LONDON: Currencies were in focus on Thursday (Aug 17) as traders weighed the intentions of central banks on raising interest rates and pulling money out of markets.
The dollar began to recover after falling in the wake of Federal Reserve minutes released Wednesday that hinted at a slower pace of US interest rates.
Meanwhile the euro slid after the minutes of the latest ECB meeting showed policymakers are concerned the risk that the recent rise in the value of the euro, which has climbed nearly 10 per cent against the dollar this year, could continue and "overshoot" changes in economic fundamentals between the eurozone and the rest of the world.
"With the ECB becoming worried about a high exchange rate, one has to wonder whether they will now put their QE tapering plans on hold until central banks of the eurozone's largest trading partners start tightening their policies," said technical analyst Fawad Razaqzada at currency trading firm FOREX.com.
Under QE, or quantitative easing, the ECB and the Fed bought trillions of debt to prop up economic activity during and after the global economic crisis.
The Fed has signalled it will soon begin pulling some of that money out of the market while the ECB is expected to announce how it will wind down its purchases.
While the minutes from the Fed's July meeting indicated that it will likely continue with plans to begin removing some money from the markets, the likelihood of a third interest rate hike this year is more uncertain as some members of the US central bank argued it could afford to "be patient" before raising rates again amid persistently weak inflation.
WHITE HOUSE 'DYSFUNCTION' WEIGHS
"US dollar weakness followed the release of minutes that indicated 'many' members feared inflation will stay lower for longer," said Michael McCarthy, chief market strategist at CMC Markets.
European stock markets fell, with London's benchmark FTSE 100 index and Paris's CAC 40 index both dropping 0.6 per cent. The DAX 30 in Frankfurt slid by 0.5 per cent.
In Japan, the Nikkei ended marginally down with automakers and banks in retreat, with Japanese shares dragged lower in part by a firm yen.
Wall Street stocks also pushed lower, with the Dow sliding 0.4 per cent approaching midday to drop back under the 22,000 points level.
"US stocks are lower in early action, with the global markets grappling with monetary policy uncertainty on both sides of the pond, as well as the exacerbated dysfunction in the White House," said analysts at Charles Schwab brokerage.
Shares in Wal-Mart dropped 2.4 per cent in early trading after reporting a steep decline in profits due to higher costs despite better-than-expected earnings. The chain saw a 1.8 per cent rise in same-store sales which boosted revenues, but profits plunged 23.2 per cent to US$2.9 billion, in part due investments in e-commerce.
On commodities markets, crude prices clawed back ground following a sharp decline overnight after official data showed US production climbed to the highest level in more than two years, heightening worries about a supply glut.
Key figures around 1535 GMT:
London - FTSE 100: DOWN 0.6 per cent at 7,387.87 points (close)
Frankfurt - DAX 30: DOWN 0.5 per cent at 12,203.46 (close)
Paris - CAC 40: DOWN 0.6 per cent at 5,146.85 (close)
EURO STOXX 50: DOWN 0.6 per cent at 3,464.30
New York - Dow: DOWN 0.4 per cent at 21,935.17
Tokyo - Nikkei 225: DOWN 0.1 per cent at 19,702.63 (close)
Hong Kong - Hang Seng: DOWN 0.2 per cent at 27,344.22 (close)
Shanghai - Composite: UP 0.7 per cent at 3,268.43 (close)
Euro/dollar: DOWN at US$1.1742 from US$1.1767 at 2100 GMT
Pound/dollar: UNCHANGED at US$1.2890
Dollar/yen: DOWN at 109.91 yen from 110.20 yen
Oil - Brent North Sea: UP 40 cents at US$50.67 per barrel
Oil - West Texas Intermediate: UP 16 cents at US$46.94