EU shares up, Asian stocks near 11-week lows, dollar climbs on Fed rate view
The dollar hit an 8-week high against the euro on Tuesday as expectations grew that the U.S. Federal Reserve could raise interest rates sooner than later, while world stock indexes rallied with financial and tech shares.
Surprisingly strong data on U.S. new home sales in April supported the view the economy may be strong enough for the Fed to raise interest rates as early as June, pushing U.S. Treasury prices to session lows.
Last week, the Fed surprised investors when the central bank’s meeting minutes opened the door to a rate hike as early as in June.
The euro was last down 0.5 percent against the European single currency at $1.1157 EUR=.
“A re-pricing of Fed tightening expectations is the principal driver of the U.S. dollar’s resurgence,” said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in New York. “Markets will wax and wane, but generally speaking, the thrust will be toward dollar gains.”
On Wall Street, financial shares, which benefit from rising interest rates, led gains in the S&P 500 along with technology shares, though all sectors were higher.
The Dow Jones industrial average .DJI was up 202.03 points, or 1.15 percent, to 17,694.96, the S&P 500 .SPX had gained 24.78 points, or 1.21 percent, to 2,072.82 and the Nasdaq Composite .IXIC had added 75.95 points, or 1.59 percent, to 4,841.74.
Some investors worry, though, that tightening borrowing costs could hamper economic expansion and reduce liquidity in stock markets, which could limit stock gains.
MSCI’s all-country world stock index .MIWD00000PUS was up 0.9 percent and on track to snap four straight days of losses. The pan-European FTSEurofirst 300 index .FTEU3 of leading regional stocks jumped 2.2 percent.
Financial shares also rallied in Europe. Sentiment was underpinned by comments from European Central Bank supervisory chief Daniele Nouy, who said the bank was working on new proposals for non-performing loans that remain one of the biggest problems for the region’s economy.