Dollar rebounds on Yellen rate cue

Fed chief’s comments boost bond yields while euro stages tentative recovery as ECB meets

The dollar bounced back, Asian and European shares slipped and government bond yields soared to multiweek highs yesterday after US central bank chief Janet Yellen signalled a path of steady interest rate increases for the world’s largest economy.

The euro fell below $1.06 to its lows of the day as European Central Bank president Draghi spoke at a news conference, while the dollar index, which tracks the greenback against the euro and five other major currencies, added to its gains.

The ECB announced it would maintain its negative interest rate policy and maintain a record pace of asset purchases to stimulate tepid growth.

Further hints of disagreements among the region’s monetary guardians — revealed in minutes of the ECB’s December meeting — could ruffle markets, however.

European and Asian stocks broadly dipped, with resources and oil companies hit as a rising dollar increased the cost of dollar-denominated commodities for holders of foreign currencies.

Wall Street was set to open a touch lower with the S&P 500 set to give up some of Wednesday’s rise, which was led by stronger financial stocks.

The US currency recovered from Tuesday’s decline, when it reached its weakest level since early December after President-elect Donald Trump expressed concern in a weekend interview about the effects of a stronger greenback.

“Of all the speakers we’re getting, either from Davos or from less ostentatious spots, the one I’m going to listen to most for now will probably still be Janet Yellen,” Societe Generale’s currency strategist Kit Juckes said.

Eurozone government bonds were still moving in the slipstream of Yellen’s speech with benchmark German bond yields spiking to one-month highs after US equivalents rose to their highest since January 9.

Bucking the trend of weaker Asian shares, Japan’s Nikkei stock index ended up 0.9 per cent, helped by weaker yen.