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DollarUp on Fed Bets as European Stocks RallyOil Retreat

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The dollar strengthened for a sixth day versus the yen after American manufacturing data and hawkish comments from a Federal Reserve official spurred bets that U.S. interest rates will be raised this year. Stocks rallied in Europe, while oil led a retreat in commodities.

A gauge of the greenback’s strength climbed by the most in two weeks as Brexit concerns pushed the pound to its weakest level in three decades. The Stoxx Europe 600 Index advanced for a sixth day, its longest winning streak in almost a year, as most shares rose on the MSCI Asia Pacific Index. The Bloomberg Commodity Index fell for the first time in a week as crude oil retreated from a three-month high. Sovereign bonds in Australia dropped by the most this year as trading resumed following a holiday.

American manufacturers’ output and new orders expanded in September, spurring confidence that the world’s biggest economy is robust enough to withstand higher interest rates. Fed Bank of Cleveland President Loretta Mester said Monday she expects the case for a rate hike to remain “compelling” at the next review in November, having been one of three policy makers to dissent in favor of an increase at the September meeting. The probability of U.S. borrowing costs being raised by December stood at 61 percent on Monday, up 10 percentage points from a week earlier, futures show.

“The data is suggesting the Fed will likely raise rates in December,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “We’ll probably have a couple of months of stronger data gauging from the strength of new orders. The yen weakness is supportive of Japanese exports.”

Currencies

The Bloomberg Dollar Spot Index rose 0.5 percent as of 8:16 a.m. London time, advancing ahead of a speech by Fed Bank of Richmond President Jeffrey Lacker that may touch on the outlook for U.S. monetary policy. The yen slid 0.8 percent versus the dollar, extending its longest run of losses since August.

“Better-than-expected U.S. data are reminding markets that November remains a live meeting” for the Fed, said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore.

The pound fell as much as 0.6 percent to $1.2762, the weakest it’s been since 1985. British Prime Minister Theresa May said over the weekend that she’ll begin the process of withdrawal from the European Union in the first quarter of 2017 and curb immigration, stoking speculation the U.K. is headed toward a so-called hard Brexit — with limited access to the EU’s single market.

Australia’s dollar fell 0.3 percent after the central bank kept its benchmark interest rate at a record-low 1.5 percent, a decision forecast by all 28 economists in a Bloomberg survey. New Zealand’s currency held its ground versus the greenback after a report showed business confidence rose in the third-quarter.

India’s rupee was little changed ahead of the central bank’s first policy meeting since a leadership change. A six-member panel comprising Reserve Bank of India officials including Governor Urjit Patel and three academics are set to take the nation’s first-ever collective rate decision and 44 percent of the economists surveyed by Bloomberg forecast borrowing costs will be cut.

Stocks

The Stoxx Europe 600 Index climbed 0.6 percent. Deutsche Bank AG rose for a fourth consecutive session in Germany as trading resumed after a holiday on Monday. The lender’s shares sank to a record low last week as concern about its financial health weighed on banking shares worldwide.

The MSCI Asia Pacific Index added 0.1 percent, after gaining 0.6 percent on Monday. Japan’s Topix climbed 0.7 percent, with exporters buoyed by the yen’s slide.

“Overall, the U.S. economy appears to be on a growth track,” said Mitsuo Shimizu, a deputy general manager at Japan Asia Securities Group Ltd. in Tokyo. “As some had been expecting a deterioration in the manufacturing figures, alleviation of such worries will help Japanese shares rise.”

China Evergrande Group jumped as much as 12 percent in Hong Kong after announcing a plan to shift most of its property assets into a listed company in Shenzhen, where valuations are higher.

Futures on the S&P 500 Index added 0.2 percent, after the gauge declined 0.3 percent on Monday.

Commodities

The Bloomberg Commodity Index fell 0.4 percent. Crude oil fell 0.6 percent to $48.53 a barrel in New York, losing ground for the first time in a week before data that’s forecast to show U.S. stockpiles expanded. Production from Libya, among countries exempt from an OPEC output cut, rose to 500,000 barrels a day and will climb further this month, a state oil company official said.

Gold fell for a sixth day, its longest losing streak since August. Growing expectations for a U.S. rate hike weigh on the metal as it doesn’t bear interest.

Industrial metals were mixed in London, with zinc advancing 0.2 percent and nickel declining 0.3 percent. An LME index tracking the metals moved into a bull market last week as economic data pointed to a stronger economic outlook for China, the top commodities consumer.

Bonds

Australia’s 10-year bonds fell 1 percent from Friday’s close and their yield surged 12 basis points to 2.07 percent. The rate on similar-maturity U.S. Treasuries was steady at 1.62 percent, after climbing six basis points over the last two sessions. A Treasury market gauge of inflation expectations advanced to a four-month high on Monday, spurred by Mester’s comments and an increase in oil prices.

Japan’s 10-year bonds reversed earlier losses after demand strengthened at a sale of the tenor, with the bid-to-cover ratio increasing to the highest since June. The securities yielded minus 0.075 percent, compared with minus 0.055 percent ahead of the auction.

Source: Bloomberg