Dollar gets a lift from Fed talk, no relief for oil
Credit: Reuters/Yuya Shino
Employees of a foreign exchange trading company work under monitors displaying the exchange rate between the Japanese yen and the U.S. dollar (R top, C and L) and Japan's Nikkei average (R bottom) in Tokyo December 5, 2014.
Oil prices also extended their long crash with U.S. crude hitting its lowest in five years amid a glut of supply and pressuring energy stocks globally.
Dealers said the dollar got a lift from a Wall Street Journal report that Fed official were seriously considering dropping an assurance that short-term interest rates will stay near zero for a 'considerable time'.
Such a move would be taken as a sign the central bank was on target to start raising interest rates around the middle of next year, a view that has gained great traction since last week's upbeat payrolls report.
Yields on two-year Treasury debt US2YT=RR has spiked to highs not seen since April 2011 while the whole yield curve has flattened markedly as investors wager Fed action will keep inflation low over the long run.
The rise in yields has in turn underpinned the dollar which nudged back up to 120.94 yen JPY= on Tuesday, having run into a bout of profit-taking the day before. The euro held steady on the dollar at $1.2305 EUR=, not far from the recent two-year trough of $1.2247.
Asian stocks markets were mostly lower following a decline on Wall Street, though the losses were minor. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off 0.36 percent.
Japan's Nikkei .N225 eased 0.47 percent, but that follows a run of strong gains which took it to its highest since July 2007. Chinese shares have also been on a tear with the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen at levels last visited in 2011.
On Monday, the Dow .DJI had lost 0.59 percent, while the S&P 500 .SPX fell 0.73 percent and the Nasdaq .IXIC 0.84 percent. [.N]
There was no respite for oil as U.S. crude futures CLc1 lost another 15 cents to $62.90 a barrel, while Brent LCOc1 dipped 7 cents to $66.12. Both tumbled more than 4 percent on Monday on expectations that a deepening oil glut would keep prices under pressure into the new year.
Oil prices are likely to remain around $65 a barrel for the next six to seven months until the global economy recovers or OPEC changes its production policy, the head of Kuwait's state oil company said.
The lack of inflationary pressure combined with a rising U.S. dollar kept gold on the back foot. Spot prices XAU= were stuck at $1,200 on Tuesday after shedding a couple of bucks the previous session.
(Editing by Shri Navaratnam)
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