US dollar dips as Lawrence Summers quits Federal Reserve race

 

The US dollar slid while bonds and shares rallied on Monday after the withdrawal of Lawrence Summers from the race to head the Federal Reserve suggested a more gradual approach to tightening monetary policy.

Further whetting risk appetite were signs of progress in Syria following a Russian-brokered deal aimed at averting US military action, all of which helped propel world shares .MIWD00000PUS to just short of a five-year high.

European bourses were already there as gains of 0.8 percent on London's FTSE .FTSE and Paris's CAC 40 .FCHI and 1.1 percent on Frankfurt's Dax .GDAXI lifted the FTSEurofirst 300 .FTEU3 0.75 percent to follow up a strong day in Asia.

Summers' surprise decision came just before the U.S. central bank meets on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from the current pace of $85 billion a month.

Investors wagered that US monetary policy would stay easier for longer should the other leading candidate for Fed chair, Janet Yellen, get the job.

Markets had perceived Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale stimulus back quickly than Yellen, who is currently second in command at the Fed.

“Clearly the dollar doesn't like the idea it could be Yellen at the helm because of the interpretation that QE could be in place for longer,” said Jane Foley, senior currency strategist at Rabobank.

“The weakness of data more recently, the retail sales on Friday for example, has also bought home that we are still a little way from the US having a resilient recovery ... so I think Summers's withdrawal has touched a bit of a raw nerve.”

It was even possible a first Fed rate rise could be pushed out into 2016, rather than 2015 as currently planned, added Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. Going by Yellen's past speeches, he said she would most probably prioritize reducing unemployment.

“Yellen looks like the clear front-runner, and seems to be the public's popular choice,” he said. “The Fed will shoot to lower the unemployment rate to the full employment level, and this means the new target could be more 5.5 percent, not 6.5 percent.”

The dollar slipped to a near four-week low against a basket of currencies .DXY, with the euro up more than half a US cent at $1.3370 after hitting its highest in almost three weeks and sterling at an eight-month high.

The greenback proved more resilient against the yen, which was hampered by its status as a safe haven and pared early losses to stand at 98.80. Liquidity was lacking with Japanese markets closed for a holiday on Monday.

Stock futures for the S&P 500 and Dow Jones industrial average climbed over 1 percent to 1,698.30 and 15,376.06 respectively.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 1.5 percent to its highest since early June. South Korean shares .KS11 added 1 percent, Australia .AXJO 0.5 percent and Indonesia 1.7 percent .JKSE.

Sentiment was underpinned by Saturday's deal between Russia and the United States to demand that Syrian President Bashar al-Assad account for his chemical arsenal within a week and let international inspectors eliminate all the weapons by the middle of next year.

In debt markets, futures for the US Treasury 10-year note leapt three-quarters of a point following Summers' withdrawal from the Fed race, a sizable move, as investors took yields - which move inversely to prices - lower.

Cash yields dropped to a month-low, going as far as 2.8031 percent before clawing back to 2.818 percent. German Bunds tracked the moves closely and were last at 1.883 percent, well down on last week's peak of 2 percent.

The more distant Eurodollar contracts rallied as the market pared back expectations for how quickly the Fed might finally start to tighten, as opposed to just tapering its stimulus.

Contracts from late 2014 out to 2016 all enjoyed double-digit gains suggesting a hike was now considered more likely in 2015, rather than in late 2014.

The prospect of a more protracted easing cycle would be a big relief to emerging markets from India to Brazil which have been hurt by expectations offshore funds would switch to developed markets as yields there rose.

Emerging market stocks .MSCIEF were up 1.3 percent by 0945 GMT and most emerging Asian currencies were on the front foot, with India's rupee leading the charge at a near one-month high.

In commodities markets, gold recouped some of last week's losses, with the precious metal rising to $1,327 an ounce from around $1,308 and growth-sensitive copper making ground as it lifted off a five-week low.

Oil prices declined as the likelihood of a US strike on Syria seemed to recede further.

Reuters

Arts and Entertainment
books
News
Dr Alice Roberts in front of a
people
Voices
Nigel Farage arrives for a hustings event at The Oddfellows Hall in Ramsgate on Tuesday
voicesA defection that shows who has the most to fear from the rise of Ukip
Arts and Entertainment
The Doctor and the Dalek meet
tvReview: Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
PROMOTED VIDEO
Sport
Diego Costa
footballEverton 3 Chelsea 6: Diego Costa double has manager purring
Arts and Entertainment
The 'three chords and the truth gal' performing at the Cornbury Music Festival, Oxford, earlier this summer
music... so how did she become country music's hottest new star?
Life and Style
The spy mistress-general: A lecturer in nutritional therapy in her modern life, Heather Rosa favours a Byzantine look topped off with a squid and a schooner
fashionEurope's biggest steampunk convention heads to Lincoln
Voices
Caustic she may be, but Joan Rivers is a feminist hero, whether she likes it or not
voicesShe's an inspiration, whether she likes it or not, says Ellen E Jones
News
i100
Arts and Entertainment
Star turns: Montacute House
tv
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Arts and Entertainment
Unsettling perspective: Iraq gave Turner a subject and a voice (stock photo)
booksBrian Turner's new book goes back to the bloody battles he fought in Iraq
News
i100
Arts and Entertainment
Some of the key words and phrases to remember
booksA user's guide to weasel words
Life and Style
Brave step: A live collection from Alexander McQueen whose internet show crashed because of high demand
fashionAs the collections start, Alexander Fury finds video and the internet are proving more attractive
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Law Costs

Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Day In a Page

The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

Kacey Musgraves: Nashville's hottest new star

The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

Soldier-poet Brian Turner on his new memoir

James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

Villa were not surprised that Vlaar was a World Cup star

Andi Weimann reveals just how good his Dutch teammate really is
Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

Bill Granger's simple Italian salads

Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
The Last Word: Tumbleweed through deserted stands and suites at Wembley

The Last Word: Tumbleweed through deserted stands and suites at Wembley

If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution