Currencies tell a global story
The dollar rose before the start yesterday of a Federal Reserve policy meeting expected to raise US interest rates, while eurozone government bond yields headed higher as investor nerves over an election in the Netherlands appeared to ease slightly.
Sterling hit an eight-week low against the dollar after the British government won parliamentary approval to trigger talks on leaving the European Union, reversing Monday’s gains when Scotland’s leader demanded a referendum on independence.
Traders were also looking ahead to today’s election in the Netherlands, seen as a test of populist sentiment in Europe and the future of the euro as a currency.
A poll on Monday showed Prime Minister Mark Rutte’s conservatives taking 27 seats in the 150seat parliament, three more than in the pollster’s previous survey and slightly outpacing gains for nationalist Geert Wilders’ Party for Freedom (PVV).
Wilders has advocated a referendum on the country’s euro membership.
Yields on benchmark 10-year German government bonds, which are seen as among the world's safest assets, briefly hit 14-month highs above 0.5%.
The dollar index, which measures the greenback against six other major currencies, rose 0.3%.
The euro fell 0.1% to $1.0640 while the yen fell 0.1% to 115.03.
Sterling fell 0.7% to $1.2129, having dropped as far as $1.2107, its weakest since January 17.
A Fed rate rise today is seen as all but certain and investors will focus on new economic forecasts and any clues to how many rate hikes can be expected this year.
While higher rates would raise companies’ costs, they are also seen as evidence of economic recovery.
“March’s Fed meeting, even if it does suggest that FOMC members want a faster pace of rate hikes, is looking unlikely to cause market panic, and instead we could see US stocks actually rise tonight, and the dollar and US yields retreat,” City Index Research Director, Kathleen Brooks, said. – Reuters