TOKYO, Sept 7 The dollar tumbled and Asian stocks rose to one-year highs on Wednesday after surprisingly weak USA services sector activity dashed already slim chances of an interest rate hike by the Federal Reserve as early as this month.
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Chinese mainland markets were higher early trade, with the Shanghai composite up 0.11 percent and the Shenzhen composite gaining 0.2 percent.
The dollar fell to its lowest in more than a week against the yen on Wednesday as subdued U.S. data made an interest rate increase this month unlikely and drove investors to cut favourable bets in the greenback. The index nonetheless remained close to eight-month highs.
European shares reversed early losses, with the FTSEurofirst 300 .FTEU3 up 0.3 percent.
“This just confirms the suspicion that as much as the Fed may want to hike this year, the data has to be there”, said David Tulk, head of global macro strategy in Toronto at Toronto-Dominion Bank, which forecasts no rate hike this year. The ECB meets on Thursday.
The Fed’s reading on the US economy puts more evidence into the camp of a rate hike sooner than later, a debate which has made for choppy trading in recent days.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4 percent, extending gains of 2.7 percent over the last two days, to claim a level last seen in July past year. This helped lift MSCI’s all-country world index to its highest since August 2015. And all of a sudden the chance of a September rate hike is down to 22% and a Fed rate hike was seen as no better than a coin flip.
Japan’s Nikkei slid 1.0 per cent, however, as the yen gained sharply versus the dollar, putting more pressure on exporters in the world’s third-largest economy.
The greenback was down 1.4 percent against the won, while Australia’s dollar added 0.5 percent and Indonesia’s rupiah also climbed 0.5 percent.
The dollar fell 1 percent against several major currencies on Tuesday after Institute for Supply Management data showing activity in the US service sector slowed to a 6 1/2-year low in August and diminished already slim prospects for a Fed rate hike this month. The Stoxx 600 index edged up 0.1 percent towards eight-month highs hit on Monday, led by a rise of nearly 1 percent in oil and gas shares.
“Clearly, this is a challenging environment for the dollar”.
The Swedish crown rose around 0.2 percent to 9.52 per euro after the Swedish central bank kept interest rates unchanged as expected.
Crude oil futures pared gains, but closed higher on Tuesday amid receding hopes for a deal between Russian Federation and Saudi Arabia to freeze output to tackle a global supply glut. It rose as high as $49.40 on Monday, having fallen to $45.32 on September 1.
The miss, along with Friday’s disappointing nonfarm payroll data, likely spurred traders to step away from expectations of a September Fed hike.
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Gold rallied to US$1,352.4 per ounce to near three-week highs on Tuesday, and last stood at US$1,350.0.
