November 19, 2014 / 5:18 AM / 3 years ago

Dollar, bond yields gain after Fed minutes

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji/Files

NEW YORK (Reuters) - The dollar hit a seven-year high against the yen on Wednesday and U.S. Treasury yields rose after minutes from the latest Federal Reserve meeting showed policy-makers remained worried about the global outlook, leaving them in a dovish stance.

Investors hoped to see whether the comments from policy-makers in October affirmed the more hawkish policy statement released at the time, which said the U.S. labor market was improving and inflation was unlikely to stay subdued for long.

But the tendency has been for the minutes to go the other way of the statement, said Robbert Van Batenburg, director of market strategy at Newedge in New York.

The minutes said “a couple of members suggested including language in the statement indicating that recent foreign economic developments had increased uncertainty or had boosted downside risks to the U.S. economic outlook.”

“The wording would suggest greater pessimism,” said Van Batenburg. “They didn’t want to create fears.”

While a dovish stance would suggest lower interest rates for a longer period of time, the prospect of a stronger U.S. economy than Japan or Europe gave the dollar a tendency to rise.

The yen weakened further after the minutes were released, with the dollar rising as high as 118.05 yen, its highest level since August 2007, and was last trading at 117.98.

The yen hit a six-year trough against the euro. The euro was little changed against the dollar, rising 0.03 percent $1.2540.

Yields on benchmark 10-year U.S. Treasury notes rose to 2.3577 percent, as their price fell 10/32.

German Bund yields rose after Bank of England minutes and data hinting at a rebound in the U.S. housing market suggested that both UK and U.S. rate hikes could be in the cards.

Ten-year Bund yields, the standard for euro zone borrowing costs, rose 4 basis points to 0.84 percent.

Treasuries also were pressured by Alibaba Group Holding’s expected $8 billion corporate bond deal, traders said, as asset managers sold Treasuries to make way for that debt.

Global equities markets fell, pulled lower by U.S. and European markets. The strong dollar weighed on Wall Street because of its impact on U.S. exports and commodity prices, said Rick Meckler, president of hedge fund LibertyView Capital Management in Jersey City, New Jersey.

MSCI’s all-country world index fell 0.19 percent to 421.83 while the pan-European FTSEurofirst 300 share index fell 0.02 percent to close at 1,359.88.

The Dow Jones industrial average fell 2.09 points, or 0.01 percent, to 17,685.73. The S&P 500 slid 3.08 points, or 0.15 percent, to 2,048.72, and the Nasdaq Composite lost 26.73 points, or 0.57 percent, to 4,675.71.

Oil prices fell for a third straight day after the Fed’s uncertain U.S. economic outlook last month erased early gains made on speculation that the Organization of Petroleum Exporting Countries will cut production next week.

Brent fell 37 cents at $78.10 a barrel. U.S. crude settled down 3 cents at $74.58 a barrel.

Additional reporting by Nigel Stephenson, Marc Jones, Anirban Nag and Atul Prakash in London, Hideyuki Sano in Tokyo and Blaise Robinson in Paris; Editing by James Dalgleish, Chizu Nomiyama and Leslie Adler

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