Global currency markets ran into turbulence on Wednesday, as investors dumped the dollar amid falling interest rates in the USA and continued nervousness about global economy, crushing a slew of popular trades so far this year.
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The U.S. dollar was set to post its biggest one-day decline against the yen in over six weeks on Tuesday, while also edging lower against the euro, after a drop in oil prices added to concerns about global economic growth. The euro rose over 2 percent against the dollar to hit $1.11455, the euro was on track to mark its biggest single-day percentage gain since December 3. The pan-European FTSEurofirst 300 index .FTEU3 rose 0.4 percent while the STOXX Europe 600 Basic Resources Index.SXPP gained 3.4 percent and oil and gas index.SXEP 2.2 percent. NY crude was up 56 cents at $30.44 a barrel while Brent crude, used to price worldwide oils, rose 77 cents to $33.49 a barrel.
“Obviously, there is concern about the Fed and what they are going to do with rates, but oil is number one at this point because we are starting to see the effect of lower oil”, said Ian Kerrigan, global investment specialist at JPMorgan Private Bank in Seattle.
The nearly 4-percent fall in crude prices swept away the more positive tone to markets created by a shock interest rate cut into negative territory by the Bank of Japan last week. The Nasdaq composite gave up 23 points, or 0.5 percent, to 4,479. Benchmark U.S. oil slumped $1.74, or 5.5 percent, to close at $29.88 a barrel on the New York Mercantile Exchange, a day after it plunged almost 6 percent.
Meanwhile, South Korea’s benchmark Kospi index was down 1.1% at 1,885.44.
The MSCI Emerging Markets index fell for a second day, dropping 1 percent as equity benchmarks in India, Malaysia and the Philippines lost at least 1.2 percent each.
Asian markets mostly ended higher, while the Stoxx Europe 600 was up 0.7% midmorning.
Bank stocks fell on worries that oil prices will cause more energy loans to go bad, and that the slowing economy might impact their bottom line.
“The pressure from oil is easing…and tranquillity is returning to other markets so we can expect a bit of a step back from bonds, and yields should trend higher”, KBC strategist Piet Lammens said. Markets shrugged off government data which showed USA crude inventories rose to record levels last week.
The fall in the dollar also helped push metals higher, with copper and zinc both up more than 1.5 percent. Oil slid 30 percent previous year.
On Wednesday early losses were pared on bargain-buying but dealers remain on edge ahead of a United States report analysts warned could see a further increase in stockpiles.
Gold hit three-month highs on Wednesday, buoyed by a slower US services sector and sinking dollar, prompting investors to seek shelter in assets perceived as safer as future Fed rate hikes appeared less likely.
The Dow Jones utility index, a basket of 15 utility companies, rose 1 per cent. That index is up more than 8 per cent this year.
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The £1.6bn ($2.3bn) flotation of Clydesdale Bank was postponed on Tuesday for 24 hours.
