The US dollar rallied yesterday after a string of healthy economic data boosted near-term rate hike prospects, while Greece’s financial crisis and signs of growing opposition to austerity in Spain weighed further on the euro.
Stocks and commodities took a knock as the greenback pushed higher, boosted by a solid increase in a gauge of US business investment spending in April.
Reports showed US consumer confidence improved this month and house prices extended gains in March, which should boost household equity, support consumer spending, and allow the Federal Reserve to move ahead in its plan to raise interest rates later this year.
Markets in the US as well as London and Frankfurt returned to action after a long holiday weekend, with the mood in Europe unsettled as voters in Spain punished the ruling Popular Party after years of austerity policies. Greece, which may miss a June 5 debt repayment to the International Monetary Fund, also concerned markets.
Stocks opened lower on Wall Street weighed by the stronger dollar, which gained as much as 1.38 per cent against a basket of major currencies, pushing for its largest daily move in almost two years.
The Dow Jones industrial average fell 202.33 points, or 1.11 per cent, to 18,029.69, the S&P 500 lost 22.07 points, or 1.04 per cent, to 2,103.99 and the Nasdaq Composite dropped 64.44 points, or 1.27 per cent, to 5,024.93.
The pan-European FTSEurofirst 300 index and the eurozone’s blue-chip Euro STOXX 50 index both were down near 0.7 per cent.
However, a senior German official who spoke on condition of anonymity said yesterday there were some “encouraging” signs from talks with Greece and doubted it would default on the June 5 IMF payment.
The dollar’s move to a one-month high against its currency basket extended a rally triggered by Friday’s robust inflation data and comments from Fed Chair Janet Yellen that she expected the economy to strengthen.
Against the yen, the dollar topped 123 yen to a high of 123.32 yen, a level last seen in July 2007.
Short-dated US Treasury yields hit two-week highs on continued expectations that the Fed would hike rates this year, before flattening out on the day on the view that the Fed will not move too sharply.
Two-year Treasury notes were last flat in price to yield 0.626 per cent. Benchmark 10-year Treasury notes were last up 20/32 in price to yield 2.16 per cent, from a yield of 2.229 per cent late Friday.
US 30-year prices were last up 1-22/32 to yield 2.915 per cent, from a yield of three per cent late Friday after hitting a low of 2.914 per cent.
Commodity markets were pressured by the strength in the dollar. Spot silver fell two per cent and spot gold lost 1.5 per cent, while copper was down 0.6 per cent.
Brent crude tumbled 2.7 per cent to $63.76, further pressured by the possibility that US shale oil producers could increase drilling activity.