London - The dollar was bobbing near a 3-1/2 month high and shares dipped for a second day on Wednesday, as the recent jump in US borrowing costs weighed on markets before what is set to be an action-packed ECB meeting.
Safe-haven gold was stuck near a four-month low while there were also signs pressure was building again on emerging market assets that suffered badly earlier in the year from rising US rates.
Investors were already beginning to move to the sidelines before Thursday's ECB meeting, where expectations are intense that the bank will respond to the euro zone's low inflation and sluggish growth with an aggressive set of easing measures.
The euro sagged 0.1 percent to about $1.3611 in early trading, while shares steadied and the region's main bond markets clawed back some of the ground they had conceded on Tuesday following the rise in US rates.
“What is interesting across the market is that US rates are higher,” said John Hardy, head of FX strategy for Saxo bank in Copenhagen.
“We've seen the 10 year Treasury yield zip back above the 2.5 percent level and it has been quite a significant move these last few days.”
“Emerging market currencies backing up again and it is also pushing dollar/yen higher so there is a very interesting-sub plot developing outside of the ECB.”
There has been a near 20 basis points rise in 10-year US Treasury yields since the end of last week.
Treasuries tend to be a benchmark for global borrowing costs so movements tend to be felt in virtually all parts financial markets.
In Asian trading, shares on Tokyo's Nikkei had hit a fresh 2-month high on a weaker yen and pension reforms, though action elsewhere in the region was muted.
European shares dipped in opening trading, though they had mostly recovered by 10:00 SA time, with the main markets in London , Frankfurt and Paris virtually unchanged.
“With no one in a rush to do anything, markets are still hovering near their recent highs but with no one willing to bet big ahead of the central bank meetings and payrolls, the natural position squaring is leading to a consolidation,” Jonathan Sudaria, a dealer at London Capital Group, said in a note to clients.
US JOBS DATA ON FRIDAY SEEN AS TEST
On Wall Street overnight, shares edged lower but remained close to multi-year highs, with the benchmark S&P 500 ending less than a point off Monday's record close, and helping to push benchmark US bond yields to three-week highs.
In early European trading, the yield on 10-year notes was at 2.575 percent, slightly down from its US close but well above last week's 11-month lows.
German Bunds were at 1.354 percent.
US economic data on Tuesday showed new orders for factory goods rose for a third straight month in April and automakers recorded solid vehicle sales in May, adding more evidence to support market expectations of an improved second quarter performance.
US jobs data on Friday could help determine whether the rise in yields will continue.
The US nonfarm payrolls report for May is expected to show that employers added 218,000 jobs, according to the median estimate of 105 economists polled by Reuters.
The dollar index, which tracks the greenback against a basket of six major rivals, added about 0.1 percent on the day to 80.653, not far from Monday's high of 80.681, which was its best level since mid-February.
It put the squeeze on emerging markets.
The Indonesian rupiah led a wave of Asian currencies down as it hit a near four-month low, while further south, the Australian dollar leapt a quarter of a US cent after it first quarter growth figures beat forecasts.
In commodities trading, gold was steady at $1,245.90 an ounce after plumbing a four-month low of $1,240.61 on Tuesday.
Oil added about 0.2 percent to $102.83 a barrel, after industry data showed a bigger-than-expected fall in US crude stockpiles.
“I think prices will stabilise here for a short while around $1,245 before making another big jump either way,” said a gold trader in Hong Kong.
“People are mostly waiting for Friday's payrolls data before taking any big positions.” - Reuters