Dollar remains strong but euro gains amid rate hike signal

European stocks fell amid weak German data and elevated oil prices that reignited concerns over inflation.

The Stoxx 600 index retreated 0.6%, sliding for a sixth day after German factory orders plummeted in July, a sign that the woes of Europe’s biggest economy continued into the third quarter. The euro jumped as much as 0.2% against the dollar after European Central Bank Governing Council member Klaas Knot said markets may be underestimating the chances of an interest-rate hike in September.

West Texas Intermediate held near the highest since November and Brent hovered around $90 a barrel — after breaching the level Tuesday — as the largest OPEC+ producers extended their supply cuts to year-end. 

Brent may continue to trade high on the supply cuts, with the price expected to hover at $90 from now until year-end and at $95 in the first half of next year, according to Heng Koon How, head of markets strategy at United Overseas Bank Ltd. in Singapore.

“A key risk to our forecast of higher prices is further economic weakness in China that may reduce energy demand,” he wrote in a note. “However, the immediate concern appears to be sticky global inflationary risks as energy prices climb anew.”

The dollar was little changed against its Group-of-10 peers, but remained near the highest since March as Treasury yields pushed up across tenors on Tuesday on speculation a resilient US economy will prompt the Federal Reserve to keep rates higher for longer. Yields were down slightly at the start of European trading.

The greenback’s earlier strength prompted Japan’s top currency official Masato Kanda to say Wednesday he wouldn’t rule out any options if currency moves continue. The Chinese central bank also moved to defend the yuan with another record strongest daily fixing, setting a stronger-than-expected fixing everyday since late June. The yen gained, while the offshore yuan steadied.

Asian stocks traded mixed, with benchmark indexes fluctuating in Hong Kong and mainland China, but rising in Japan for an eighth day. Chinese property developers extended their gains, with Sunac China Holdings Ltd. up more than 70% before retreating, on speculations that more stimulus will come. 

Elsewhere, gold was little changed after declining the most in more than a month in the previous session.

Key events this week:

• Eurozone retail sales, Wednesday
• Germany factory orders, Wednesday
• US trade, ISM services index, Wednesday
• Canada rate decision, Wednesday
• Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
• Federal Reserve issues Beige Book economic survey, Wednesday
• Boston Fed President Susan Collins speaks, Wednesday
• Dallas Fed President Lorie Logan speaks, Wednesday
• China trade, forex reserves, Thursday
• Eurozone GDP, Thursday
• US initial jobless claims, Thursday
• Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
• Atlanta Fed President Raphael Bostic speaks, Thursday
• New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
• Japan GDP, Friday
• Germany CPI, Friday
• US wholesale inventories, consumer credit, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.7% as of 8:15 a.m. London time
• S&P 500 futures fell 0.3%
• Nasdaq 100 futures fell 0.5%
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.0740
• The Japanese yen rose 0.2% to 147.37 per dollar
• The offshore yuan was little changed at 7.3120 per dollar
• The British pound was little changed at $1.2563

Cryptocurrencies

• Bitcoin rose 0.2% to $25,749.48
• Ether was little changed at $1,629.05

Bonds

• The yield on 10-year Treasuries was little changed at 4.26%
• Germany’s 10-year yield advanced four basis points to 2.65%
• Britain’s 10-year yield advanced two basis points to 4.55%

Commodities

• Brent crude fell 0.3% to $89.77 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.