[NEW YORK] European shares reached a four-week high on Monday and the dollar index touched a two-month peak as investors braced for an interest rate hike from the US Federal Reserve.
The Fed should raise rates "in the coming months" if growth picks up and the labor market continues to improve, Fed Chair Yellen said on Friday. St Louis Fed President James Bullard chimed in, saying on Monday global markets appear to be"well-prepared" for a summer rate hike, although he did not specify a date for the policy move.
The possibility of a rate increase at the Federal Open Market Committee's June 14-15 meeting was 28 per cent, according to CME's Fedwatch programme. Bets on an increase at the July 26-27 policy meeting edged up to 61 per cent, more than double the level of a month ago.
"The stage is set, markets are ready for the curtain to be drawn back," said Peter Kenny, senior market strategist at Global Markets Advisory Group, in Berkeley Heights, New Jersey.
"The bottom line is, with relatively hawkish commentary out of Bullard, which has been consistent, clear messaging by Chair Yellen that we should expecting a move in the next few months, markets are now well prepared and ready to embrace that."
Against a basket of currencies, the dollar was up 0.14 per cent at 95.656 after climbing as high as 95.968, its highest level since March 28.
The euro zone's blue-chip Euro STOXX 50 index was 0.38 per cent higher at 3,125.43, while Germany's DAX was up 0.46 per cent after hitting a one-month high.
Trading volumes were thin as the London and New York markets are closed for a public holiday.
MSCI's index of world shares edged up 0.03 per cent. S&P 500 e-minis were up 4.75 points, or 0.23 per cent.
While higher US interest rates would sap global liquidity, Wall Street and European investors took Ms Yellen's comments in their stride, as they suggested the world's largest economy was strong enough to weather another rate hike, following from the December hike.
This week investors will keep an eye on the all-important US non-farm payrolls and the Institute for Supply Management surveys. The May jobs report is due on Friday and a solid reading could heighten expectations for a June move.
Economists expect US employers to have added 161,000 jobs this month, slightly more than they did in April. Hourly wages are expected to show a 0.2 per cent increase from the previous month.
Crude oil futures remained shy of the US$50 per barrel level after marking weekly gains, feeling some pressure from the stronger US dollar that made it more expensive for holders of other currencies.
Brent crude was last up to US$49.72 a barrel, after climbing above US$50 for the first time in six months last week. US crude was up 0.55 per cent at US$49.60.
The dollar's strength took a toll on spot gold, which dropped 0.6 per cent to US$1,205.20 an ounce. It fell to US$1,199.60 earlier in the day, its lowest since late February.