Dollar firm, stocks stall as inflation fuels Fed risk

Wed Jun 18, 2014 2:34am EDT
 
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By Wayne Cole

SYDNEY (Reuters) - The dollar held firm with higher Treasury yields on Wednesday after a surprisingly high reading for U.S. inflation threatened to give a hawkish tilt to the Federal Reserve's policy outlook later in the session.

The risk was more than enough to keep most Asian share markets on the defensive with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.2 percent.

Japan's Nikkei stood out with a rise of 0.93 percent as a softer yen helped offset disappointing trade numbers.

Data out of China showed home prices there fell in May for the first time in two years, but analysts were divided on whether this was a welcome cool down in an overheated sector or the start of something more serious.

The U.S. Fed's two-day policy meeting ends with a statement at 1800 GMT, followed half an hour later by a news conference with Chair Janet Yellen. The central bank will also provide its latest forecasts for growth, inflation and interest rates.

While economic growth has disappointed so far this year, signs of an acceleration in inflation could bring forward the day when the Fed might consider hiking rates.

The U.S. consumer price index increased 0.4 percent in May, twice the gain expected, driven in large part by rising airfares and hotel rates. Core inflation rose 0.3 percent in the biggest monthly rise since late 2009.

"At a minimum it emboldens the hawks, even if Yellen will put a brave face on this and continue to speak about considerable spare capacity in the labor market," said Alan Ruskin, global head of G10 currency strategy at Deutsche Bank.   Continued...

 
A man is reflected on a screen displaying a graph showing movements of the Tokyo Stock Exchange Stock Price Index (TOPIX), outside a brokerage in Tokyo April 14, 2014.  REUTERS/Issei Kato