AP: European Markets Drop as Dollar Surge Continues
European stock markets fell Monday as the dollar jumped to a five week high against the euro amid improved expectations about the pace of recovery in the world's largest economy.
The FTSE 100 index of leading British shares was down 41.84 points, or 0.8 percent, at 5,280.52 while Germany's DAX fell 43.94 points, or 0.8 percent, to 5,773.71. The CAC-40 in France was 27.60 points, or 0.7 percent, lower at 3,819.02.
The euro was down 0.4 percent at $1.4797, having earlier fallen to $1.4757, its lowest level since early November. Before Friday's news that U.S. employers shed a much lower than anticipated 11,000 jobs in November and the unemployment unexpectedly fell to 10 percent, the euro was trading near its 16-month high of $1.5144.
One of the main impacts from the dollar's rally has been to send commodity prices down, most notably gold, which has fallen sharply from near-record highs — a stronger U.S. currency typically causes commodity markets, priced in dollars, to fall. An ounce of gold was down a further 2.2 percent at $1,143.60, way lower than last week's record high above $1,225.
As a result, commodity stocks were hit hard — in London, Eurasian Natural PLC, Xstrata PLC and Fresnillo PLC were three of the biggest fallers on the FTSE 100.
"A firmer dollar points to a temporary correction in commodities and equities," said Neil Mackinnon, global strategist at VTB Capital.
Meanwhile, mounting optimism about the U.S. economic recovery was tempered by a growing perception that the U.S. Federal Reserve may start to withdraw some of its extraordinary policy measures sooner than anticipated — U.S. Treasury yields increased sharply in the wake of the jobs data. And with the year-end looming, analysts said investors may be looking to wind down their trading positions and book some profits, especially as this time last year most faced hefty losses.
"Concerns surround the fact that with equities still looking inflated as we approach the year end, anything that sends jitters through the market could initiate a quick wave of selling and as volumes start to thin in the coming weeks, the consequences here could prove especially marked," said Ben Potter, research analyst at IG Markets.
