Dollar dips, global shares touch two-week low before Janet Yellen's speech

The dollar edged down and global shares slipped to a two-week low on Friday as investors turned cautious before a keynote speech by Federal Reserve Chair Janet Yellen that could map out a clearer path for US interest rates.

The MSCI All-Country World index was down 0.1 per cent by 0817 GMT, after slipping to its lowest level since Aug 9, while the pan-European STOXX 600 fell 0.2 per cent.

Investors were wary of Yellen hinting at a near-term interest rate hike, which could divert some of the liquidity that has underpinned riskier assets worldwide, though others predicted she would strike a more equivocal note.

The dollar index, which tracks the currency against six major peers, slipped 0.14 per cent to 94.721, while euro zone government bond yields crept up.

Recent hawkish comments from other Fed officials have raised expectations of a US rate hike this year, though markets are not fully pricing one in till 2017.

"Markets are a bit worried about the upcoming comments from Yellen, which is understandable given how much of the market strength is due to central bank action," said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels.

"The fact that some of her disciples have indicated that it may be time to raise rates again has not done much in terms of calming sentiment. She will probably try to strike a balance between an improving US economy and risks abroad."

Chris Scicluna, head of economic research at Daiwa Capital Markets, took a similar line.

"Yellen won't be able to ignore the current debate but she can't make a commitment either because there's a range of views on the FOMC," he said.

On Thursday, San Francisco Fed President John Williams and Kansas City Fed President Esther George defended the need to raise rates, albeit gradually, to keep the US economy from overheating.

Earlier in Asia, Japan's Nikkei index fell 1.2 per cent after US stocks closed modestly lower on Thursday. However, MSCI's broadest index of Asia Pacific shares outside Japan were flat.

On the commodities front, oil prices fell after the Saudi energy minister tempered expectations of strong market intervention by producers during talks next month, and as analysts pointed to a supply overhang.

Zinc prices touched their highest level in 15 months as fresh shutdowns in China's steel sector added to mine supply concerns. As China steel mills shutter, steel prices lift, meaning the remaining mills can pay more for ingredients such as zinc.

Wariness ahead of Yellen's speech also gave spot gold a leg-up. It rose 0.2 per cent, narrowing this week's losses.