Dollar rises as world stock markets hold steady

Employees of Tokyo Stock Exchange work at the bourse after the New Year opening ceremony at the Tokyo Stock Exchange (TSE), held to wish for the success of Japan’s stock market, in Tokyo, Japan, 4 January

London (Reuters): The U.S dollar rose on Friday while world stock markets were steady, as investors braced for the likelihood of a hike in U.S. interest rates in coming months.

The MSCI All-Country World equity index edged higher by 0.1%.

The pan-European FTSEurofirst 300 index of leading European shares slipped 0.1% but remained in touching distance of a one-month reached earlier this week.

“Markets are doing remarkably well given that a U.S. interest rate rise might happen as early as next month,” said Lex Van Dam, hedge fund manager at Hampstead Capital.

The dollar index rose 0.1% and was on track for its best monthly performance since last November, after a string of U.S Federal Reserve officials raised expectations for a hike in interest rates as early as June, given signs of strength in the world’s biggest economy.

Investors were also looking out for further clues on when U.S. rates might go up from a speech due later in the day from Federal Reserve head Janet Yellen.

“I’m not sure if U.S. interest rates will go up in June, but July is quite likely,” said Clairinvest fund manager Ion-Marc Valahu, who added that he had recently canceled some earlier “short” positions that were betting on the dollar losing ground.

A stronger U.S. dollar can often lift European stocks, since a weaker euro EUR= can help European companies to export their goods overseas.

However, some traders said stock markets were unlikely to make much headway in the coming month, given the uncertainty over issues such as future U.S. rate rises and Britain’s June vote on its membership of the European Union.

“With the headwinds of a possible interest rate hike from the Federal Reserve, and the EU referendum in June, there might not be a huge amount of new money coming into the market,” said Manoj Ladwa, head of trading at TJM Partners.