* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Trump woes leave dollar heading for biggest fall since
* World stocks index set for first weekly fall in five
* Oil set for second week of strong gains on output curb
* Brazil's real reels after worst plunge since 1999 crisis
By Marc Jones
LONDON, May 19 The dollar limped towards its
worst week since last July on Friday and world stocks headed for
their first weekly fall in five, as storms surrounding Donald
Trump's U.S. presidency and Latin America's biggest economy,
Brazil, began to calm.
It has been the most eventful week of the year so far for
investors, with leading share markets scaling record highs and
then plunging in one of the sharpest cross-asset routs in years.
Wall Street was expected to nudge higher when it reopens
after a tentative recovery on Thursday. Europe and Tokyo in
Asia also eked out gains, while demand for
safe-haven bonds had also eased.
Jitters persisted in some areas, though. The dollar
sagged to its lowest level since Trump's U.S election victory in
November and safe-haven gold headed higher on the way to its
best week since April.
"The frustrating element is that we are now at the mercy of
equity markets," said National Australia Bank's global head of
FX strategy, Nick Parsons.
"We can be pretty confident that 10 points on or off of the
S&P 500 is a big figure on or off of dollar/yen," he added,
saying the only thing likely to break the link would be a
confident-sounding Federal Reserve at its next meeting.
This week's roller-coaster was triggered by political uproar
over Trump's firing of FBI director James Comey and allegations
he pressed Comey to stop investigating his former national
security chief and his campaign's alleged ties with Russia.
Overlaying that is concern that the resultant political
damage could hamper Trump's chances of getting his promised
fiscal stimulus -- which has spurred markets higher since
November -- through Congress.
The gradual return of risk appetite on Friday also saw
investors switch from highly rated U.S. Treasuries and European
government bonds into higher-yielding Italian and Portuguese
Like the dollar, the U.S. yield curve has slumped back to
levels not seen since Trump's election, and the probability
given by markets of the Fed raising rates next month has tumbled
to below 60 percent from over 90 percent last week.
"Everything has turned upside down -- European political
risks have faded, the economy is looking strong, while in the
U.S. everybody is worried," said DZ Bank strategist Daniel Lenz.
The U.S. currency has also suffered from a resurgent euro,
which has gained more than 2 percent this week - on track for
its best performance since June - and rose 0.7 percent on Friday
to hit a six-month high of $1.11745. <EUR=?
It hasn't only been about Trump though. Emerging markets
have also been grappling with an unfolding corruption scandal in
Brazil that threatens to engulf its president, Michel Temer.
Brazilian markets cratered on Thursday, with stocks down
nearly 9 percent and the real 8 percent -- the currency's
biggest fall since the 1999 devaluation and crisis, although it
looked steadier ahead of the start of local trading.
"For Brazil this is a very serious thing," said Alejo
Czerwonko, director of emerging markets investment strategy at
UBS. "But in the medium term, the next 3-6 months, this is not
necessarily a threat to EM more broadly."
MSCI's main emerging markets index clawed back
some ground on Friday but it remained on track for its worst
week of the year so far.
In commodities, the story was about supply and demand. Oil
was enjoying a third straight session of gains and set for a 4
percent weekly rise following signals that big producer
countries may be closing in on a deal to extend output curbs.
U.S. crude futures hit a three-week high, and were
last trading up 0.8 percent to $49.76 a barrel. Global benchmark
Brent was up a similar amount too at $52.89, near a
The U.S. political uncertainty also put a shine on gold. It
climbed to $1,248.62 an ounce and was set for a weekly gain of
1.6 percent, which would be its best since April.
"People are still wary of geopolitical risks and not selling
the safe-haven asset yet," said Brian Lan, managing director at
gold dealer GoldSilver Central in Singapore.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Sujata Rao in London; Editing by