Global Markets: Dollar hits three-month high vs euro, stocks slip on inflation fears

LONDON/SHANGHAI: The dollar hit three-month highs against the euro and world stocks slipped on Wednesday after a jump in U.S. inflation fuelled expectations of a quicker end to Federal Reserve stimulus, while a drop in China's crude imports dampened oil.

The U.S. consumer price index rose 0.9per cent in June, data showed on Tuesday, above market expectations and the largest gain since June 2008.

Investors are also watching the semi-annual testimony of Fed Chair Jerome Powell to Congress on Wednesday and Thursday for more clues on whether the Fed will take more aggressive steps to halt rising inflation.

"This isn't surprising that the market is concerned about inflation, our view is still that most of it is transitory," said Seema Shah, chief strategist at Principal Global Investors, adding that she did not expect the Fed to start tapering its bond-buying programme until early next year.

"The Fed speakers will be out in force today reiterating their patience with inflation to reassure markets."

MSCI's broadest gauge of global stocks dipped 0.15per cent after hitting a record high on Tuesday on investor bets of a global economic recovery just weak enough to permit central banks to retain a dovish policy.

European stocks fell 0.34per cent after hitting record peaks on Tuesday, with Germany down 0.24per cent and France off 0.15per cent.

Britain's FTSE 100 dropped 0.5per cent, after UK inflation hit 2.5per cent in June, its highest in nearly three years.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.22per cent, as Chinese blue-chips fell 1.15per cent, Hong Kong's Hang Seng slipped 0.7per cent and Seoul's Kospi lost 0.2per cent. Japan's Nikkei fell 0.38per cent.

S&P futures were steady after the S&P 500 index lost 0.35per cent on Tuesday. The Dow Jones Industrial Average fell 0.31per cent and the Nasdaq Composite dropped 0.38per cent overnight.

President Joe Biden's administration is continuing to push for fiscal stimulus to boost the U.S. economy.

Democrats on the U.S. Senate Budget Committee late on Tuesday reached an agreement on a US$3.5 trillion infrastructure investment plan that they aim to include in a budget resolution to be debated this summer.

The New Zealand dollar shot up 1per cent as markets bet that a New Zealand rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase programme from next week.

The Bank of Canada is also expected to taper weekly asset purchases at its meeting later on Wednesday, according to a Reuters poll.

The euro rose 0.17per cent to US$1.1793 after the U.S. dollar earlier touched its three-month high against the single currency.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, nudged down 0.16per cent to 92.643 after rising as high as 92.832 - just below the 92.844 level reached last week for the first time since April 5.

The dollar dipped 0.11per cent against the yen to 110.50.

The pound rose 0.28per cent against the dollar after the high UK inflation data.

“An interest rate rise is not yet around the corner, but it is steadily becoming a less distant prospect, and this is injecting momentum into the pound," said Ulas Akincilar, head of trading at INFINOX.

U.S. bond yields pulled back after jumping across the curve on Tuesday on the U.S. inflation data.

The benchmark 10-year yield slipped to 1.4098per cent from a close of 1.415per cent on Tuesday.

German 10-year Bund yields hit a one-week high at -0.27per cent, up 2.5 basis points, ahead of a 10 billion euro auction later in the session.

Oil steadied after data showed China's first-half crude imports dropped 3per cent from January to June versus a year earlier.

Prices had surged more than 2per cent on Tuesday after the International Energy Agency said the market should expect tighter supply due to disagreements among major producers.

U.S. crude was steady at US$76.52 a barrel and global benchmark Brent crude was flat at US$76.53 per barrel.

Spot gold rose 0.24per cent to US$1,812.50 per ounce as the dollar and U.S. yields dipped.

(Reporting by Andrew Galbraith; Editing by Ana Nicolaci da Costa and Timothy Heritage)