Dollar firms as Fed meeting nears, shares bound higher
By Marc Jones
LONDON (Reuters) - The dollar edged up against the yen and euro while European and Asian shares recouped some of last week's losses on Monday, as investors hunkered down for the U.S. Federal Reserve's meeting later this week.
Uncertainty over the Fed's future policy course has triggered a sharp sell-off in broad risk assets in recent weeks and investors are hoping for some clarity on its intentions when it concludes a regular two-day meeting on Wednesday.
After a 2.7 percent jump in Japan's Nikkei .N225 had lifted Asian markets, European shares .FTEU3 headed towards mid-morning up 1 percent. London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI all climbed between 0.7 and 1.5 percent. .L.EU
Markets appeared to be largely putting aside last week's concerns about a reduction in Fed stimulus and settling on the view that it will stress its intention to take a cautious approach to moving down the gears when the time comes.
The dollar .DXY was broadly stronger as a result although it was starting to flag. The jump in the Nikkei had seen the yen fall back to 95 yen to the dollar from a two-month high hit last week, while the greenback was up at $1.3339 per euro but had begun to slip.
"I think Bernanke is going to stress that any tapering off of the Fed's QE programs will be dependent on the data flow but that it is still too soon at the moment to reduce the purchases," said Peter De Bruin, a senior economist at ABN Amro.
That message should calm markets, he added.
Financial markets have always known that the Fed would have to start withdrawing its stimulus once the U.S. economy was out of the emergency ward, but Bernanke's comments on May 22 that the bank might 'take a step down' in the pace of bond purchases in coming months still came as a shock. Continued...