Dollar firmer on Fed remarks, Asian shares mixed

SINGAPORE (Reuters): The Dollar held firm near a 10-month high versus a basket of currencies on Friday, after a US Federal Reserve official said the Central Bank may begin to taper its asset buying this summer, while Asian shares were mixed.

The US equities had sagged on Thursday after Federal Reserve Bank of San Francisco President John Williams, said the Fed could begin easing back on the monetary gas pedal this summer and end bond buying late this year.

Although Williams does not have a vote in the Fed’s policy-setting panel this year, his comments had weighed on shares, since the Fed’s purchases of US$ 85 billion a month in bonds has been a significant driver of the rally in equities that has taken US stock indexes to record highs this year. The Dollar index, which measures the dollar’s value against a basket of currencies, rose 0.4% to 83.927, nearing a 10-month high of 84.094 set earlier this week.

The Dollar’s strength will probably become more prominent later this year, FX strategist for Bank of Singapore Sim Moh Siong said. “What we’re seeing right now is more of a rehearsal. It’s likely to pan out on a more sustained basis by late this year,” he said. “Eventually I think the broad tone of data should show that the US economy is holding up much better than the rest of the world and that would lend more durable support for the US Dollar,” he said.

“The Dollar is likely to gain support particularly against other low-yielding currencies such as the Euro, the Yen, Sterling and the Swiss Franc,” he added. In the stock market, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3% to 479.75, inching away from last week’s high of 491.17, its strongest level since July 2011.

Japan’s Nikkei share average erased its earlier losses and edged up 0.3%, holding near a 5½-year intraday high set on Thursday.

The main index in the Philippines fell 0.7%, down for a second straight day after having set a record closing high on Wednesday. Markets in South Korea and Hong Kong were closed on Friday for public holidays.

Spot gold eased to about US$ 1,380 an ounce. Gold had hit a four-week low near US$ 1,369 on Thursday as renewed liquidation in gold ETFs and the recent drop below the US$ 1,400 per ounce level hurt sentiment. The US crude futures slipped to about US$ 95 a barrel. Economic data the previous day had stirred some negative sentiment about the US economy.

Factory activity contracted in the mid-Atlantic region in May, ground-breaking for new homes tumbled in April and new claims for jobless benefits spiked last week, according to three separate reports. Coupled with soft underlying inflation, the data suggested weak demand as the US economy entered the second quarter.