WAITING ON THE BOE

The dollar's latest spurt softened safe havens such as the yen, with the dollar adding 0.31 percent to 110.71 yen JPY=. 

It also firmed 0.45 percent against a basket of currencies to 95.484 .DXY, hitting an 11-month top and sending the euro EUR= down to a three-week low of $1.1500.

Sterling GBP=D4 was at seven-month low of $1.3108, having made only a fleeting recovery after Britain's Prime Minister Theresa May won another crucial Brexit vote in parliament.

The Bank of England holds a policy meeting later in the session, but not a single analyst polled by Reuters expects a rate hike and some are getting cold feet about a rise in August given recent soft economic data.

While the European Central Bank has signaled an end to bond-buying, it also pledged to keep rates low past next summer, and the Bank of Japan shows no sign of unwinding its stimulus.

Switzerland’s central bank kept its rates deep in negative territory on Thursday and warned that risks to the economy were rising amid all the trade war noise.

Ahead of Friday’s meeting of oil producers in Vienna, Saudi Arabia is trying to convince fellow OPEC members of the need to pump more oil, according to sources familiar with the talks. Iran on Thursday signaled it could be won over to a small rise in output, potentially paving the way for a deal. 

Benchmark Brent crude LCOc1 fell $1.56 a barrel to a low of $73.18 before recovering slightly to $73.34, down $1.40, by 0850 GMT. U.S. light crude CLc1 was $1.00 lower at $64.71.

Dollar steadies, earlier rise stalls as market endures U.S. tax bill wait

The dollar steadied against the yen on Friday, losing steam after rising to a 10-day high, as the market endured the wait for a vote 

The greenback stretched overnight gains and initially climbed to 112.690 yen JPY=, its highest since Nov. 21, as Wall Street rallied and Treasury yields spiked after U.S. tax reform plans were seen progressing towards legislative approval following an endorsement by Senator John McCain. 

But the dollar was last at 112.510 yen, unchanged on the day, after it was decided that the U.S. Senate will not vote on the tax bill late on Thursday night U.S. time but would continue the debate on Friday.

on a U.S. tax reform bill. 

S&P mini futures ESc1 were last down 0.3 percent after Wall Street shares soared to record highs on Thursday. 

The dollar index against a basket of six major currencies was 0.1 percent lower at 92.956 .DXY but poised to eke out a 0.2 percent gain for the week, during which it managed to pull away from a two-month low of 92.496. 

The euro was little changed at $1.1908 EUR= after gaining about 0.5 percent the previous day.

The common currency, which reached a two-month top of $1.1961 on Monday following upbeat German data and pressured the dollar, was still on track for a 0.3 percent weekly loss after a volatile week. The pound was a shade higher at $1.3534 GBP=D3 after surging 0.9 percent overnight when it set a two-month high of $1.3549. 

The Aussie has struggled against the buoyant dollar, which has benefited this week from a significant rise in Treasury yields and upbeat economic indicators.

Tax bill hopes pull futures higher

Global Stock Markets

Wall Street indexes were set to climb at opening on Wednesday after progress on a U.S. tax bill and talk of deregulation in the banking sector pushed stocks to record levels. 

U.S. Senate Republicans on Tuesday rammed forward the bill, which corporate America is hoping will slash business tax rates, in an abrupt, partisan committee vote that set up a full vote by the Senate as soon as Thursday.

Some details remained unsettled and Democrats were left furious about a lack of discussion on a bill that could add an estimated $1.4 trillion to the $20 trillion national debt over 10 years.

Investors seemed to shrug off concerns over a missile test by North Korea that put the entire U.S. mainland within range of its nuclear weapons.

Fed chair nominee Jerome Powell, in his Senate confirmation hearing on Tuesday, said the case for a December rate hike was coming together and also hinted at a lighter touch for bank regulation.

Current Fed Chair Janet Yellen is set to testify on the economic outlook before the Congressional 

Joint Economic Committee, two weeks before the central bank is widely expected to raise interest rates again for the third time this year.

The second revision of third-quarter gross domestic product is forecast to show growth increasing to an annualized rate of 3.2 percent from the previously reported 3 percent.

The Fed’s preferred gauge of inflation, the personal consumption expenditures (PCE) price index excluding food and energy, is expected to show a 1.4 percent rise in the third quarter up from 1.3 percent in the previous quarter.

Both reports are due at 8:30 a.m. ET (1330 GMT).

The Fed is also due to issue its Beige Book, a compendium of anecdotes on the health of the economy, at 2:00 p.m. ET.

 Allergan rose more than 3 percent in premarket trading after Morgan Stanley upgraded to “overweight” from “equal-weight”.

Wells Fargo slipped a third of a percent after the Wall Street Journal reported that a federal regulator has advised the lender’s board that it was weighing a formal action against the bank over improprieties in its auto-insurance and mortgage operations.

European Commission Forecast

The European Commission forecast the euro zone economy will grow at its fastest pace in a decade this year.

In the currency market, the U.S. dollar also faced the head wind from the worries about the tax reform, with the euro firming to $1.1644, extending its rebound from $1.1553, its 3 1/2-month low touched on Tuesday. 

The dollar slipped to 113.32 yen, from Monday’s high of 114.735, its highest level since March.

The 10-year U.S. Treasuries yield also briefly fell, though it came back to 2.340 percent, pressured by this week’s government and corporate debt supply. 

U.S. junk bonds were sold off, with the price of major junk bond ETF plunging to its lowest level since March. 

Oil prices held firm, on course to log their fifth straight week of gains, on hopes of supply cuts by major exporters as well as continuing concern about political developments in Saudi Arabia.

A spokesman for Saudi Arabia’s energy ministry said the kingdom plans to cut crude exports by 120,000 barrels per day in December from November. 

U.S. light crude futures traded at $57.04, down 0.2 percent in early Asian trade but still just shy of this week’s more than two-year high of $57.69 a barrel. 

Brent futures changed hands at $57.02, down 0.3 percent on the day but up 2.8 percent on the week.

Concerns about the stability of Saudi Arabia, sparked after the purge of 11 princes and arrests of dozen other influential figures since last week, are intensifying. 

Sources told Reuters Lebanon believes the country’s former prime minister, Saad al-Hariri, is being held in Saudi Arabia, although Saudi Arabia denied reports he is under house arrest.

Saudi Arabia accused Beirut earlier this week of declaring war against the kingdom, blaming what it describes as aggression by Hezbollah, Lebanese Shi‘ite group backed by its arch-rival Iran.

Banking stocks, dollar hit by U.S. doubts

Banking stocks dropped and the dollar slipped on Wednesday as doubts over tax cuts and bond market moves hurt profitability and raised questions over the longevity of the current expansion in the United States. 

European banking stocks were the worst performing sector as share indexes across the continent opened lower, following a poor session for U.S. banks. 

The dollar edged lower against a basket of currencies .DXY, hurt by a media report that suggested the implementation of a centrepiece corporate tax cut under discussion in U.S. tax reforms plans could be delayed. 

Derek Halpenny, head of global markets research at Mitsubishi UFJ in London, said he was dubious over the progress of the tax cuts programme being urged by U.S. President Donald Trump’s campaign.

Francois Savary, chief investment officer at Prime Partners, said the doubts over the tax issue reinforce the case for some consolidation in the market, which has been fully priced for good news.

Overnight, Goldman Sachs (GS.N) shares lost 1.51 percent and weighed the most on the main stock index. 

This came after the U.S. 2-to-10-year Treasury yield curve hit its flattest in a decade, potentially cutting into the profits of banks, which borrow money at short-term interest rates in order to lend it out at longer terms. US2YT=RR US10YT=RR 

Such a move can also imply that investors are expecting a slowdown. 

European bonds were also snared by this yield curve flattening phenomenon, with yields on long-term German bonds falling to two-month lows on Wednesday. 

Analysts believe that a flattening yield curve at a time when the Federal Reserve is hiking rates is a sign that investors are concerned over the sustainability of economic growth and inflation in the world’s biggest economy. 

In the European session, the two main banking indices suffered the most, falling 1.1 percent .SX7E and 0.9 percent .SX7P respectively, dragging an index of pan-European stocks lower 0.2 percent.

Can Anyone Say Uncertainty

Equities

Again we can start by saying that the S&P500 (SPY) closed the week close to all-time highs. Traditionally this is not how the top of the market is made and a close at the highs in turn creates a weak high, for example, we see no sign of buyers rejecting prices.

I know that’s what we said last week but it’s still applicable and illustrates how bullish the markets really are.

So we are seeing the market repeating previous trajectory, if we look at the S&P 500 fractal (now in its third week) we can see that this rally is still in line with previous price action.

We thought there was a very good possibility that equities would roll over last week, but we did update on clients on Tuesday morning with a target of 2,550 and said it was more likely to be delayed until this coming week. We can see by the above comparison, which is at the top of the channel.

Honestly to pick the end any blow off is a very much a fool’s errand, so it is safer and of course more profitable to recognize what it is happening and just go with it. So while we did originally have a target of 2,510 to 2520, we did advise or short there and we continue to trade stocks on the long.

We believe that buying long dated puts could work, but before we advise that course, we would like to see some reversal and breakdown first. So what are we looking for? We believe that we should see failed high possibly as early as the beginning of next week followed by a break of the channels in the chart above would and that would be a signal that we should change strategy.

Metals

We were tempted to advise and move to buy back some gold (GLD) late last week as bonds (TLT) and the dollar (UUP) reached our internal targets.

Unfortunately, gold did not quite reach the 200 DMA (trend lines) that we were looking for. It is common to see markets bounce before good support comes in; it makes all those anxiously waiting to buy question if they missed the low or best buy in price; but this may mean that you end up chasing the price higher right before price heads back down. This is not a game we want to play.

So the question we find ourselves asking is if US$1,260/oz will stick or reverse down to US$1,250/oz.

In the bigger picture this may not make that much of a difference. The repeating gold range and the interplay between TLT (Bonds) and UUP (Dollar) make the below path likely over the medium term.

Japan shares at two-decade top, yen near three-month low as Abe wins

Japanese shares jumped on a weaker yen on Monday as an election win for Shinzo Abe’s ruling bloc gave a green light for more policy stimulus, while the euro eased as Spain’s constitutional crisis aggravated concerns about political unity in the region.

The U.S. dollar was the major beneficiary as President Donald Trump and Republicans took a small step toward tax cuts, boosting Wall Street stocks and lifting bond yields. 

Japan's Nikkei .N225 raced up 1 percent to its highest since 1996 after Prime Minister Abe looked to have easily won in national elections over the weekend. 

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS held steady, while Singapore's main index .STI reached its highest in over two years. 

Investors assumed Abe’s victory would allow the Bank of Japan to continue with massive monetary easing that depresses bond yields and the yen, even as the U.S. Federal Reserve seems determined to hike rates again in December.

The dollar rose 0.2 percent to 113.74 yen JPY= and briefly touched its highest since mid-July at 114.09. It faces stiff resistance at the July top of 114.49, but a break would open the way to its March peaks around 115.51. Against a basket of currencies, the dollar edged up 0.1 percent .DXY. 

The yen even slipped against the euro EURJPY=, which was having its own troubles as the Spanish government urged Catalans to accept its decision to dismiss their secessionist leadership and to take control of the restive region.

The nation’s biggest political crisis in decades enters a decisive week as Madrid tries to impose its control, although investors have so far assumed the political strife would not spread to elsewhere in the European Union. 

The euro eased only a modest 0.13 percent on Monday to $1.1770 EUR= and has strong chart support around $1.1729.

U.S. producer prices increase; weekly jobless claims fall

U.S. producer prices rose in September as the price of gasoline recorded its biggest increase in more than two years amid hurricane-related production disruptions at oil refineries in Texas.

Other data on Thursday showed applications for unemployment benefits dropped to a more than one-month low last week as the boost to claims in Texas and Florida from Hurricanes Harvey and Irma continued to unwind. 

While the storms impacted the data, there were signs of underlying strength in both wholesale inflation and the labor market, potentially leaving the Federal Reserve on track to raise interest rates again in December. 

The Labor Department said its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in August. Wholesale prices were also lifted by an increase in the cost of services. In the 12 months through September, the PPI jumped 2.6 percent. That was the biggest gain since February 2012 and followed a 2.4 percent jump in August. 

Wholesale gasoline prices soared 10.9 percent in September after increasing 9.5 percent in August. 

The increase was the largest since May 2015 and accounted for two-thirds of the 0.7 percent rise in the price of goods. The Labor Department said higher energy prices were likely the result of “reduced refining capacity in the Gulf Coast area due to Hurricane Harvey.” 

It said Harvey and Irma, which devastated Florida, had “virtually” no impact on the collection of PPI data or survey response rates. Harvey and Irma, which struck in late August and early September, caused the economy to shed jobs last month for the first time in seven years. 

The U.S. dollar .DXY was little changed against a basket of currencies after the data. Prices of U.S. Treasuries pared gains while U.S. stock index futures were trading lower. 

The dollar was flat, Oil prices steadied

Economic data will also dictate the path of interest rate hikes in the world’s largest economy, and recently that has been fairly mixed.

The dollar was flat against a basket of major currencies .DXY on Thursday, having slipped a bit on Wednesday after a survey showed hiring slowed to an 11-month low of 135,000 [USADP=ECI], partly to disruptions from hurricanes, although this was better than economists’ median forecast. 

Economists expect Friday’s nonfarm payrolls report, one of the most closely watched pieces of economic data in financial markets, to show a similar slowdown. 

They estimate a payroll increase in September of 90,000, substantially lower than the average over the past year of around 175,000, though some say investors may need to pay attention to state data due on Oct. 20 to exclude the impact from hurricanes. 

U.S. 10-year bond yields were flat at 2.33 percent, holding below multi-month peaks hit earlier this week US10YT=RR. 

Trump proposed a tax overhaul late last month but it remains to be seen whether the plan can get through Congress given the divisions among Republicans. 

Oil prices steadied on Thursday on expectations that Saudi Arabia and Russia would extend production cuts, although record U.S. exports and the return of supply from a Libyan oilfield dragged on the market.

Brent crude LCOc1 was up 20 cents at $56.00 a barrel by 0800 GMT. U.S. light crude CLc1 was unchanged at $49.98.

Elsewhere, Qatar’s stock index .QSI sank to a fresh five-year low on Thursday, hurt by the effects of sanctions imposed by neighboring states.

The dollar dropped, The Euro steadied

The dollar dropped 0.1 percent against the yen to 111.61, well shy of last week’s two-month high of 112.725.

The yen tends to benefit during times of risk aversion due to Japan’s net creditor status and the expectation that Japanese investors would repatriate assets when facing a crisis. 

The euro steadied after tumbling on Monday following a severely diminished election victory for German Chancellor Angela Merkel that was accompanied by a surge in support for the far right. 

Support for Merkel’s conservatives unexpectedly slumped to its lowest since 1949 and the Social Democrats, partners in the outgoing coalition, said they would go into opposition. 

The single currency was flat on the day at $1.1848, while the dollar index, which tracks the greenback against a basket of six major rivals, was down slightly at 92.634. 

On Monday, New York Fed President William Dudley said the U.S. central bank is on track to gradually raise rates given factors depressing inflation are “fading” and the U.S. economy’s fundamentals are sound. 

But Chicago Fed President Charles Evans said the Fed should wait until there are clear signs of faster wage and price growth before hiking rates again. 

Crude oil prices took a breather after soaring more than 3 percent on Monday, as major producers said the global market was on its way to rebalancing while Turkey threatened to cut oil flows from Iraq’s Kurdistan region to its ports. 

U.S. crude dipped 0.2 percent to $52.14 a barrel, after touching its highest levels since April. Brent crude rose slightly to $59.04, after scaling its highest peak since July 2015. 

Gold was slightly higher after the heightened Korean tensions helped push it up more than 1 percent overnight. Spot gold added 0.1 percent to $1,311.10 per ounce.

Dollar revives, Sterling Touches Two Months Low

The dollar added about 0.1 percent to 109.11 yen JPY=D4, having lost 0.5 percent overnight, after managing to contain losses on Wednesday in Asia following Trump's comments. 

The dollar index .DXY, which tracks the greenback against a basket of six major peers, also gained 0.1 percent to 93.226 on Thursday, following the previous day's 0.4 percent slide.

Also undermining the dollar were Trump's threats to end the North American Free Trade Agreement, after three-way first-round talks that ended on Sunday failed to bridge differences.

The Canadian dollar CAD=D4 strengthened about 0.1 percent to C$1.2543 per dollar and the Mexican peso MXN= was little changed at 17.68. 

Investors are also keeping a close eye on a central banking conference in Jackson Hole, Wyoming, which begins on Thursday, where Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are both due to speak, although new policy messages are seen as unlikely.

The euro EUR=EBS was steady at $1.1807, after climbing 0.4 percent on Wednesday on strong German and French manufacturing and services sector surveys. 

Sterling GBP=D4 touched a two-month low on Thursday and was trading down 0.1 percent from Wednesday's close at $1.2789. 

Bitcoin BTC=BTSP inched up 0.6 percent to $4,131, but remained off its all-time high of $4,480 hit a week ago. It is up 331 percent this year. 

In commodities, oil prices crept lower as rising U.S. oil output dampened some of the optimism that had accompanied eight straight weeks of declines in U.S. crude inventories. 

U.S. crude CLc1 slipped 0.1 percent to $48.37 a barrel, after rising 2.2 percent over the previous two sessions. 

Global benchmark Brent LCOc1 was unchanged at $52.57, after climbing 1.8 percent in the past two days. 

Gold XAU= was also steady at $1,289.66 an ounce, retaining Wednesday's 0.4 percent jump.

Stocks reach new peak in world full of surprises

World stocks breached new record highs on Monday as better-than-expected company earnings and economic data from the United States stole the focus from rising geopolitical tension over North Korea's nuclear program.

The U.S. dollar dipped slightly but held on to most of Friday's gains - its biggest daily rise this year - made after data showed the United States created more jobs than forecast last month.

For those watching second quarter corporate results in recent weeks, there have been many such surprises. Of the nearly 1000 companies in the MSCI world index that have reported, 67 percent have beaten expectations, according to Reuters data. 

These two factors helped nudge the flagship share index above a peak breached late last month, setting a new all-time high of 480.09 on Monday. 

"The US made the most noise last week ... At the start of the new week, risk sentiment improved in Asia with investors continuing to show a certain degree of risk affinity," DZ Bank strategist Rene Albrecht said. 

Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program. 

South Korean President Moon Jae-in and his U.S. counterpart, Donald Trump, agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon. 

Yields on U.S. and German government bonds - seen as a safe haven in times of stress - rose off one-month lows hit at the tail end of last week.

High-flying euro pushes down European shares

The euro hit a 23-month high on Monday against an ailing dollar, weighing on shares of European exporters before weaker-than-expected German business activity took the shine off the single currency. 

The euro touched $1.1684 in Asian trade before pulling back to trade at $1.1648, down 0.2 percent on the day. It hit a low for the day of $1.1638 after preliminary data showing German private sector growth slowed more than expected in July. 

The euro's strength helped push the dollar - hamstrung by political uncertainty in Washington - to its lowest in 13 months against a basket of major currencies. 

The euro has risen in recent weeks on expectations the European Central Bank will before long begin to scale back its bond-buying monetary stimulus scheme. 

On Friday, the day after an ECB policy meeting, four sources with direct knowledge of the discussions said policymakers saw October as the most likely date to decide whether to claw back stimulus. 

European shares fell on Monday. The exporter-dominated German DAX index dropped 0.2 percent. The pan-European STOXX 600 index was down 0.1 percent, after falling 1 percent on Friday as the strong euro weighed on earnings. 

German government bond yields edged lower after euro zone business activity data also came in below forecasts. 

The 10-year yield - the benchmark for euro zone borrowing costs - fell to 0.49 percent, down 0.4 basis points and its lowest in more than a week. Yields fell on Friday as the strong euro led investors to question the timing of when the ECB would begin to withdraw its stimulus.

Emerging Asia propels world stocks to new high

A weak U.S. dollar combined with upbeat Chinese data to lift emerging market and Asian shares to levels not seen in more than two years and global stocks to an all-time high on Wednesday.

With the world's most widely-used currency near 10-month lows, there has been an indirect loosening of financial conditions for emerging markets which also serves to support riskier assets such as equities. 

After decent gains in Asia on the back of positive signs from global economic powerhouse China this week, MSCI's world stocks index .MIWD00000PUS looked set for a ninth day of gains which would mark its longest winning streak since October 2015.

The U.S. dollar - which dropped sharply on Tuesday after the collapse of a healthcare bill dealt a blow to President Donald Trump's ability to deliver promised fiscal reforms - could muster little more than tentative gains on Wednesday. 

Against a basket of other major currencies, it was up 0.3 percent at 94.878, but still down around 7 percent on the year and within sight of Tuesday's low of 94.476. .DOXY 

Analysts said the slight gains in the dollar were down to expectations the European Central Bank and the Bank of Japan may strike dovish tones when they meet on Thursday which could dent recent strength in the euro and the Japanese Yen. 

The ECB is expected to adjust their language but substantive changes to their policy will likely come later in the year. The BOJ is expected to raise its growth forecast but cut its inflation outlook, underlining the cautious tone adopted recently by major central banks. 

The euro inched down against the dollar EURO=EBBS, having made a 14-month top on Tuesday. 

The diminished prospect of fiscal spending in the U.S. has been a boon to bonds, especially as a run of soft U.S. inflation readings had lessened the risk that the Federal Reserve would need to be aggressive in removing its stimulus. 

Yields were broadly lower across the euro zone for a second straight day on Wednesday, with U.S. Treasury yields trading near three-week lows.

Dollar nurses losses as carry trades flourish

The U.S. dollar nursed losses at a 10-month low against a basket of currencies on Monday as investors cheered upbeat Chinese data by piling into leveraged positions such as the Australian dollar and other high-yielding currencies. 

Some of the biggest gains were seen in the yen crosses such as sterling, which was up 0.1 percent on the day as investors added bets that U.S. interest rates would rise very gradually in the coming months after the latest data.

"Risk outlook remains positive after the latest figures and markets are looking to add positions especially in the high-yielding names," said David Madden, a strategist at CMC Markets. 

China's second-quarter gross domestic product topped forecasts with a rise of 6.9 percent on the year, while retail sale and industrial output were both strong. 

The Aussie shot to a two-year high and breached major chart resistance in the process in the $0.7700/7778 range. The Aussie was last at $0.7814 with bulls targeting the 200-week moving average around $0.8018

U.S. rate hike expectations have been pared to less than a 50-percent probability after the latest inflation print on Friday and with no top-tier data this week, markets have plenty of time to mull over the future direction of interest rates. 

The repeated disappointment on prices cast a question mark over the Federal Reserve's confidence that inflation would soon rebound. 

Latest positioning data suggest markets are also turning bearish on the dollar with the first U.S. dollar shorts evident since May 2016. However, carry trades are flourishing with Japanese yen shorts at its highest level since June 2015. 

The dollar was trading broadly flat at 112.575 against the yen.

The Canadian Dollar Notched Its Biggest Percentage Gain

Treasuries rallied in reaction, with yields on two-year notes US2YT=RR falling to three-week lows, as did bonds in Europe and Asia.

The odd man out was Canada, where yields hit their highest since late 2013 after the Bank of Canada raised rates a quarter point saying the economy no longer needed as much stimulus. 

The Canadian dollar CAD=D4 notched its biggest percentage gain since March 2016 and was last trading near one-year peaks at C$1.2740. 

The main loser was the U.S. dollar which slipped to 112.97 on the yen JPY=, while the euro edged up to $1.1437 EUR=. Against a basket of currencies, the dollar was pinned just above nine-month lows at 95.602 .DXY. 

The drop in U.S. yields benefited gold, which pays no interest, and nudged the precious metal up 0.3 percent to $1,223.67 XAU= and away from its recent trough of $1,204.45. 

Oil prices flatlined as producer club OPEC said it expected demand for its crude to decline next year as rivals pump more, pointing to a market surplus in 2018 despite efforts to tighten supply.

Brent crude futures LCOc1 were up 1 cent at $47.75 a barrel, while U.S. crude CLc1 was unchanged at $45.49.

The U.S. Dollar Eased, New Zealand Dollar Gained

Boston Fed President Eric Rosengren and Fed Vice Chair Stanley Fischer suggested they are concerned less about raising rates too fast or too high than about keeping them too low for too long.

The yield curve between five-year notes and 30-year bonds US5US30=TWEB flattened to 95 basis points, the narrowest since December 2007, on Thursday.

The dollar eased, falling 0.2 percent to 111.145 yen JPY=D4. The dollar index .DXY was about 0.1 percent lower at 97.487, extending Wednesday's 0.2 percent loss.

The New Zealand dollar NZD= gained 0.5 percent to $0.7257 after the central bank left its interest rate unchanged at a record low as expected and reiterated it would remain steady for a while.

Sterling GBP=D3 was steady at $1.2674, holding Wednesday's 0.3 percent gain on comments by the Bank of England's chief economist that he was likely to vote for an interest rate hike this year. Until now, he has been seen as largely supportive of keeping rates low.

The euro EUR=EBS was flat at $1.117, after Wednesday's 0.3 percent gain. The weaker dollar lifted spot gold XAU= 0.5 percent to $1,252.80 an ounce. 

Sterling steady ahead of Brexit talks; dollar eyes Fed's Dudley

Sterling held steady on Monday ahead of the start of Brexit negotiations, with investors also awaiting comments from a top Federal Reserve official to see whether the U.S. dollar's recent rise can be sustained. 

The British pound was little changed at $1.2777 GBP=D3. It hardly budged on news that a van ploughed into worshippers leaving a London mosque on Monday, killing at least one person and injuring several.

Sterling has been through a turbulent month, sinking to a near two-month low of $1.2636 on June 9 on the British election shock, but rallying last week as the Bank of England came close to hiking rates after a split vote in its monetary policy committee.

It is expected to remain vulnerable to bouts of volatility in coming months as negotiations proceed on Britain's divorce from European Union.

Investors are focusing on the UK government's stance in the talks, after the ruling Conservative party's setback in this month's election deepened uncertainty over both Prime Minister Theresa May's Brexit plans and her political future.

The UK government may be open to making some concessions, and aim for a "soft" Brexit, said Tareck Horchani, head of sales trading Asia-Pacific, for Saxo Bank Group in Singapore.

The euro treaded water at $1.1194 EUR= after gaining about 0.5 percent on Friday.

The common currency showed little reaction to French President Emmanuel Macron winning a commanding majority in his country's parliamentary election on Sunday, according to official figures and pollster projections.

The dollar index .DXY, which measures the greenback against a basked of six major rivals, held steady at 97.172.

The index had climbed to a two-week high of 97.560 late the previous week after the Fed raised interest rates and kept the door open for another hike in 2017. But its rally was tempered by Friday's weaker-than-expected housing and consumer sentiment data.

The market is looking to comments by New York Fed President William Dudley, who is due to take part in a roundtable with local business leaders on Monday.

The U.S. Dollar Fell, In Commodity Markets

While the Fed still has another hike pencilled in for this year, a recent run of soft inflation data has left fund futures <0#FF:> implying only a 40 percent chance of a move by December.

The market's five-year outlook for inflation has been falling steadily and currently stands at a seven-month trough of 2.18 percent USIL5YF5Y=R.

It had spiked as high as 2.52 percent last November in the wake of President Donald Trump's surprise election victory.

This leaves the market vulnerable to any hawkish spin from the Fed, which would likely slug Treasury prices while lifting the embattled U.S. dollar.

The currency could do with the help having taken a fresh knock on Tuesday when the head of Canada's central bank put his own hawkish spin on the outlook for rates there.

The U.S. dollar fell as far as C$1.3209 CAD=, its lowest since Feb. 28, having shed two cents in as many days.

It also lost ground to sterling GBP= after UK inflation data surprised on the high side and amid reports Britain's ruling Conservative Party was likely to sign a deal on Wednesday to form a minority government.

Against a basket of currencies, the dollar barely budged at 96.978 .DXY. It was little changed on the Japanese yen at 110.06 JPY= and the euro at $1.1213 EUR=.

In commodity markets, oil slipped after industry data showed a surprise rise in crude stocks and OPEC reported an increase in its production despite its pledge to cut back. [O/R]
Benchmark Brent crude LCOc1 retreated 35 cents to $48.37 a barrel while U.S. light crude CLc1 shed 42 cents to $46.04.

Dollar steadies, sterling hit briefly post London attack

The dollar recovered from last week's seven-month lows on Monday, edging up against the euro and yen, but still looking exposed to any renewed optimism from a European Central Bank policy meeting this week.

Sterling, on a rollercoaster ride driven by diverging opinion polls ahead of Thursday's national election, also recovered after a van and knife attack on pedestrians in central London on Saturday drove a brief drop in early Asian trade.

Services data from the data are the main set-piece of the European morning on Monday, but dealers say the week should be dominated by the UK election and the ECB meeting, eyed for signs of the bank turning toward tighter policy later this year.

Coming at a time when political risk in Europe has eased, U.S. economic data has worsened and expectations for more rises in Federal Reserve rates have fallen, that prospect pushed the euro to a seven-month high on Friday.

"Overall we think the risks are skewed toward a more cautious stance (from the ECB) than the market is expecting," said Barclays strategist Nick Sgouropoulos, pointing to more downbeat messages sent by other major central banks in recent weeks.

The euro fell just over 0.1 percent to $1.1270, still very close to Friday's high of $1.1285. EUR= The dollar was also 0.1 percent stronger at 110.48 yen. JPY=
 
Other moves among the G10 group of major developed world currencies, however, kept the dollar index almost flat compared to Friday's close at 96.756 .DXY.

The pound's trade-weighted value has fallen by 3 percent in just under 4 weeks as Prime Minister Theresa May's bid for a landslide electoral victory that would strengthen her hand in talks on leaving the European Union ran into trouble.

It was not immediately clear how the events on Saturday would impact the election, though the issue of security has been thrust to the forefront of the campaign after the London Bridge and Manchester attacks.