The dollar rose to five-week highs yesterday after an upbeat outlook on the US economy from new Federal Reserve’s chief Jerome Powell and the prospect of tighter monetary policy as global equity markets slid on big declines in China-dependent shares.
Also pushing the dollar higher was eurozone inflation slowing to a 14-month low, which knocked the euro to six-week lows, and underscored the European Central Bank’s caution in removing stimulus in the region.
The greenback in February was poised to post its best monthly performance since November 2016 as it also rose to three-week highs against the Swiss franc, a two-week peak versus sterling and a two-month high against the Canadian dollar.
“The dollar has found tailwinds in America’s sturdy economy and its hawkish central bank,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
World stocks were set to snap a record 15-month-long winning streak, pulled lower by mining heavyweights Rio Tinto and Glencore after weak factory data from China and a slide in Chinese conglomerate Tencent Holdings.
Disruption from Lunar New Year holidays and curbs to factory output from pollution rules drove weakness, but there are worries of a bigger loss in momentum.
Rio Tinto fell 3.0 per cent and Glencore slid 2.56 per cent, helping pull the FTSEurofirst 300 index of leading regional shares down 0.65 per cent to a provisional close of 1,488.26.
Miners were some of the biggest decliners in London after growth in China's manufacturing sector in February cooled to the weakest in more than 1.5 years.
On Wall Street, the Dow Jones fell 34.13 points to 25,375.9. The S&P 500 lost 1.14 points to 2,743.14, and the Nasdaq Composite added 0.61 points to 7,330.96.
Longer-dated yields slipped on expectations that a faster pace of Fed rate increases would cool US inflation and economic growth.
US growth slowed slightly more than initially thought in the fourth quarter as the strongest pace of consumer spending in three years drew in imports and depleted inventories. Ten-year US Treasury notes rose 8/32 to push yield down to 2.8806 per cent.
Eurozone bond yields held near recent lows as inflation in the bloc slowed, potentially complicating the European Central Bank’s plan to remove monetary stimulus and move towards raising rates.
Oil prices fell almost two per cent and gasoline futures tumbled after the US government said crude inventories rose more than expected, while gasoline stocks posted a big build instead of the draw that was forecast.