The U.S. dollar fell from a seven-month peak on Wednesday, combining with signs of an easing supply glut to help lift oil prices back towards a one-year high.
A weaker dollar boosts oil, which gained around 1 per cent on Wednesday, since it makes fuel cheaper for countries using other currencies.
The bounce in commodity prices has helped bolster inflation expectations in the euro zone, nudging the bloc’s bond yields further away from the record lows struck after Britain voted to leave the European Union in June.
But neither the rise in oil prices nor a barrage of data confirming China’s economy, the world’s second, was stabilising could prevent a dip in euro zone stocks after a series of poor earnings results.
“Oil is a good indicator of expectations for growth next year,” said Frederik Ducrozet, a senior European economist at Swiss wealth manager Pictet. “It is comforting for markets that oil is above $50 a barrel and looking stable at those levels.”
Against a basket of major currencies, the U.S. dollar stood at 97.824, off Monday’s seven-month high of 98.169, after consumer price data showed underlying inflation had moderated. That prompted markets to trim bets on a Federal Reserve rate hike later this year.
Traders said that had helped lift oil, which was also supported by a report of a drop in U.S. inventories and declining production in China. An upbeat OPEC statement on its planned output cut also supported the market.
International Brent crude futures were at $52.45 a barrel at 0840GMT, up 76 cents, or 1.45 per cent, and heading back towards a one-year high of $53.73 seen earlier this month.
U.S. West Texas Intermediate (WTI) crude oil futures were trading at $51.02 per barrel, also up nearly 1.5 per cent, having been below $40 a barrel at the start of August.
European shares fell early on Wednesday after a slew of weak updates weighed on British companies Travis Perkins and Reckitt Benckiser. Akzo Nobel’s results were hit by a weak pound.
The pan-European STOXX 600 index fell 0.4 per cent, following a 1.5 per cent rise in the previous session.
Asian shares were struggling to hold earlier gains seen after data showing Chinese gross domestic product expanded 6.7 per cent in the year to September, exactly as forecast.
Other data showed retail sales rising 10.7 per cent and urban investment 8.2 per cent. Industrial output disappointed by growing only 6.1 per cent.
“The upshot from today’s data is that economic activity seems to be holding up reasonably well, with few signs that a renewed slowdown is just around the corner,” said Julian Evans-Pritchard, China economist at Capital Economics.
“Nonetheless, the recent recovery is ultimately on borrowed time given that it has been driven in large part by faster credit growth and a property market boom, both of which policymakers are now working to rein in.”
MSCI’s broadest index of Asia-Pacific shares outside Japan initially added 0.4 per cent on top of Tuesday’s 1.4 per cent jump, but by 0800GMT was only up 0.1 per cent on the day.
The recent bounce in oil prices has helped lift a key market gauge of long-term euro zone inflation – the five-year, five-year forward rate – above 1.43 per cent, its highest level since June 8.
That remains well below the European Central Bank’s inflation target of just below 2 per cent, but it has taken the heat off the bloc’s policymakers – who meet on Thursday – to introduce more easing measures.
Worries that they may eventually scale back their stimulus has seen German 30-year bond yields climb more than 20 basis points in the last fortnight, already on track for their biggest monthly rise in fourteen months.
The retreat in the dollar came after a report on U.S. consumer prices showed underlying inflation – stripping out food and energy – moderated slightly in September to 2.2 per cent, leading the market to slightly pare back bets on a December rate hike.
Fed fund futures imply around a 65 per cent probability of a move, down from 70 per cent.
Federal Reserve Chair Janet Yellen said last week the U.S. central bank could allow inflation to run above its target.
The euro was slightly higher against the weakening dollar at $1.0985. Sterling slipped back after its strongest one-day gains in over three months on a trade-weighted basis after a UK government lawyer said parliament would have to ratify any deal to take Britain out of the EU.
The Bank of England’s trade-weighted sterling index jumped 1.4 per cent on Tuesday. The pound had fallen to a record low last week on worries that Britain would undergo a “hard” exit from the EU, in which access to the single market was sacrificed for the sake of tighter controls on immigration.
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- Updated October 18 4:33 PM EDT. Delayed by at least 15 minutes.