European Shares Pause; Dollar Dipped Towards Three Week Lows

The retreat in Fed rhetoric has helped drive the U.S. currency nearly 10 cents lower against the euro from this year’s highs. The move into safety follows a July-September quarter that saw trillions wiped off valuations owing to China´s economic malaise and expectations the Federal Reserve would raise interest rates.

A focus now is whether the rise in commodity-linked and emerging market currencies will prove to be a short-lived rally driven mainly by position squaring, or turn into a more enduring uptrend.

Emerging market currencies have suffered heavy selling over the past year as the Fed was expected to lift rates, with dealers shifting into the United States looking for higher and safer returns. “It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly”.

On Wall Street, major indexes were little changed but utilities – often traded in lieu of bonds due to their perceived lower risk and high dividends – outperformed with a 1.1 per cent advance on the S&P 500 utilities index. Prices have more than halved from June 2014.

The dollar index was down less than 0.1 percent on the day at 94.77, still close to Friday’s low of 94.692, its weakest level since September 18. Giving the report a weak tone, sales in August were revised down to show them unchanged instead of rising 0.2 percent.

On Sunday Fed vice chairman Stanley Fischer said the bank expected to stick to its plan to tighten monetary policy by the end of the year, although he added that the plans were an “expectation, not a commitment”.

He said that “both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy”.

Meanwhile, the WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) jumped 3.7% over the past week and gained 0.6% Monday. Against major currencies the dollar edged down, however.

The Australian and New Zealand dollars rallied versus the greenback as well with the kiwi flying to a three-month peak of $0.6846. Although Wheeler highlighted concerns on China’s economic outlook, he made no fresh effort to talk down the kiwi while there was mention of the risk low interest rates can bring.

The Korea Composite Stock Price Index also increased by 2.1 points at 2,021.63.

Crude prices have risen by more than a quarter since hitting a six-year low in August as worries about a stronger dollar, a supply glut and weak demand ease.

The Australian dollar slipped 0.2% to US$0.7321, taking a breather after surging 4% last week for its biggest weekly gain since late 2011.

Comments by OPEC secretary general Abdullah el-Badri at the weekend that the cartel sees a “more balanced” oil market next year also provided support.

“In the global market, pressure on the USA dollar is still there and the rupiah is tending to strengthen against the USA dollar, mainly as a result of positive internal sentiment”, he said.