The US dollar and bond yields rose yesterday as prospects for a Federal Reserve interest rate hike this year improved, while optimism that a deal could still be at hand to stave off a Greek default boosted European shares and kept a floor under US stocks.
A seven-year high in new US single family home sales last month, combined with other data, helped bolster the case for lifting benchmark US interest rates.
Federal Reserve Governor Jerome Powell said the US economy could be ready for a first interest rate hike in September followed by a second increase in December and that the economy is likely to strengthen in the second half of the year.
Overseas, Greece presented new proposals on Monday that eurozone leaders welcomed as a basis for a possible agreement to unlock aid and avert default and a potential exit from the euro. But some eurozone leaders cautioned that much work still needed to be done, and some Greek lawmakers reacted angrily to concessions offered by Athens.
“If people are looking past Greece, we can return to the [monetary policy[ divergence theme... and when you do that you look at fundamentals,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. “Generally speaking, I think people see the US economy accelerating, leading to a Fed rate hike.”
The greenback rallied to a better than one-week high of 0.93880 Swiss francs before drifting back to 0.93325 francs, up 1.30 per cent on the day, while the euro fell to a two-week low of $1.11350 before recovering some ground to trade at $1.11840, off 1.38 per cent.
MSCI’s all-country stock index was up just 0.04 per cent.
The Dow Jones industrial average rose 10.31 points, or 0.06 per cent, to 18,130.09, the S&P 500 lost 0.49 points, or 0.02 per cent, to 2,122.36 and the Nasdaq Composite dropped 4.73 points, or 0.09 per cent, to 5,149.24.
The pan-European FTSEurofirst 300 index rose 1.2 per cent, while Greek stocks jumped 6.1 per cent.
Also fuelling the rally were better-than-expected data on factory and service sector activity in France, Germany and the euro zone overall, according to Markit’s preliminary June purchasing manager indexes.
Earlier, Japan’s Nikkei jumped 1.9 per cent to a fresh 15-year high.
In the bond market, benchmark 10-year US notes were last down 13/32 to yield 2.41 per cent, from a yield of 2.36 per cent late on Monday.
Low-risk German 10-year government bond yields fell one basis point to 0.88 per cent.
Crude futures rallied about one per cent in New York trade, reversing losses from the European session and latching onto a rebound in oil products.
Futures of Brent crude were up 76 cents, or 1.3 per cent, at $64.10 a barrel, while US crude futures rose 50 cents, or 0.8 per cent, to $60.88.