Investors are setting up for the central bankers' symposium in Jackson Hole, Wyo. from August 24 to August 26 as Fed Chairwoman Janet Yellen and European Central Bank President Mario Draghi are expected to make an appearance. The summit, held at a Jackson Hole mountain retreat, comes as central banks in advanced economies creep toward the policy exit after years of unprecedented easing, even with outlooks clouded by stubbornly tepid inflation.
Although recent economic data and the Fed minutes have reduced the chances of a Fed rate hike later this week, expectations may rise if Fed Chair Janet Yellen emphasizes that the risks to inflation objectives and financial stability require careful monitoring in her speech on Friday.
"Inflation has been the big question mark, both here and overseas", said Michelle Meyer, head of USA economics at Bank of America Corp.in NY.
Also speaking is the head of the European Central Bank, Mario Draghi.
Under Draghi, the European Central Bank has pumped more than 2 trillion euros ($2.35 trillion) into the global financial system. Bond prices move in the opposite direction of yields.
Gold stocks showed a significant move to the upside, however, with the NYSE Arca Gold Bugs Index climbing by 1.7 percent.
Against the dollar, the pound was at its weakest point in almost four weeks, down 0.5% at 1.283.
UBS research suggests more than 60 percent of EM carry trades - borrowings in cheap developed economy currencies invested in higher-yielding emerging currencies - are denominated in dollars, Narain said.
The US Dollar Index continued consolidation above 93 levels through August as risk appetite waned and volatility returned to the markets. Earlier expectations coming into the conference was for a historic announcement signaling the end of the ECB's €60 billion ($70.87 billion) bond-buying by the end of the year.
In Europe, London's FTSE 100 was up 0.7 percent to 7,370 while Germany's DAX rose 0.7 percent, too, to 12,155.
USA inflation fell to 1.4% in June, based on the Fed's preferred gauge, and consumer prices in Europe are at 1.3%.
Selling pressure remained relatively subdued, however, with a lack of major USA economic data keeping some traders on the sidelines.
ANALYST TAKE: "The general feel is that recent events (softer inflation and softer sentiment in markets) will ensure that both the Fed and the ECB will tread carefully", said Jim Reid, a strategist at Deutsche Bank. That would give Ms Yellen enough leeway to start preparing the market for a change - just as her predecessor, Ben Bernanke did on several occasions in speeches at the Jackson Hole conference.