China’s manufacturing PMIs due later in the morning will be closely watched amid persistent worries about slowing growth in the world’s second-biggest economy. Outside of the G10 currencies, the Chinese yuan CNH= stood out as the International Monetary Fund admitted the Chinese currency to its benchmark Special Drawing Rights basket.

The U.S. benchmark has eked out gains as signs of a strengthening economy offset concerns over the Fed’s plans to raise rates, throttling back on stimulus that has underpinned the 6 1/2 year equities bull market. The yuan CNY=, also known as the renminbi, will have a 10.92 percent share after a review of the weightings formula for the SDR, which also cut the euro’s share by more than 6 percentage points. “The weightage assigned to the renminbi, while slightly higher than that of the yen and sterling, underwhelms somewhat market expectations and the IMF staff estimate of 14–16 percent,” said Andy Ji, Asian currency strategist at Commonwealth Bank. Mounting speculation policy will be tightened this year boosted financial shares by 1.7 percent in November, while utility stocks tumbled 2.8 percent. “We’re treading waters for now as the markets are waiting for the central banks’ decisions,” said Benedict Goette, the Zurich-based founder of asset-management firm Compass Capital, currently merging with Crossbow Partners. “A Fed hike is pretty much priced in by now, so equities will probably trade in a tight range.” The lull in the stock market is continuing after light trading around last week’s Thanksgiving holiday left U.S. equities little changed last week. With the Fed and ECB headed in opposite directions on monetary policy, the extra yield that two-year Treasuries offer over their German counterparts widened to 136 basis points, the most since 2006 on a closing basis.

West Texas intermediate oil lost 0.1 percent to $41.65 a barrel before a decision on the Organization of Petroleum Exporting Countries’ production policy due Dec. 4, adding to its 11 percent slide in November. Most-active iron ore futures in Singapore sank below $40 a metric ton for the first time on concern that the economic slowdown in China will cut demand as supplies from the largest miners climb. Brazil’s real slumped the most among developing-nation currencies after the Colombian peso, as a corruption probe threatened to sidetrack President Dilma Rousseff’s economic agenda. Stocks erased losses in the last hour of trading on Monday as a second day of price swings tested the government’s plan to trim support for the equity market.

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