Growing bets on a possible Federal Reserve rate increase as early as in June or July reduced demand for United States government debt while pushing the USA dollar up against the yen for a second day.
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The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, is creeping higher thanks to rising expectations that the Federal Reserve will boost interest rates in June.
The German DAX gained 2.2 percent, France’s CAC 40 index added 2.5 percent and the U.K.’s FTSE 100 advanced 1.4 percent.
MSCI’s all-country world stock index .MIWD00000PUS rose 0.9 percent, while the pan-European FTSEurofirst 300 index .FTEU3 of leading regional stocks ended up 1.3 percent, touching its highest level since late April.
The US currency also gained on the safe-haven yen as investor risk aversion ebbed on the back of a bounce in European and US equities.
The sterling traded at $1.4607, near last week’s peak of $1.4663, a break of which could open the way for a test of $1.4770, its four-month peak hit in early May.
The U.S. dollar remained firm in the upper 109 yen range Friday morning in Tokyo as consumer prices in Japan dropped from a year earlier for the second straight month in April, fueling expectation of additional monetary easing by the Bank of Japan.
The dollar index was almost flat at 95.108 (.DXY) after slipping 0.3 percent overnight, pulling away from a two-month high of 95.661 scaled on Wednesday.
The euro edged lower to 122.83 yen and $1.1192 from 122.86 yen and $1.1194 in USA trade. The index is down by more than 4% since early-December.
Then a sudden spike in the yen in relatively illiquid conditions triggered stop-loss orders and brought the Japanese currency as low as 109.42 per dollar JPY= from a session high of 110.235. It barely reacted to the news about an agreement on debt relief for Greece.
Energy explorer Inpex soared 3.01 percent to 856.7 yen and refiner JX Holdings tacked on 1.60 percent to 431 yen.
The G7 leaders are also expected to reaffirm their previous commitment to stability in the foreign exchange market.
Brent oil was up 90 cents at $49.51, while U.S. crude was up 70 cents at $49.32.
Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
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Oil prices held firm, helped by a rise in overall risk appetite and expectations of a drawdown in USA crude inventories.
