Dollar Narrowly Mixed as Markets Calm

The U.S. dollar is narrowly mixed in calmer foreign exchange markets Wednesday. Sterling and the Japanese yen are trading around levels seen late in New York Tuesday, while the euro is slipping back toward the session lows near midday in London. The Swiss franc and Australian dollars are modestly firmer.

The news stream Wednesday is light and the market almost appears to be waiting for new developments. Perhaps it is the gain in equity markets that is encouraging the more stable tone in the foreign exchange market. Most emerging market currencies are slightly firmer Wednesday as well.

Global equity markets were higher. The MSCI Asia-Pacific Index advanced 0.5% off of 10-month lows recorded Tuesday. Advancers led decliners by t-to-1. Rising commodity prices helped lift the related sectors and helped lead the markets higher. Copper and oil, for example, were up more than 1% and the Baltic Dry Index was up over 6% to a new six-month high.

European bourses were 2% to 3% higher, led by basic materials and industrials. Financials are fully participating in Wednesday's advance too. The Dow Jones Stoxx 600 is recovering from eight-month lows. The S&P 500 traded at seven-month lows Tuesday but reversed to close near the session highs Tuesday and the indications point follow-through gains, at least in the early going.

Global bond markets were taking it on the chin Wednesday, with 10-year yields 5 to 7 basis points higher as the safe-haven bid is taken back. Peripheral European bond markets were also under pressure, but the spreads against Germany were fairly stable Wednesday. The German five-year bond auction was poorly received as yields were near record lows; the 1.1 times bid-cover was the poorest in more than two years.

Meanwhile, market talk suggests that there has been strong demand for the U.K. index-linked gilt that is expected to be priced later Wednesday.

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