Dollar rises, oil drops before ECB, OPEC meetings

LONDON: The dollar hit its strongest since mid-March against its peers at the start of a week likely to highlight the divergent outlooks for US and eurozone interest rates, while oil fell with OPEC ministers expected to keep the pumps on.

The euro fell against the dollar, before a European Central Bank meeting on Thursday that is expected to unveil fresh monetary easing measures. The US Federal Reserve,, by contrast, is expected to raise interest rates later this month for the first time in nearly a decade.

European shares opened lower, following falls in Asia, with investors nervous before the Thursday’s meeting at which the ECB may extend its bond-buying program and cut its already negative deposit rate. Shares later picked up. “The market expects a broadening of the purchase program as well as a cut in the deposit rate, but expectations have gone quite far since we had rumors last week of a possible two-tier deposit rate cut,” said Norbert Wuthe, rate strategist at Bayerische Landesbank.

On Friday, ministers of the Organization of the Petroleum Exporting Countries meet in Vienna and are not expected to cut production. The pan-European FTSEurofirst 300 index was last up 0.2 percent. Worries over China, which hit Asian shares, also weighed on early trade in Europe.

Chinese stocks, which fell more than 5 percent on Friday, were at one point down a further 3 percent yesterday before closing marginally up on the day. The CSI300 index of the largest listed companies in Shanghai and Shenzhen and the Shanghai Composite both ended up 0.3 percent.

China’s currency was also in the spotlight, with the yuan jumping in offshore trade on suspected intervention by Beijing hours before the International Monetary Fund is expected to grant it reserve status. It last traded at 6.431 to the dollar, up 0.2 percent on the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, and was on course to book a loss of about 2.8 percent for the month of November, after making its first gains in six months in October. Tokyo’s Nikkei stocks index fell 0.7 percent on concern over China and after Japanese industrial output data undershot forecasts.

DOLLAR INDEX

The dollar index, which measures the greenback against a basket of currencies, touched its highest since midMarch and was on track for a 3 percent gain on the month. The euro fell 0.2 percent to $1.0566 while the yen lost 0.2 percent to 123.05 per dollar. Sterling, meanwhile, hit a seven-month low just below $1.50.

“We are probably with the consensus, the Fed is going to tighten, the ECB is going to ease, so the euro will go lower to about 1.05 and then that will be your lot (for the year),” said Sanjiv Shah, Chief Investment Officer with Sun Global in London.

Shanghai swings after slump

Volatility returned to Shanghai stocks yesterday, suffering their heaviest losses since the summer rout, with most other Asian markets lower at the start of an eventful week. Chinese dealers have been buoyed by hopes the International Monetary Fund will agree to a proposal from its executive board to include the Chinese yuan, also known as the renminbi, in its special drawing right (SDR) basket of elite currencies.

Agreement, which is widely expected, would realize a long-held goal for Beijing of giving its unit international status, alongside the dollar, euro, pound and yen. Inclusion would lead to mainland stocks becoming more accessible to foreigners, Hao Hong, Hong Kong-based equity strategist at Bocom International Holdings, wrote in a note yesterday. The yuan weakened in morning trade against the dollar.

Despite hopes of SDR inclusion, mainland investors remain on edge after Friday’s collapse, when news came that China’s biggest brokerages were being probed over suspected “rule violations” in the wake of the summer selloff.

Shanghai dived 5.5 percent and Shenzhen more than six percent, with losses exacerbated by worse-than-expected profits for Chinese industrial giants and worries over the start of initial public offerings (IPOs) this week. The drop rekindled painful memories of the sharp sell-off between June and August that saw Shanghai slump 40 percent and trillions wiped of valuations. Shares have since recovered about 25 percent. —Agencies