The euro nursed losses against the dollar on Wednesday as the benchmark German government bond yield turned negative for the first time due to worries that Britain might vote next week to leave the European Union, while investors stayed cautions ahead of a Federal Reserve’s policy decision later in the global day.
The euro was flat at $1.1201 after sliding 0.8 percent overnight to an 11-day low of $1.1189, in a slide that took it from a one-month high of $1.1416 scaled last week.
Germany’s 10-year bund yield turned negative for the first time on Tuesday after a series of opinion polls showed a big lead for the “leave” camp in Britain’s EU referendum. “The euro falling against the dollar shows the impact negative German bond yields are having. The markets have to brace for the European Union falling into dysfunction if Britain leaves,” said Junichi Ishikawa, forex analyst at IG Securities in Tokyo.
Asian shares were volatile on Wednesday as a US Federal Reserve policy decision later in the day and Brexit worries kept investors on edge, though China took in stride MSCI's decision not to include domestic Chinese equities in its indexes.
European shares were set for a positive open, with financial spreadbetters expecting Britain’s FTSE 100 to open up 0.2 per cent, Germany’s DAX 0.5 per cent and France’s CAC 0.4 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan were unchanged at 0640 GMT, after earlier swinging between gains and losses. The index slid 3.8 per cent over the previous four trading days. Japan’s Nikkei closed up 0.4 per cent.
On Wall Street, S&P 500 Index hit a three-week low to end at 2,075.32 on Tuesday, down 0.18 per cent, in its fourth consecutive drop, led by a 1.45 per cent fall in financial shares .
Concerns over a British referendum next week that could see it exit the European Union dwarfed any optimism from solid US retail sales data published on Tuesday.
“The last thing investors needed was further Brexit angst but the continued flow of opinion polls pointing to a possible ‘leave’ outcome has caused a further reassessment of risk profiling with respect to the outcome of next week’s vote,” Michael Hewson, chief market analyst at CMC Markets in London, wrote in a note.
“This risk is likely to be at the forefront of today’s Federal Open Market Committee rate meeting where US officials look set to keep rates on hold.”
Worries that Brexit will deal a significant blow to the integration of Europe have helped to push up borrowing costs of European countries with weak credit ratings.
US crude dropped 1.3 percent to $47.88 a barrel, after earlier touching a 3 1/2-week low of $$47.55.
Brent also slid 1.3 per cent, to $49.18. It earlier fell to a near-two-week low of $48.91.
Reuters
