The dollar hit a new 9-year high and stocks worldwide headed for their first back-to-back rise of the year on Thursday, as a confident sounding Federal Reserve added to hopes of aggressive new stimulus this month from the European Central Bank.

A steadying in the prices of oil also tempered investor risk aversion and helped nudge benchmark US and European government bond yields off recent lows, while more soft German data kept the euro near its nine-year low.

Euro zone inflation

Bets that the ECB will embark upon bolder stimulus were bolstered on Wednesday by data showing euro zone prices saw their first fall since the height of the financial crisis at the end of last year.

By contrast, Fed meeting minutes consolidated the view that it will raise interest rates for the first time in almost a decade this year as it shrugged off the dollar’s recent rise.

Dollar index

As European trading gathered momentum, the dollar index, which measures the greenback against a basket of six other major currencies, was hovering at its highest since December 2005 having hit a new peak overnight.

European stocks

European stocks also opened strongly higher, with London’s FTSE, Frankfurt’s DAX and Paris’ CAC 40 all enjoying their biggest jumps in three weeks with respective gains of 1.2, 1.3 and 1.6 per cent.

“It is clear that the shift in language from the Fed very much keeps alive the idea they could raise rates around the middle of the year,’’ HSBC FX strategist, Daragh Maher, said.

“The second thing is that they pared back how much damage they estimate a stronger dollar will do to the US economy. So for me there is a policymaker tolerance for dollar strength.’’

Risk appetite

The return of global risk appetite after a shaky start to the year lifted emerging market stocks 1.5 per cent, saw Russian stocks surge 5 per cent and drove down government bond yields from the euro zone’s debt-strained southern rim.

The latter had been given a boost on Wednesday when Germany’s Angela Merkel made it clear that she wanted Greece to stay in the euro zone.

She said she had “no doubts whatsoever’’ that the Greek situation would be brought to a “successful conclusion’’, but stressed Athens needed to respect its commitments to its bailout programme if it wanted its partners to show solidarity.

Oil pressure

There was more evidence of why the ECB is being urged to use its last policy tool — full-scale government bond buying — as German industrial orders fell by a much larger than forecast 2.4 per cent in November.

In a reminder though of the questionable impact of such policies, Japan saw household confidence drop below where it was before its central bank ramped up stimulus two years ago, while the British pound was at an 18-month low ahead of the Bank of England’s first meeting of the year.

Euro, sterling

The euro fetched $1.1823, close to the $1.1802 hit overnight, its lowest since January 2006. Sterling hovered at $1.5050 down 0.4 per cent on the day.

Japan’s yen was also lower which helped Tokyo’s Nikkei outperform its Asian peers. It gained 1.9 per cent, versus 1.4 per cent for MSCI’s regional index.

“Sentiment is supported by such overseas developments and investor concerns have eased for now,’’ SMBC Friend Securities chief strategist, Toshihiko Matsuno, said.

Oil, the other major issue on investors’ minds following its halving in price over the last six months, looked to have found a temporary foothold at around $51 a barrel.

“We believe that the market is testing water to find where the bottom of crude oil is and it seems for now, $50 is the limit for Brent,’’ Phillips Futures analyst Daniel Ang wrote in a daily note.

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