LONDON - The dollar rose across the board on Monday after Russia said the U.S. currency's role as the world's main reserve currency was unlikely to change in the near future, hitting energy and commodity prices and related shares.
After a weekend meeting in southern Italy, finance chiefs from Group of Eight said they believed their economies are stabilizing but recovery from the credit crisis remained shaky. Ministers also said they have started to consider how to unwind rescue steps for their economies once recovery is certain.
While the G8 communique made no reference to the dollar, Russian Finance Minister Alexei Kudrin said on the sidelines of the meeting that the dollar's role as the main reserve currency was unlikely to change in the near future.
IMF managing director Dominique Strauss-Kahn told Reuters in an interview at the G8 that the dollar has been correctly valued by the market. The U.S. currency's strength weighs on energy and commodity prices as they are priced in dollars.
The dollar is on a more stable footing after the comments at the G8 from the Russian finance minister, given that Russia is such a large holder of U.S. Treasuries, BTM-UFJ currency economist Lee Hardman said.
The dollar .DXY rose nearly 1 percent against a basket of major currencies while the euro fell 0.9 percent to $1.3879 after data showed the euro zone lost a record 1.22 million jobs in the first quarter of 2009.
Lingering concerns about the euro zone economy and its banking sector are also weighing on euro, which is still seen as a very overvalued currency, Hardman added.
Kudrin's remarks came ahead of the first summit of leaders of Russia, China, India and Brazil on Tuesday in the Russian city of Yekaterinburg, at which the leaders are expected to discuss issues including foreign reserve diversification.
Shares of mining and oil shares led the move lower in world stocks. MSCI world equity index .MIWD00000PUS fell 1 percent, moving further away from a 7-1/2 month high hit earlier this month.
The benchmark MSCI index finished last week on a positive note, posting the third consecutive weekly gains.
The FTSEurofirst 300 index .FTEU3 fell 1.6 percent. Emerging stocks .MSCIEF also lost 1.4 percent. U.S. stock futures pointed to a weaker open on Wall Street later.
U.S. crude oil dropped 1.4 percent to $71.04. Shanghai copper fell by its 5 percent limit and London copper for three-month delivery broke below $5,100 a ton.
Stabilizing dollar outlook could trigger a mini chain reaction which might look like setting the starting point for a new equity bear market, BNP Paribas said in a note to clients.
Indeed, the stabilizing dollar will take the momentum out of the speculatively over-extended commodity market, causing related currencies to decline. The dollar will receive additional support via this liquidation effect.
The June bund futures hit a one-week high of 119.06 as equity markets fell.
(Additional reporting by Jessica Mortimer; Editing by Victoria Main)