Asian shares held firm and the dollar remained on the defensive on Friday as investors bet the U.S. Federal Reserve will not raise interest rates too soon, though anxiety over how Greece’s debt crisis will unfold dampens risk appetite.
Japan’s Nikkei .N225 rose 0.9 percent from a one-month low set on Thursday while MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.2 percent.
The gains follow rises in global equity prices the previous day. Major U.S. share indexes .SPX .DJI jumped about one percent, with the Nasdaq Composite .IXIC finally erasing its last standing milestone from the dot-com era to set a record intraday high.
“The markets seem to be concluding that the Fed will raise rates only once this year, and not twice as had been priced in (before the Fed’s policy meeting ending on Wednesday),” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
The so-called dots chart of Fed policymakers’ interest rate projections showed seven of them now favor hiking rates only once or not at all this year. In March, only three made such a forecast.
In addition, Fed officials expect slightly lower interest rates at the end of 2016 and 2017 than they had forecast in March.
U.S. economic data published on Thursday also all pointed to
strength. Jobless claim applications fell last week to a near 15-year low and factory activity in the mid-Atlantic region accelerated to a six-month high in June, while U.S. consumer prices posted last month their largest increase in more than two years.
The data helped to lift yields on long-dated U.S. bonds, with U.S. 10-year Treasuries yielding 2.320 percent, off Thursday’s low of 2.261 percent.
But short-term note yields were well anchored by expectations of a dovish Fed, with interest rate futures <0#ED:> price hitting one-month high as traders price out chances of a rate hike in September.
That put a lid on the dollar, sending the dollar’s index against a basket of currencies to one-month low of 93.563 on Thursday. It recovering some of its lost ground to stand at 94.035.
As the dollar loses momentum, the euro rose to a one-month high of $1.1440 EUR=EBS on Thursday, near its May peak of $1.1468 and last traded at $1.1370. The British pound rose to seven-month high of $1.5930 GBP=D4.
The yen also hit one-week high of 122.475 to the dollar JPY=. It last fetched 122.99 per dollar, ahead of the Bank of Japan’s policy announcement later in the day, though no policy change is expected.
The biggest focus for many investors is whether Greece will default on its debt and may be even forced to exit the euro, with the showdown between Athens and its international creditors seen reaching a climax soon.
Euro zone leaders will hold an emergency summit on Monday after finance ministers of the currency bloc failed to make any breakthrough on a cash-for-reforms agreement at talks on Thursday.
Barclays analysts said in a note that if no progress was made next week, the immediate negative market reaction would be “consistent with a crisis scenario”.
Greece has less than two weeks to get a deal to secure funds to make a crucial debt repayment to the International Monetary Fund at the end of month.
But as savers speed up withdrawals from Greek banks, concerns are growing that Greece may need to introduce capital controls or bank holidays before month-end.
The European Central Bank told the finance ministers’ meeting it was not clear whether Greek banks would be open on Monday, officials said.
(Editing by Eric Meijer)