(Reuters) – Asian shares began the week on the back foot on Monday after a downbeat session on Wall Street, while the euro skidded to a fresh 12-year low on divergent monetary policy paths between the United States and the euro zone.
Oil continued to tumble, with U.S. crude dropping more than 2 percent to a six-year low, after the International Energy Agency said on Friday that the global supply glut is growing and U.S. production shows no sign of slowing.
U.S. crude CLc1 dropped about 1.1 percent to $44.36 a barrel, while Brent crude LCOc1 lost about 0.9 percent to $54.16.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off its early lows but still down about 0.1 percent, pushing back toward last week’s seven-week trough.
Friday’s weak U.S. inflation data failed to derail expectations that the Federal Reserve will tighten monetary policy, and U.S. shares slumped on concerns about the impact of higher rates and a stronger dollar on corporate profits. The S&P 500 .SPX marked its third straight losing week, though it stood just 3 percent below its record high set early this month.
Investors’ main focus this week is on the Fed’s two-day meeting beginning on Tuesday. After successive months of strong jobs data, expectations have been growing that the Fed will point towards a June rate rise by dropping a pledge to be “patient” in considering such a move.
“The FOMC will be afraid that dropping patience without making some reference to the USD or international asset market conditions will lead to an even faster USD pickup,” Steven Englander, global head of currency strategy at Citi, said in a note to clients.
“Paradoxically, if they are serious about hiking mid-year, a USD breakout may limit their options,” he added.
Data on Friday showed that U.S. producer prices fell in February for a fourth straight month, pointing to tame inflation that suggests the central bank has the scope to hold off.
The Bank of Japan will announce its latest policy decision on Tuesday, a day before the Fed, and is widely expected to maintain its aggressive quantitative and qualitative asset-buying program to stoke growth and sustainable inflation of 2 percent.
“Rises in bank and other domestic demand-oriented shares symbolizes an improved confidence that the economy is getting out of deflation,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo.
The dollar took a breather from its recent rally, but remained close to multi-year highs.
The euro slipped as low as $1.0457 EUR= early in the Asian session, its lowest since January 2003, but then rebounded to $1.0528, up about 0.3 percent on the day.
Still, the euro has dropped about 25 percent versus the dollar since around the middle of 2014. It suffered its biggest weekly fall since September 2011 last week, shedding 3.2 percent as the European Central Bank launched its 1.1 trillion euro bond-buying stimulus program.
Goldman Sachs now expects the euro to slide to $0.80 by the end of 2017.
Against the yen, the euro edged up about 0.2 percent to 127.63 EURJPY=R, but remained not far from a 21-month trough of 126.86 set on Friday.
The common currency’s recent weakness gave a lift to the dollar index .DXY, which edged down from a 12-year high of 100.420 to stand at 99.936.
Against its Japanese counterpart, the dollar shed about 0.2 percent on the day to 121.25 JPY=, but was still not far from a nearly eight-year high of 122.04 hit on Tuesday.