The dollar weakened against most G-10 peers as tensions over North Korea and the increasingly cloudy Fed outlook outweighed positive sentiment from the U.S. debt ceiling extension. Stocks in Europe struggled for traction and most bonds fell as the European Central Bank pondered options to reduce monetary stimulus.
The Stoxx Europe 600 Index was flat, with miners declining as a rally in industrial metals stalled. S&P 500 Index futures dropped after the resignation of Federal Reserve Vice Chairman Stanley Fischer and a Canadian interest-rate increase surprised U.S. markets late Wednesday. Traders are also watching Hurricane Irma, which is headed for Florida. West Texas Intermediate crude extended gains.
While President Donald Trump’s surprise debt-ceiling deal with Democrats temporarily bolstered the greenback and Treasuries, traders remain watchful for an escalation of North Korea risks amid concerns Pyongyang may fire a ballistic missile. Trump said that military action against the country wasn’t his first choice as South Korea moved to bolster its missile shield. Meanwhile, Fischer’s early departure, effective next month, adds to uncertainty about Fed leadership, given that Janet Yellen’s term as chair expires early next year.
Attention now turns to the ECB meeting on Thursday, with investors looking for clarity from President Mario Draghi on the outlook for the bank’s bond-buying program. The Governing Council has been presented with documents outlining multiple scenarios for adjusting quantitative easing, according to euro-area officials familiar with the matter.