FINANCIAL MARKET REVIEW FOR JUN 12, 2018 With the Federal Reserve virtually guaranteed to raise interest rates this week, investors are focused on how the U.S. central bank characterizes its monetary policy as borrowing costs return to more normal levels amid an ongoing economic expansion. The European Central Bank is expected later this week to outline its own plans to stop emergency asset purchases, highlighting Europe’s rebound from crisis. The dollar hovered near 3-week highs on Tuesday and Asian shares gained as U.S. President Donald Trump and North Korean leader Kim Jong Un signed a ‘comprehensive’ deal at a historic summit aimed at the denuclearization of the Korean peninsula. In Asian equity markets, trading was volatile with Japan's Nikkei .N225 paring early gains to close 0.3 percent higher after earlier rising as much as 0.9 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS seesawed between positive and negative territory, and was last up 0.15 percent. South Korean shares .KS11 were a tad weaker while Chinese shares were buoyant after starting in the red. The blue-chip CSI 300 index .CSI300 jumped about 1.3 percent. The major U.S. stock indexes finished higher on Monday as investors shrugged off the events at last week-end’s G7 meeting, instead choosing to focus on the meeting between President Trump and North Korean leader Kim Jong-un. Volume was low and some of the trading was related to position-squaring ahead of Tuesday’s U.S. consumer inflation report and Wednesday’s Federal Reserve announcements. In the currucy markets, The USD/JPY rose in reaction to increased demand for higher risk assets and a rise in U.S. Treasury yields. The divergence between the hawkish Federal Reserve and the dovish Bank of Japan helped make the U.S. Dollar a more attractive investment. The U.S. Dollar was mostly rangebound against a basket of currencies on Monday as investors prepared for the widely anticipated summit between U.S. President Donald Trump and North Korea President Kim Jong-un. Against individual currencies, the dollar lost ground to the Euro and the Australia Dollar, buy was able to offset those losses with gains versus the Japanese Yen, British Pound and New Zealand and Canadian Dollars. The dollar performed surprisingly well in the wake of heightened worries over a global trade war following a disagreement at the G-7 conference in Canada over the week-end. The EUR/USD was underpinned after assurances from Italy that it would not leave the European Union calmed investors’ nerves. Gains were limited, however, by general uncertainty ahead of Thursday’s European Central Bank’s interest rate decision and monetary policy statement. The ECB is also expected to announce the timetable for its exit from quantitative easing. Overall, the U.S. Dollar was supported by expectations of a 25 basis point rate hike by the Fed on Wednesday. Traders are also preparing for Tuesday’s consumer inflation report. View our full economic calendar for a daily roundup of major economic events.
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