European shares edged higher and the dollar held firm near an 11-week peak against major peers on Friday as investors awaited remarks from the heads of the Federal Reserve and European Central Bank at a conference in Jackson Hole.
U.S. yields stabilised below 14-year highs. Crude oil found its footing around one-month lows, but remained on course for a second weekly decline amid a firmer dollar and simmering China-centred worries about global growth.
Fed Chair Jerome Powell is scheduled to speak at 1405 GMT, while European Central Bank (ECB) President Christine Lagarde will be taking the stage at 1900 GMT and investors will be looking for clarity on whether more rate increases are in store and how long the Fed plans to hold rates high.
“I don’t think Powell is going to be declaring victory just yet because, even though inflation is coming down, there’s still some risk in the data,” said Rufaro Chiriseri, head of fixed income for the British Isles at RBC Wealth Management.
“The sentiment of higher for longer interest rates is probably going to be echoed by Powell and Lagarde. They will be erring on the side of caution, not saying hikes are gone and done and keeping that optionality on the table.”
Fed officials sent mixed signals in the final run-up to the conference. Boston Philadelphia Fed President Patrick Harker told CNBC he doubted the central bank would need to raise rates again, but also indicated he was not ready to predict when rate cuts might begin. Fed President Susan Collins said on Yahoo Finance’s video channel that rates may be near or at a peak, “but certainly additional increments are possible.”
Meanwhile, Reuters reported that ECB policymakers are increasingly concerned about deteriorating growth prospects and momentum for a pause in its rate hikes is building, according to sources with direct knowledge of the discussion.
The pan European benchmark STOXX 600 index was last up 0.2% and on track for a 0.9% gain this week, which would snap a three-week run of declines.
Wall Street futures were pointing to a higher open, while MSCI’s broadest index of Asia-Pacific shares sagged 1.2% overnight.
Japan’s Nikkei tumbled 2%, with Nvidia supplier Advantest the biggest drag, dropping almost 10%.
The U.S. dollar index – which measures the currency against a basket of six developed-market peers, including the euro and yen – pushed as high as 104.31 on Friday, a level last seen in early June.
“The recent firmness in the dollar probably factors in some of the markets’ expectations for a hawkish tone by Powell,” said Francesco Pesole, FX strategist at ING.
The euro and sterling both fell to their lowest levels since mid-June at $1.0766 and $1.2560, respectively.
Against Japan’s currency , the dollar edged tentatively back toward last week’s nine-month high of 146.545, trading as strong as 146.26.
Tokyo consumer price data on Friday, which front-runs nationwide figures, showed inflation remained well above the Bank of Japan’s (BOJ) target. However, the lag in pay increases may be more pivotal for steering policy.
“We do not expect the Bank of Japan to tighten monetary policy because the spike in inflation has not spilled over to a large acceleration in wage growth,” CBA strategist Joseph Capurso wrote in a client note.
At the same time, if Powell is not considered “hawkish enough” by currency traders at Jackson Hole, the dollar may ease to around 145 yen to end the week, he said.
BOJ Governor Kazuo Ueda is scheduled to speak at Jackson Hole on Saturday.
The Chinese yuan traded slightly weaker in offshore markets , slipping to 7.2929 per dollar. For the week though, it has firmed about 0.2%, pulling away from Thursday’s 9-1/2-month trough of 7.349.
Euro area and U.S. Treasury yields ticked up, the latter last sitting at 4.2551% – pulling away from the previous session’s low of 4.174% but well back from Tuesday’s peak of 4.366%, the highest level since November 2007.
In energy markets, crude prices rose on Friday, but remained on track for weekly declines of between 0.6% and 1.6%. Brent crude rose 89 cents, or 1.1%, to $84.24 a barrel, while U.S. West Texas Intermediate crude was up 87 cents, also up 1.1%, at $79.91 a barrel.