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Abu Dhabi, UAESunday 23 September 2018

Stocks rise but dollar mixed ahead of bankers' Jackson Hole speeches

Janet Yellen and Mario Draghi are due to speak at a central bank forum later today

Federal Reserve chair Janet Yellen took aim at Donald Trump's plans to reform banking regulations. Brennan Linsley, AP
Federal Reserve chair Janet Yellen took aim at Donald Trump's plans to reform banking regulations. Brennan Linsley, AP

The dollar gained against the yen but inched down against the euro on Friday, as traders cleared the decks for speeches by Federal Reserve chief Janet Yellen and her euro zone counterpart Mario Draghi at a central bank meeting in Jackson Hole, Wyoming.

A debate in the US Congress over raising the government's debt ceiling has begun to loom over the US currency, with lawmakers expected to have just two weeks to agree a deal when they return in September.

But with trade thinned by the last weeks of the European holiday season, and a bank holiday weekend in the world's main currency trading hub London, expectations of more signs from Ms Yellen on plans to reduce the Fed's balance sheet had steadied the greenback overnight.

It was on course to end the week 0.4 per cent stronger against the yen, having slipped to as low as 108.60 yen on tensions stemming from the Korean Peninsula.

"Given the vibes that we have been getting from the Fed I think it is becoming clear that they are intent on pursuing this balance sheet reduction next month," said Alvin Tan, a strategist with Societe Generale in London.

"The market is effectively expecting an announcement in September so (if Yellen promises one) it will not be a surprise. (But) the kneejerk could help push US bond yields higher and obviously help the dollar."

Expectations that Mr Draghi and the European Central Bank will push forward with their own tightening of policy this year, however, have driven the single currency close to 14 per cent higher this year and many banks predict more is to come.

By mid morning, the euro had gained around 0.17 per cent to $1.1784 . The dollar was up 0.1 per cent on the day at 109.69 yen.

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Meanwhile world stocks climbed toward their best week in six on Friday, as a near three-year high in emerging market shares and a roaring rally in metals bolstered the year's global bull run.

European shares overcame an early wobble after reassuring business confidence data from Germany and as the week's 3 and 7 per cent rises in metals copper and nickel gave the region's miners a 4 per cent weekly gain.

London's FTSE, which has a heavyweight mining contingent, led the way with a 0.4 per cent rise on the day and 1.5 per cent for the week. It was also being boosted by the fourth straight weekly drop in the Brexit-bruised pound, which helps internationally-earned profits.

Fast charging emerging markets helped Asia secure a 1.6 per cent weekly rise, while Wall Street looked set to open higher despite a rumbling row for Donald Trump as the United States approaches its self-imposed government debt limit.

Price data from Japan highlighted what could be a major topic of discussion at the central bankers' gathering: why are inflationary pressures remaining so stubbornly weak despite a seemingly synchronised global economic recovery?

Japan's core consumer prices inched up for a seventh straight month in July from a year earlier, but the gain was a tepid 0.5 per cent and driven largely by higher fuel bills. The yen showed little reaction.

The ECB's job has been made harder by a stronger euro and traders are still wary of any comment on the currency's strength from Draghi.

The dollar index against a basket of six major currencies was also up 0.1 per cent at 93.382 after nudging up 0.15 per cent overnight on the back of a rise in U.S. Treasury yields.

"If anything, Draghi may deliver a rather dovish message that still leaves the door open to tapering at the end of the year while carefully managing the euro lower," said Oanda analyst Craig Erlam.

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