Dollar retreats after its best day in two years

By Reuters

May 27, 2015 07:04 AM EDT

A string of reversals from sharp moves the previous day marked global financial market trading on Wednesday, with stocks and oil gaining ground and the U.S. dollar falling after its biggest rally in two years.

In early European trading, the dollar was down around a third of one percent against a basket of currencies .DXY, after jumping 1.3 percent on Tuesday, its biggest rise since July 2013.

Brent crude and WTI oil futures were up 1 percent, while the major European stock markets gained as much as 0.5 percent and U.S. futures pointed to a higher open on Wall Street following Tuesday's 1 percent slide, its biggest fall in three weeks.

There are no major U.S. or European economic data due on Wednesday, leaving traders to ruminate on the timing of the first U.S. interest rate hike and the latest twists in the Greek debt talks saga.

"The dollar had a strong rebound (on Tuesday) on the back of slightly better than expected U.S. durable goods and consumer confidence data, but that rebound has been short-lived," said Angus Campbell, senior analyst at FXpro in London.

Greece and its European creditors have played down fears that Athens would default on a payment to the International Monetary Fund next week. Greece could avoid the June 5 payment without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month.

Currency analysts at SocGen said Wednesday "has the feel of an in-between day."

At 0800 GMT the euro was back above $1.09 EUR=, up 0.4 percent on the day, while the dollar was down slightly against the yen dipping below 123.00 yen JPY=, having scaled that level on Tuesday for the first time in almost eight years.

The FTSEuroFirst 300 leading index of 300 top European shares was up a third of one percent at 1607 points .FTEU3 and Britain's FTSE .FTSE was up 0.4 percent at 6975 points.

Germany's DAX .GDAXI was flat and France's CAC .FCHI was up 0.1 percent.

Energy shares were in demand across the continent, with the STOXX Europe 600 oil and gas index .SXEP rising 0.4 percent as oil prices rebounded on expectations that U.S. crude stocks could fall for a fourth straight week.

Asian shares took their cue from Wall Street's weakness on Tuesday, and the MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.8 percent. Shares in Australia dropped 0.8 percent, South Korea fell 1.7 percent and Hong Kong eased 0.6 percent.

But Tokyo's Nikkei .N225, supported by the yen's fall to an 8-year low this week, bucked the trend and rose 0.2 percent.


In bond markets, the 10-year German Bund yield was flat at 0.555 percent DE10YT=TWEB, while the comparable Spanish yield was down 3 basis points at 1.82 percent ES10YT=RR, having shot up the previous day on political concerns.

Voters in Spain punished the ruling Popular Party in local elections over the weekend after years of austerity policies..

The 10-year U.S. Treasury yield was up a basis point at 2.14 percent US10YT=RR, and the two-year yield up four basis points at 0.65 percent US2YT=RR.

Indicators on Tuesday showed that U.S. business spending plans increased, consumer confidence improved and house prices extended gains. The data supported the stance taken by Federal Reserve Chair Janet Yellen, who said on Friday the central bank could hike rates this year if the economy keeps improving.

"Conditions have normalised considerably in recent years. As Yellen noted, if this process of normalisation continues, then monetary policy is likely to normalise correspondingly," said Goldman economist David Mericle.

Commodities took heart from the dollar's weakness on Wednesday.

After tumbling nearly 3 percent on Tuesday, U.S. crude CLc1 was up 1 percent at $58.65 a barrel, while Brent LCOc1 gained 0.9 percent to $64.27 a barrel.

Gold edged up from Tuesday's two-week low to trade at $1,189 an ounce XAU=.

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