The dollar held on to broad gains early on Wednesday, having rallied to an 8-year high against the Japanese yen after upbeat data bolstered the case for a U.S. interest rate hike this year. It also rose against the euro, which slid to its lowest since April 28.
The euro stayed close to a 1-month low struck overnight. With Athens already facing the possibility of missing its June 5 debt repayment deadline to the International Monetary Fund, the mood in Europe became even more edgy as voters in Spain punished the ruling Popular Party in local elections after years of austerity policies. "Greek tensions are spreading to other European markets, as political instability has escalated, notably in Spain and Poland," strategists at Barclays wrote.
Commodities felt the impact of a stronger dollar, with crude oil prices tumbling nearly 3 percent overnight. U.S. oil managed to edge up 0.5%, while Brent gained 0.4%. Gold held near a 2-week trough early on Wednesday after sliding almost 2% in the previous session as strong U.S. data suggested the Federal Reserve may be on course to raise interest rates this year.
The Bank of Japan’s members agreed that the risks to economic growth are balanced but they warned that growth could slow temporarily due to a nationwide sales tax increase scheduled for the start of fiscal 2017. They also changed the time frame for achieving 2% inflation around the first half of fiscal 2016, which begins in April.
Finance ministers from the world’s largest developed economies start their meetings later today, against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil, while the UK government is expected to set forth its policies and proposed legislation in a lavish ceremony today in Westminster. EU membership referendum, income tax, immigration and employment are among the top priorities for the Conservatives.