European shares fell in thin trade yesterday while the dollar powered ahead after US Federal Reserve Chair Janet Yellen indicated that the central bank was poised to raise interest rates this year.
Investor concerns about Greece’s debt problems and a poor regional and local election result by Spain as ruling People’s Party also weighed on the euro and European shares.
The pull-back in European stocks mirrored losses on Wall Street on Friday after Yellen suggested the Fed was ready to act if the economy kept improving as expected, though a raft of recent data has suggested it is growing only modestly in the second quarter.
She said delaying a policy tightening until employment and inflation hit its targets risked overheating the economy.
The benchmark French CAC 40 index shed 0.8 per cent. Trading volumes were thin as several markets including Germany, the United Kingdom and the United States were shut for holidays.
Spain’s IBEX equity index fell 2.3 per cent after voters in regional and local elections on Sunday punished Prime Minister Mariano Rajoy’s ruling PP for four years of austerity while Greece’s ATG share index fell two per cent.
“The Greek debt warning and the Spanish election outcome are weighing on the markets,” said Naeem Aslam, chief market analyst at AvaTrade.
After four months of talks with its eurozone partners and the IMF, Greece’s leftist-led Syriza government is still scrambling for a deal that could release up to €7.2 billion in remaining aid to avert bankruptcy.
In foreign exchange markets, the dollar index, which measures the greenback against a basket of other major currencies, rose 0.3 per cent to a one-month high of 96.475.
Against the yen, the dollar traded near a two-month high of 121.78, jumping from a low of 120.64 after Yellen’s comments and as stronger-than-expected underlying US inflation supported the Fed’s case for an interest rate hike later this year.
Data on Friday showed the US Labor Department’s gauge on core consumer goods prices rose by 0.3 per cent last month, bringing the year-on-year rise to 1.8 per cent, the highest since October.
The euro was weaker, falling to a one-month low of $1.0959 with some traders citing the victory of anti-austerity parties in Spain and Greece's financial crisis as factors.
Oil prices dipped towards $65 a barrel as a rallying dollar and profit-taking took their toll.
Brent was down about 0.4 per cent at $65.01 after dropping 2.1 per cent for the week.