Dollar Slumps; Euro Rallies on ECB’s Tapering Signals

The dollar tumbled to its weakest level since the start of 2015 as fading expectations of U.S. interest-rate increases, North Korea tensions and a historically powerful hurricane unsettled investors. The euro was near the highest since January 2015 after the European Central Bank stopped short of attempting to jawbone it lower. Stocks in Asia were mixed.

The dollar’s decline deepened during Asian trading on Friday as the yen extended gains after hitting its strongest since November on Thursday and investors girded for potential economic damage to Florida from the historically powerful Hurricane Irma. The Australian dollar surged to the highest in more than two years. Asian equities from Tokyo to Sydney fluctuated. Ten-year Treasury yields fell toward 2 percent. Gold headed for a third week of gains ahead of a potential North Korean missile launch.

ECB President Mario Draghi cautioned on the common currency’s strength though didn’t expand on any action to address it. He said he’s watching the euro’s gains as policy makers edge toward settling the future of their bond-buying program. The euro’s surge — more than 14 percent against the dollar this year — was reflected in a downgrade to the ECB’s inflation outlook, though Draghi said economic growth remains solid.

Federal Reserve Bank of New York President William Dudley was the latest U.S. central banker to lay out his views ahead of a policy-setting meeting later this month as expectations for an interest-rate increase have been scaled back. Dudley reiterated the need to continue raising rates while conceding that the Fed may have to rethink its inflation model.

Meanwhile, the threat from North Korea lingers. U.S. President Donald Trump said it’s not “inevitable” that the U.S. will wind up in a war with North Korea over its continued development of nuclear weapons, though military action remains an option. Pyongyang may test a missile this weekend to coincide with its “founding day” on Sept. 9.

Here are the main moves in markets:

Stocks

· The Topix index was little changed as of 2:17 p.m. in Tokyo, while South Korea’s Kospi index fell 0.2 percent and Australia’s main gauge was 0.4 percent lower.

· The Hang Seng Index advanced 0.6 percent in Hong Kong. Gauges on Chinese markets were also higher.

· Contracts on the S&P 500 Index lost 0.2 percent after the underlying benchmark closed little changed on Thursday. The Nasdaq Composite Index and Dow Jones Industrial Average also barely budged.

· The MSCI Asia Pacific Index climbed 0.5 percent to the highest since December 2007.

Currencies

· The Japanese yen rose 0.6 percent to 107.82 per dollar.

· The euro increased 0.5 percent to $1.2080 and the Swiss franc advanced 0.5 percent to 0.9460 per dollar.

· The Australian dollar jumped 0.8 percent to 81 U.S. cents.

· The Bloomberg Dollar Spot Index fell for a seventh day, down 0.5 percent.

Bonds

· Yields on 10-year Treasuries were at 2.02 percent, after falling more than six basis points Thursday.

· The Australian 10-year bond yield slumped about eight basis points to 2.56 percent.

Commodities

· Gold rose to $1,355.89 an ounce and touched its highest in a year. It advanced 1.1 percent on Thursday.

· West Texas Intermediate crude was steady at $49.23 a barrel.

Source: Bloomberg

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