Dollar and oil pause ascent, bonds and gold lick wounds

May 18, 2018

New York (May 18)  Calm returned to world markets on Friday after a rollercoaster week that has seen oil break $80 a barrel, government borrowing costs jump and emerging markets battered by a pumped-up dollar.

Traders were wondering if it would all flare up again with Italian politics unsettled, the United States and China locked in trade talks and Donald Trump’s decision to dump the Iran nuclear deal still causing fallout.

European stocks were 0.3 percent lower, but with the euro EUR= near a 5-month low following the dollar's surge and oil shares gleeful about its rapid rise, the region was heading for an eighth straight week of gains.

Slowing Japanese core consumer price growth that kept the Bank of Japan's elusive 2 percent target well out of reach saw the dollar hit a four-month high of 111 yen JPY= though it stalled had elsewhere.

Italian government bonds continued their struggles too. They have seen their biggest sell-off in over a year this week over plans being floated by a proposed new anti-establishment coalition government.

One policy includes issuing more short-term debt to pay companies owed money by the state, the economics chief of the one of the coalition parties, the far-right League, said on Friday.

“We don’t have an agreement on a government at this point, but the market remains worried,” Societe Generale strategist Alvin Tan said, pointing to this week’s fall in euro against the traditionally-safe Swiss franc.

The dollar index against a basket of six major currencies .DXY steadied at 93.471 having risen to a five-month peak of 93.632.

The index has gained about 1 percent this week, buoyed by the surge in U.S. Treasury yields, with the 10-year U.S. Treasury note yield US10YT=RR scoring a seven-year peak of 3.128 percent.

Euro traders nudged the shared currency back above $1.1805 EUR=, but it has fallen nearly 1.2 percent this week, largely pressured by the Italian uncertainty.

It is also heading for its fifth successive weekly drop versus the dollar, which would be a first for the shared currency since 2015.


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