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North Korea war cries stifle stocks, euro still groggy

World stocks and the euro fell for a fourth day on Tuesday, as investors that had piled into both all year took a step back as the list of global uncertainties began to lengthen again.

The list included a new low in U.S. and North Korean relations, a jolt to the right in German politics, rising oil prices, falling tech stocks and the prospect of signals later from the ECB and Federal Reserve on their next moves.

Asian stocks wilted in line with Wall Street overnight and European bourses <0#.INDEXE> struggled too, despite solid French data and a new one-month low for the euro which has been helping the bloc's stocks in recent days. (EU)

The yen, which traditionally performs strongly in jittery markets, was beginning to fade meanwhile having gone as high as 111.550 yen to the dollar as gold also dropped off a 1-week high it had hit on Monday.

That came after North Korea's foreign minister said a tweet by U.S. President Donald Trump that "little Rocket Man" might not be around for too long amounted to a declaration of war.

"I think we have a classic case of risk-on, risk-off across markets," said Saxo Bank's head of FX strategy, John Hardy.

"There is a lot being attributed to North Korea but I think there are a lot of other factors here," he added, citing the drop in Apple (NASDAQ:AAPL) and big U.S. tech stocks and the weekend German elections that saw a far-right party enter parliament.

Support for Chancellor Angela Merkel's conservatives, which won the election, unexpectedly slumped too to its lowest level since 1949.

The euro slipped as far as $1.1811 in morning trade in London, its weakest since Aug. 25, after falling around 0.9 percent on Monday - its heaviest one-day loss since December. [/FRX]

French President Emmanuel Macron, who wants to overhaul the European Union's single currency zone and whose ideas include creating a euro zone budget and finance minister, will lay out his plans in Paris later.

Yet again though, the bond market's reaction to the latest escalation in tension between North Korea and the U.S. proved short-lived.

Yields on U.S. Treasuries and German Bunds fell to a day's low follow North Korean Foreign Minister's Ri Yong Ho comments on Trump's tweet. Both traded back up early on Tuesday in what analysts say reflects a widespread belief that diplomacy will prevail. All other euro zone bond yields were also a touch higher.

RATE EXPECTATIONS

A speech from Fed chair Janet Yellen, due at 1645 GMT and titled "prospects for growth: reassessing the fundamentals", was also coming into focus.

Investors will be parsing her words, and those of other Fed officials for clues on whether the U.S. central bank will stick to plans to raise interest rates in December.

"Investors are not fully up to speed with the risk of hawkish signals from Fed officials," Mizuho strategist Antoine Bouvet said.

"The Fed is back in a situation where it would want to show optimism at the very least, and the market should be pricing in more hikes in the coming months and quarters than it is currently."

According to CME's FedWatch tool, money markets point to a 70 percent chance of a hike in December but only a 20 percent chance of a further hike in March 2018.

Analysts said a rise in oil to a 26-month high, which bolsters inflation, and an upcoming sale of two-year German debt should also keep upward pressure on yields. [O/R]

Brent crude futures dipped fractionally to $58.85 a barrel, having earlier hit $59.49, the highest since July 2015 and more than 34 percent above the 2017 low.

The rise was supported by Turkey's threat to cut crude exports from Iraq's Kurdistan region as well as signs that market rebalancing is accelerating.

Turkish President Tayyip Erdogan threatened on Monday to cut off the pipeline that carries 500,000-600,000 barrels of crude per day from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum.

The loss of this supply, combined with the 1.8 million bpd of supply cuts by the Organization of the Petroleum Exporting Countries and non-OPEC producers, has raised concerns of tighter supply.

Oil near 26-month high as Turkey threatens to choke Kurdish exports

Brent oil prices hovered near 26-month highs on Tuesday, supported by Turkey's threat to cut crude exports from Iraq's Kurdistan region and signs of quicker market rebalancing.

Turkish President Tayyip Erdogan repeated a threat to cut off the pipeline that carries 500,000-600,000 barrels per day (bpd) of crude from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum.

This potential loss, combined with 1.8 million bpd of output reductions by the Organization of the Petroleum Exporting Countries and non-OPEC producers, raised concerns of tighter supply.

The Iraqi government said it will not hold talks with the Kurdistan Regional Government about the results of the referendum, which is expected to show a comfortable majority in favor of independence after the results are announced later this week.

"Although there was plenty of price-bullish news making headlines yesterday, undoubtedly the biggest factor was the referendum in the Kurdistan region of Iraq," analysts at Vienna-based JBC Energy said in a note.

Brent crude futures (LCOc1) fell 53 cents to $58.49 a barrel by 1211 GMT, having hit $59.49, the highest since July 2015 and more than 34 percent above the 2017 low.

U.S. crude futures (CLc1) slid 25 cents to $51.97 a barrel, after hitting a five-month high of $52.43.

Top oil executives gathered at the S&P Global Platts APPEC conference in Singapore said strong oil demand this year was accelerating market rebalancing and helping inventory drawdowns.

"Global demand growth is way higher than what we have observed in the last couple of years, coming somewhere close to 1.6 to 1.7 million barrels per day and is driven by distillates," said Janet Kong, BP's chief executive officer, supply and trading, Eastern Hemisphere.

OPEC and non-OPEC producers meeting in Vienna last week said the market was well on its way toward rebalancing.

However, other analysts were skeptical about further price gains due to higher oil output from the United States.

The U.S. Energy Information Administration said production from wells in shale formations would rise for a 10th month in a row in October.

U.S. shale producers' ability to ramp up output as later-dated crude prices strengthen will keep price volatility low, said Jeffrey Currie, Goldman Sachs' head of global commodities research.

Crude Oil Futures - Weekly Outlook: September 25 - 29

Oil prices settled a bit higher on Friday, hovering close to their best levels in months amid optimism that the crude market was starting to rebalance.

U.S. West Texas Intermediate (WTI) crude futures tacked on 11 cents, or around 0.2%, to end at $50.66 a barrel by close of trade, not far from its highest level since May 25 at $51.11 reached on Wednesday.

For the week, U.S. oil prices gained about 1.5%, their third-straight weekly climb.

Meanwhile, Brent crude futures, the benchmark for oil prices outside the U.S., rose 43 cents, or roughly 0.8%, to settle at $56.86 a barrel after touching a more than six-month peak of $56.91 earlier in the session.

The global benchmark closed the week with a gain of 2.2%, its fourth-consecutive weekly climb.

Major oil producers convening in Vienna for an OPEC-led committee meeting on Friday boasted record compliance with their production-cut agreement, but, as expected, decided to wait a bit longer to see if any further action was needed.

OPEC and non-OPEC compliance with the deal to curb output rose to 116% in August, the committee said, a strong increase from the 94% compliance achieved a month ago.

Kuwaiti Oil Minister Essam al-Marzouq, who chaired the meeting, said the market "is evidently well on its way towards rebalancing."

In May, OPEC and non-OPEC members led by Russia agreed to extend production cuts of 1.8 million barrels per day for a period of nine months until March 2018 in a bid to reduce global oil inventories and support oil prices.

But so far rising production from the U.S., Nigeria and Libya has undermined the cartel’s efforts to curb excess supply.

Russia’s energy minister suggested that January is the earliest date that an extension to the global accord can be considered, although other ministers suggested such a decision could be taken before the end of this year.

The committee’s next meeting is set for November 29 in Vienna, just a day ahead of OPEC’s regularly scheduled meeting.

Elsewhere, in the U.S., market participants mulled over data showing the number of oil rigs continued to decline, suggesting a possible tightening in domestic production.

Oilfield services firm Baker Hughes said its weekly count of oil rigs operating in the U.S. declined by 5 to 744, marking the third weekly decline in a row.

The weekly rig count is an important barometer for the drilling industry and serves as a proxy for oil production and oil services demand.

Meanwhile, gasoline futures inched up 1.9 cents, or 1.2%, to end at $1.626 on Friday. It closed around 0.4% higher for the week.

Heating oil finished flat at $1.808 a gallon, but still ending roughly 1% higher for the week.

Natural gas futures added 1.4 cents, or 0.5%, to settle at $3.021 per million British thermal units. It saw a weekly loss of nearly 2.2%.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to further weigh what the impact of recent storm activity was on supply and demand.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, September 26

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, September 27

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, September 28

The U.S. government is set to produce a weekly report on natural gas supplies in storage.

Friday, September 29

Baker Hughes will release weekly data on the U.S. oil rig count.

Euro, stocks slip after Germany's Merkel hangs on to power

The single currency and European stocks slipped on Monday after the bloc's most powerful leader German Chancellor Angela Merkel won a fourth term but faced a fractured parliament as support for the far-right surged.

Investors were unnerved by the prospect of months of coalition talks which could distract from negotiations with Britain over its divorce from the European Union and efforts to integrate the bloc's remaining members.

Political uncertainty also weakened the New Zealand dollar as the ruling National Party won the largest number votes in a weekend election but failed to secure a ruling majority, with a protracted period of coalition building now a possibility.

"Merkel's most pressing task now is not to knit Europe closer together. It's to form a coalition which will prove to be extremely difficult and time-consuming," said Oliver Rakau, chief German economist at Oxford Economics.

The euro slid 0.3 percent to $1.1918, putting more distance between a 2-1/2-year high of $1.2092 reached on Sept. 8, when a European Central Bank policy meeting left currency bulls optimistic the ECB would begin tapering its big stimulus program.

Euro zone stock markets were down 0.3 percent, although falls were more pronounced in Asia where equity markets were hit by concerns over the economic health of the world's second biggest economy China.

MSCI's broadest index of Asia-Pacific shares outside Japan was last down 0.8 percent.

Hong Kong's Hang Seng was down 1.3 percent and Shanghai slipped 0.4 percent after a number of Chinese cities rolled out new measures to cool housing prices.

Investor sentiment was also undermined by concerns that China's beefed-up environmental protection could reduce demand, and consequently economic growth.

FEW OPTIONS

In European debt markets, the focus was firmly on the German election where the anti-immigration Alternative for Germany (AfD) stunned the establishment by becoming the first far-right party to enter parliament in more than half a century.

All parties have ruled out a coalition with the AfD and Merkel's only straightforward path to a majority in parliament is a three-way tie-up with the liberal Free Democrats (FDP) and the Greens - an arrangement untested at national level.

Investors bought German government bonds on the result - seen as one of the safest stores of cash in the euro zone - and sold lower-rated debt in the likes of Portugal, Spain and Italy.

Overall the market moves were fairly modest, however, and some analysts said investors may have used the result as an excuse to sell the euro which was moving lower before the vote.

"The euro...was already losing support from the European Central Bank's monetary policy theme and appeared to be on its way lower," said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo.

In New Zealand, the kiwi, the world 11th most-traded currency, was down 0.7 percent at $0.7288 and set for its biggest daily drop in around a month.

It was at a 1-1/2-month high of $0.7435 as recently as Sept. 20, when speculation for a comfortable ruling party win had boosted the currency.

"While there are a few different scenarios and some potentially testy issues to negotiate, ultimately the political landscape appears as though it will remain relatively centralist and we are reasonably agnostic on what it all means," wrote economists at ANZ.

The British pound edged up 0.3 percent to $1.3541, bouncing back from a slide on Friday when ratings agency Moody's downgraded its credit rating.

The dollar was up 0.2 percent against a basket of six major currencies at 92.397.

The greenback added 0.3 percent at 112.27 yen , reversing losses suffered on Friday when the exchange of insults between U.S. President Donald Trump and North Korea heated up, sapping broader risk appetite.

Oil prices consolidated after surging on Friday, when OPEC and other oil producers said they were clearing a glut that has weighed on crude prices and may wait until January before deciding whether to extend their output curbs beyond the first quarter of 2018.

Brent crude futures was down 0.2 percent at $56.73 a barrel, not far from a 6-1/2-month high of $56.91 set on Friday.

U.S. crude lost 0.5 percent to $50.52 a barrel.

Forex - Dollar Moves Lower as Geopolitical Tensions Resurface

The dollar moved lower against other major currencies on Friday, despite recent upbeat U.S. data and the possibility of another rate hike by the Federal Reserve this year, as tensions between the U.S. and North Korea re-emerged.

The dollar strengthened broadly after the Fed on Wednesday indicated that one more interest rate hike is likely this year and said it will begin to unwind its $4.5 trillion balance sheet in October.

The greenback was also supported by a string of upbeat reports U.S. jobless claims and manufacturing activity in the Philadelphia area released on Thursday.

But market sentiment weakened after North Korean leader Kim Jong Un said on Friday that Pyongyang will consider the "highest level of hard-line countermeasure in history" against the U.S. in response to President Donald Trump's threat to destroy the country.

Shortly after, North Korea's Foreign Minister Ri Yong Ho said his country could conduct a hydrogen bomb test in the Pacific Ocean of an unprecedented scale.

In his first speech before the United Nations General Assembly on Tuesday, Trump said "the United States has great strength and patience, but if it is forced to defend itself and its allies, we will have no choice but to totally destroy North Korea."

The safe-haven yen and Swiss franc were higher, with USD/JPY sliding 0.37% to 112.03, off the previous session's two-month peak of 112.72, while USD/CHF fell 0.20% to trade at 0.9688.

Elsewhere, EUR/USD rose 0.23% to 1.1969, while GBP/USD held steady at 1.3591, not far from Monday's 15-month highs of 1.3620.

Market participants were looking ahead to a string of data on manufacturing and service sector activity data from the euro zone, due later Friday.

Investors were also eyeing two separate speeches by European Central Bank President Mario Draghi and UK Prime Minister Theresa May, scheduled later in the day.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, wasdown 0.21% at 91.78 by 02:15 a.m. ET (06:15 GMT),off Thursday's one-week highs of 92.42.

Asia stocks slip, yen and franc rise as North Korea moots H-bomb test

Asian stocks fell and the Japanese yen and Swiss franc gained on Friday after North Korea said it might test a hydrogen bomb in the Pacific Ocean and escalated a war of words with U.S. President Donald Trump.

Spreadbetters expected European stocks to start lower amid a chill in risk appetite, forecasting Britain's FTSE (FTSE) to open down 0.3 percent, Germany's DAX (GDAXI) to open 0.2 percent and France's CAC (FCHI) to start 0.05 percent lower.

North Korean Foreign Minister Ri Yong Ho said on Friday he believes the North could consider a nuclear test on an "unprecedented scale" in the Pacific Ocean, South Korea's Yonhap news agency reported.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) handed back earlier gains and was down 0.7 percent.

The index rose to a decade high on Tuesday, lifted as Wall Street advanced to record levels, but fell back after the Fed heightened expectations for a third interest rate hike this year.

South Korea's KOSPI (KS11) fell 0.9 percent on the latest bout of geopolitical tensions.

Australian stocks (AXJO) managed to advance 0.3 percent while Japan's Nikkei (N225) slipped 0.4 percent following a rise to a two-year high on Thursday.

"The headline about North Korea's nuclear test gave a little shock to the market," said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

"Though the market is not expecting that there will be an immediate military action, it has triggered a profit-taking opportunity since the Nikkei had risen sharply recently."

Hong Kong's Hang Seng (HSI) shed 0.8 percent and Shanghai (SSEC) was down 0.5 percent after S&P Global Ratings downgraded China's long-term sovereign credit rating on Thursday, less than a month ahead of one of the country's most sensitive political gatherings, citing increasing risks from its rapid debt build-up.

The dollar dropped 0.6 percent to 111.785 yen , pulling away from a two-month high of 112.725 touched on Thursday when U.S. yields spiked on the back of the Fed's hawkish stance.

The 10-year Treasury yield (US10YT=RR) declined about 3 basis points to 2.251 percent as risk aversion favoured government bonds. It had risen for nine consecutive sessions prior, brushing a six-week high of 2.289 percent.

The Swiss franc rose 0.2 percent to 0.9687 franc per dollar . The yen and franc are often sought in time of broader risk aversion.

Safe-haven gold ticked up, with spot prices up 0.5 percent at $1,297.11 an ounce , after marking its lowest since Aug. 25 at $1,287.61 in the previous session on a firmer dollar. [GOL/]

Apart from geopolitical risks, the focus was on how the region's markets would fare when the Federal Reserve takes a step towards normalising monetary policy, as it projected on Wednesday following its policy meeting.

"It is difficult to pass a verdict on the Fed's stance until it actually starts its balance sheet reduction and the markets can gauge its effects," said Kota Hirayama, senior economist at SMBC Nikko Securities in Tokyo.

"Fundamentals continue to support emerging markets including those in Asia, although the Fed's latest stance did add a layer of uncertainty going forward."

In currencies, the Australian dollar was down 0.1 percent at $0.7926 after sliding 1.2 percent the previous day when Reserve Bank of Australia Governor Philip Lowe said the central bank does not have to follow a general move globally to raise interest rates.

A sharp drop in the price of iron ore, Australia's main export commodity, to a two-month low, has also weighed on the currency.

The New Zealand dollar was down 0.3 percent at $0.7284 on jitters ahead of a hotly-contested general election on Saturday. [AUD/]

The euro inched up 0.1 percent to $1.1954 and on track to end the week 0.8 percent lower.

The dollar index against a basket of six major currencies was down 0.2 percent at 92.052.

Crude oil prices were little changed amid a wait-and-see mood as ministers from the Organization of the Petroleum Exporting Countries, Russia and other producers meet later on Friday to discuss a possible extension of supply cuts. [O/R]

Brent crude (LCOc1) was down 0.1 percent at $56.39 a barrel after reaching a five-month high of $56.53 overnight.

Dollar shines, Asia shares slip after Fed signals Dec rate hike

The U.S. dollar shone while Asian shares slipped on Thursday after the U.S. Federal Reserve announced a plan to start shrinking its balance sheet and signalled one more rate hike later this year.

European shares are expected to benefit from a fall in the euro against the dollar with spread betters looking at a higher opening of 0.5 percent in Germany's DAX (GDAXI) and France's CAC (FCHI).

Japan's Nikkei (N225) gained 0.2 percent as a rise in U.S. bond yields lifted financial shares, while the yen's fall against the dollar after the Fed's decision helped exporters.

The Bank of Japan, as widely expected, left its policy settings unchanged, with markets awaiting a news conference by its governor later in the day.

MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) fell 0.5 percent, with Australian shares (AXJO) among the hardest hit with fall of 0.8 percent.

Major U.S. share indexes recovered quickly from initial losses following the Fed's announcement, with the S&P 500 (SPX) ending slightly higher, helped in part by gains in financials (SPSY) and energy shares (SPNY)

"While a rate hike is negative, the fact that the Fed's confidence in the economy is strong enough to expect a rate hike can be taken as supportive of market sentiment," said Soichiro Monji, chief strategist at Daiwa SB Investments.

The Fed's view also prompted a rotation from tech shares into financial shares, which benefit from higher interest rates, he added.

"In a way, what the Fed did was not much of a surprise. From now, the markets will be focusing on individual earnings rather than macro themes," said Hisashi Iwama, senior portfolio manager at Asset Management One.

As expected, the Fed said it would begin in October to trim its massive holding of U.S. Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

The Fed signalled it still expects one more interest rate hike by the end of the year, despite a recent bout of low inflation, but ratcheted down its long-term interest rate forecasts.

Fed fund rate futures are now pricing in about a 65 percent chance of a rate hike by December compared to around 50 percent before the latest meeting. Markets expect the Fed move to coincide with revisions of its economic projections.

The yield on two-year U.S. Treasury notes jumped to 1.451 percent (US2YT=RR), its highest level since November 2008 late on Wednesday. The 10-year U.S. Treasuries yield (US10YT=RR) rose to 2.278 percent, briefly hitting a six-week high of 2.289 percent.

"The markets reacted to the Fed quite straightforwardly, with shorter yields rising more than long-dated bond yields. The bond markets have fairly strong conviction that low inflation and low growth will persist," said Hiroko Iwaki, senior strategist at Mizuho Securities.

In the currency market, the rise in Treasury yields boosted the dollar's attractiveness. The euro dropped to $1.1883 from above $1.20 just before the Fed's policy announcement.

Likewise the dollar jumped to 112.595 yen , a two-month high, from around 111.30.

Gold also hit a three-week low of $1,296 per ounce.

Oil prices flirted with multi-month highs, despite a rise in U.S. crude inventories, after the Iraqi oil minister said OPEC and its partners were considering extending or deepening output cuts, ahead of the planned meeting between OPEC and non-OPEC nations on Friday.

Brent crude futures (LCOc1) rose to a five-month high of $56.48 a barrel on Wednesday and last stood at $56.17, down slightly from late U.S. levels.

U.S. benchmark West Texas Intermediate (WTI) crude futures (CLc1) hit a four-month high of $50.79 per barrel and last traded at $50.64, down slightly from the U.S. close on Wednesday.

Fed Holds Rates Steady, Signals Plan for December Rate Hike

The Federal Reserve kept interest rates unchanged on Wednesday and said it would start winding down its massive holdings of bonds in October.

In a move largely expected by financial markets, the policymaking Federal Open Market Committee (FOMC) agreed to keep its benchmark rate target at 1%-1.25%, forecasting at least one more hike this year.

The accompanying statement also revealed the Fed’s plan to reduce its $4.5 trillion balance sheet it built up in the wake of financial crisis. The central bank expects to begin normalization of its balance sheet in October, sticking with the plan detailed in June.

In a sign of confidence in the U.S. economy, members of the rate-setting committee revised upwards their projections for economic growth this year and stuck with the previous rate-hike outlook released in June.

They forecast U.S. economic growth of 2.4% in 2017, a 0.2% increase from the previous projection of 2.2% in June. The trend of slowing inflation, however, forced the central bank to scale back its inflation expectation to 1.5% for 2017, down 0.2% from the 1.7% forecast in June.

The "dot plot," part of the FOMC's Summary of Economic Projections, indicated that the central bank saw rates rising to between 1.25% and 1.5% by the end of the 2017. With rates steady at 1-1.25%, that points to one further rate hike this year. The majority of traders - more than 70% - expect the rate hike in December, according to Investing.com's fed rate monitor tool.

The statement also highlighted that the impact on the economy of Hurricanes Harvey, Irma and Maria are "unlikely" to alter the course of the economy over the medium term.

"Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term," the statement said.

The mostly unchanged view on a year-end rate hike saw US treasury yields move sharply higher, lifting the dollar to session highs while gold came under pressure.

The dollar rose 0.22% to trade at 91.81 while the U.S. 10-Year rose sharply to 2.264.

Gold Futures fell to $1,309.75.

Forex - Dollar Index Slips Lower with Eyes on Fed Decision

The dollar slipped lower against other major counterparts on Wednesday, as investors remained cautious ahead of the Federal Reserve's policy statement due later in the day and amid fresh geopolitical concerns.

EUR/USD added 0.12% to a one-week high of 1.2010.

Sentiment on the greenback remained fragile as investors awaited the outcome of the Fed's monthly policy meeting.

The U.S. central bank was widely expected to leave interest rates on hold, but it was also likely to announce plans to trim its $4.2 trillion in bond holdings.

The safe-haven yen and Swiss franc, with USD/JPY down 0.21% at 111.35 and with USD/CHF shedding 0.24% to 0.9604.

Traders were also cautious amid potentially higher tensions between the U.S. and North Korea following hawkish statements from U.S. President Donald Trump.

In his first speech before the United Nations General Assembly on Tuesday, Trump said"the United States has great strength and patience, but if it is forced to defend itself and its allies, we will have no choice but to totally destroy North Korea."

Elsewhere, GBP/USD edged 0.18% higher to 1.3525, off Monday's 15-month peak of 1.3619.

The New Zealand dollar was stronger, as NZD/USD climbed 0.77% to a six-week high of 0.7370 after official data earlier showed that New Zealand's current account surplus swung into a deficit of NZ$620,000 in the second quarter from a surplus of NZ$240,000 in the previous quarter.

Analysts were expected a current account deficit of NZ$880,000 in the last quarter.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.12% at 91.51 by 02:15 a.m. ET (06:15 GMT),the lowest since September 11.

Asia stocks steady, dollar treads water as investors count down to Fed

Asian stocks were mostly steady on Wednesday after Wall Street again rose to record highs, although movements were limited as a wait-and-see mood prevailed before the Federal Reserve reveals its monetary policy stance later in the day.

Spreadbetters expected Britain's FTSE (FTSE) to start unchanged and Germany's DAX (GDAXI) and France's CAC (FCHI) to each open down about 0.1 percent.

The caution in financial markets ahead of the Fed has kept some investors from making sharper adjustments to their positions despite potentially higher tensions over the Korean peninsula following hawkish statements from U.S. President Donald Trump overnight.

The Fed is due to announce its decision at 1800 GMT on Wednesday and is widely expected to keep rates unchanged after a two-day meeting but could begin paring its bond holdings, with reductions likely to start in coming months.

The financial markets will also sift through the "dot plot" representing Fed policymakers' rate projections for any hints of a rate hike in December.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was up 0.05 percent.

Japan's Nikkei (N225) was effectively flat. Shanghai (SSEC) added 0.3 percent while Hong Kong's Hang Seng (HSI) added 0.2 percent.

The three major U.S. stock indexes edged higher on Tuesday, logging record closes, with financial stocks providing the biggest boost. (N)

"A benign outcome for equities would be the Fed going somewhere in between being too passive on reducing its bond holdings and too aggressive in hiking interest rates," said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo.

"There may be some speculation towards the Fed sounding slightly dovish, but over the last few weeks hawkish rhetoric has come into vogue globally as demonstrated by the Bank of Canada and Bank of England," he said.

The Canadian central bank hiked interest rates this month and left the door open for more tightening, while a BoE policymaker hinted last week that it might need to raise rates in the coming months.

Expectations for the Fed to raise interest rates in December have risen since.

According to CME FedWatch, markets are pricing in a more than 50 percent chance of a Fed hike in December, up from around 31 percent as recently as Sept. 8.

The dollar hovered close to an eight-week high against the yen, buoyed with U.S. Treasury yields having risen to one-month highs before the Fed's policy announcement.

The greenback was little changed at 111.460 yen after touching 111.880 overnight, its highest since late July.

Currency markets had a muted reaction to Trump's latest comments on North Korea.

Trump said in a speech to the U.N. General Assembly on Tuesday that the United States will be forced to "totally destroy" North Korea unless Pyongyang backs down from its nuclear challenge.

South Korea's KOSPI (KS11) was down 0.05 percent and the won was up 0.2 percent at 1,128.6 to the dollar.

"Trump's comments were actually very strong and the won would have moved more if it were not for the overall cautious mood before the Fed's decision," said Kim Doo-un, a foreign exchange analyst at Hana Financial Investment Seoul.

For now, broader risk sentiment was yet to be swayed by Trump's comments.

"The market doesn't seem to have any strong risk-off sentiment, even after Trump's comments," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The euro edged up to touch $1.2019 , its highest since Sept. 11.

The dollar index (DXY) against a basket of six major currencies was little changed at 91.747.

The Mexican peso pulled back slightly after dropping in response to a strong earthquake that struck central Mexico. The currency stood at 17.8165 pesos per dollar after touching 17.8500 overnight, its weakest in two weeks.

The 10-year Treasury note yield (US10YT=RR) stood close to 2.246 percent, the one-month peak set the previous day.

In commodities, oil prices rose after Iraq's oil minister said OPEC and other crude producers were considering extending or even deepening a supply cut to curb a global glut, while a report showed a smaller-than-expected increase in U.S. inventories. [O/R]

Brent crude futures (LCOc1) were up 0.3 percent at $55.30 a barrel and U.S. crude (CLc1) rose 0.6 percent to $49.76 a barrel.