Dollar rises versus euro; oil drops before ECB, OPEC meetings

The dollar hit its strongest since mid-March against its peers at the start of a week likely to highlight the divergent outlooks for US and euro zone interest rates, while oil fell with OPEC ministers expected to keep the pumps on.

The euro fell against the dollar, before a European Central Bank meeting on Thursday that is expected to unveil fresh monetary easing measures.

The US Federal Reserve, by contrast, is expected to raise interest rates later this month for the first time in nearly a decade.

European shares opened lower, following falls in Asia, with investors nervous before the Thursday’s meeting at which the ECB may extend its bond-buying programme and cut its already negative deposit rate. Shares later picked up.

“The market expects a broadening of the purchase programme as well as a cut in the deposit rate, but expectations have gone quite far since we had rumours last week of a possible two-tier deposit rate cut,’’ said Norbert Wuthe, rate strategist at Bayerische Landesbank.

On Friday, ministers of the Organization of the Petroleum Exporting Countries meet in Vienna and are not expected to cut production.

The pan-European FTSEurofirst 300 index was last up 0.2 per cent. Worries over China, which hit Asian shares, also weighed on early trade in Europe.

Chinese stocks, which fell more than 5 per cent on Friday, were at one point down a further 3 per cent on Monday before closing marginally up on the day. The CSI300 index of the largest listed companies in Shanghai and Shenzhen and the Shanghai Composite both ended up 0.3 per cent.

China’s currency was also in the spotlight, with the yuan jumping in offshore trade on suspected intervention by Beijing hours before the International Monetary Fund is expected to grant it reserve status. It last traded at 6.431 to the dollar, up 0.2 per cent on the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent, and was on course to book a loss of about 2.8 per cent for the month of November, after making its first gains in six months in October.

Tokyo’s Nikkei stocks index fell 0.7 per cent on concern over China and after Japanese industrial output data undershot forecasts.

Dollar index

The dollar index, which measures the greenback against a basket of currencies, touched its highest since mid-March and was on track for a 3 per cent gain on the month.

The euro fell 0.2 per cent to $1.0566 while the yen lost 0.2 per cent to 123.05 per dollar. Sterling, meanwhile, hit a seven-month low just below $1.50.

“We are probably with the consensus, the Fed is going to tighten, the ECB is going to ease, so the euro will go lower to about 1.05 and then that will be your lot (for the year),’’ said Sanjiv Shah, Chief Investment Officer with Sun Global in London.

Brent crude was last down 22 cents at $44.64 per barrel and on track for a 10 per cent fall this month.

While most analysts do not expect OPEC to cut output, they are mindful that Saudi Arabia could be inching towards the idea of working on price support measures with other oil producers.

Gold, which has fallen lately on the prospect of higher US interest rates, was on track for its worst month in 2 1/2 years. It last traded down 0.1 per cent at $1,057 an ounce.

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