Dollar up as market reassesses Fed rate path outlook; retail sales eyed

#FOREX

2023-03-15 16:26:00

Come from : Investing.com

  • © Reuters

    © Reuters

By Geoffrey Smith 

Investing.com -- The dollar was up in early trading as the market adjusted its view of the likely path for U.S. interest rates again in the wake of February's inflation report on Tuesday. 

The U.S. consumer price index had fallen to 6.0%, but core elements of the report continued to show prices rising at an uncomfortably fast rate, illustrating the Federal Reserve's lack of room for maneuver to respond to last week's banking failures. 

Rate-sensitive two-year bond yields had retraced around two-thirds of their Monday drop in response, as the market settled once again into a consensus that the Fed will raise interest rates by 25 basis points at its meeting next week, not least because failing to do so would likely be interpreted as panicking and as such, unlikely to restore confidence in the U.S. banking sector.

By 04:00 ET (08:00 GMT), the dollar index, which measures the greenback against a basket of advanced economy currencies, was up 0.1 at 103.30, having dropped as low as 103.00 during a four-day plunge.

The CPI report is set to be followed at 08:30 ET Wednesday by data on U.S. retail sales and producer price inflation for February, which will also be influential inputs for the Fed's decision next week.

In Europe, the euro is outperforming after Reuters reported that the European Central Bank is set to stick with its plans to raise its key rates by 50 basis points when it meets on Thursday, with its sources saying that a new set of staff forecasts will still show inflation above its 2% target in 2025.

That point was underlined by the publication of French inflation data for February, which were revised up to show a rise of 1.1% in prices last month, taking the annual rate of inflation in the Eurozone's second-largest economy back up to 7.3%

The euro rose as high as $1.0760, its highest since mid-February, before retracing to be at $1.0735, up 0.1% from late Tuesday. 

Elsewhere in Europe, sterling came under pressure again ahead of the U.K. government's new budget, which is expected to focus on measures to improve labor supply. The U.K. has the highest level of economic inactivity among G7 countries, due largely to long-term absenteeism and a rise in early retirement during the pandemic.

Elsewhere, the offshore yuan edged down after a mixed set of data for industrial production, retail sales and fixed asset investment in February. 

RECOMMENDED NEWS

Euro hits 1-month high after Lagarde, Nagel warn on inflation risks

By Geoffrey Smith 

Investing.com -- The euro hit its highest level in over a month on Wednesday after European Central Bank officials warned that inflation pressure is still too strong to allow any talk of loosening policy in the near term.

By 08:30 ET (12:30 GMT), the euro was at $1.0790, just off an intraday peak of $1.08.

"Even though inflation has likely passed its peak, it is descending from very high levels, and it is projected to be too far above our target for too long," ECB President Christine Lagarde said in a speech. "The longer inflation is too high, the greater the danger that it remains so." 

Lagarde was giving the keynote speech at a conference hosted by the ECB itself for the economists that track it most closely. The ECB has usually used the conference to amplify communication of its policy goals to financial markets. 

In a speech that made few concessions to the risk of financial instability derailing the Eurozone economy, Lagarde argued that the improvement in headline inflation over recent months has flattered the underlying trend, Core inflation, which strips out volatile food and energy prices, accelerated to a euro-era record of 5.6% in February, more than double its previous record high in 2008.  

Various measures of underlying inflation tracked by the ECB put the rate as high as 8%, Lagarde noted. Headline inflation by contrast has eased to 8.5% in February from a peak of 10.6% in October.

Lagarde devoted a large part of her speech to analyzing the respective influence of wages and corporate profit margins in driving inflation over the last couple of years. Notably, she warned both workers and companies to accept that the eurozone economy has been permanently weakened by last year's energy price spike. 

"The euro area has suffered a large terms-of-trade loss owing to rising energy prices, the cost of which must ultimately be shared between firms and workers," Lagarde said. "It is important that there is fair burden sharing between them, with both accepting that they cannot fully recover the income that the euro area has paid to the rest of the world and the ensuing loss of output." 

Lagarde warned that, in contrast to the U.S., where pandemic-era savings have been largely run down, Eurozone households are still sitting on around €900 billion in excess savings built up between 2020 and 2022, which are likely to provide a tailwind to inflation for some time yet.

Elsewhere in her speech, the ECB president repeated that "There is no trade-off between price stability and financial stability," a line that ran like a thread through her press conference last week after the ECB raised its key interest rates by 50 basis points, bringing its key deposit rate to 3%. She insisted that the ECB had the necessary tools to defend the region's financial system from collapses in the U.S. and Switzerland.

Her comments were echoed in an interview with German central bank chief Joachim Nagel published by the Financial Times on Wednesday. 

“We are not facing a repeat of the financial crisis we saw in 2008,” Nagel said. “We can manage this.” 

Nagel said it was too early to conclude that the collapse of Credit Suisse and Silicon Valley Bank, among others, would lead to a credit crunch in the Eurozone, although he acknowledged that banks might tighten their lending conditions, in effect doing the ECB's job for it. 

#FOREX

2023-03-22 20:44:00

Come from : Investing.com

Dollar subdued ahead of Fed decision; sterling rise on CPI jump

By Peter Nurse

Investing.com - The U.S. dollar traded near five-week lows in early European trade Wednesday ahead of the latest Federal Reserve interest rate decision, while surprisingly strong U.K. inflation data lifted the pound.

At 03:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.825, just above a new five-week low hit earlier in the session.

The recovery in risk sentiment as the week has progressed has weighed on the safe-haven dollar, but losses are minor early Wednesday as the focus is squarely on the conclusion of the Federal Reserve's two-day policy-setting meeting later in the session.

The U.S. central bank is now widely expected to increase rates by 25 basis points, with a minority expecting the Fed to keep interest rates unchanged.

Just a month earlier, the market was pricing in a reasonable chance of a 50-basis-point hike, but the sudden bout of financial instability has complicated monetary policy decisions that had been tightly focused on raising interest rates to fight inflation.

The Fed meeting ends with the release of a statement at 14:00 ET (18:00 GMT) followed half an hour later by a news conference by Chair Jerome Powell.

Elsewhere, GBP/USD rose 0.5% to 1.2270, near its highest level for six weeks after inflation accelerated again in the U.K. in February, increasing the pressure on the Bank of England to keep raising interest rates despite the ongoing financial instability.

The consumer price index rose 1.1% on the month, well above the 0.6% rise expected, taking the headline annual rate back up to 10.4% from 10.1%. Analysts had expected it to fall below 10% for the first time since August.

The BoE is set to announce its latest policy decisions on Thursday, and these numbers can only lift the risk of another increase in interest rates, which would be the 11th successive rise.

EUR/USD edged higher to 1.0772, just below the five-week high seen overnight.

The European Central Bank increased interest rates by 50 basis points last week, and further hikes will be needed to combat inflation, Bundesbank chief Joachim Nagel said in an interview with the Financial Times, published earlier Wednesday.

"Our fight against inflation is not over," Nagel told the newspaper, adding that he certainly felt "price pressures are strong and broad-based across the economy."

AUD/USD traded 0.4% higher at 0.6694, benefiting from the stronger risk sentiment, USD/JPY rose 0.1% to 132.57, while USD/CNY rose 0.1% to 6.8911.

#FOREX

2023-03-22 16:14:00

Come from : Investing.com

Asia FX creeps lower, dollar muted as markets brace for Fed rate hike

By Ambar Warrick

Investing.com-- Most Asian currencies retreated in cautious trade on Wednesday as markets positioned for a likely interest rate hike by the Federal Reserve later in the day, although waning fears of a bank crisis made for small losses in regional currencies.

The Fed is expected to hike interest rates by 25 basis points, given that inflation is still running well above the central bank’s target rate. Markets are pricing in an over 80% chance that the bank will hike rates later in the day, according to Fed Funds futures prices.

But the dollar saw limited support on Wednesday, with the dollar index and dollar index futures falling slightly amid uncertainty over the Fed’s outlook on monetary policy. The two were also trading close to their lowest level in five years. 

Treasury yields rose on Wednesday, but were trading well below highs hit earlier this year. 

While concerns over a banking crisis appear to have eased, further raises in interest rates could put more lenders at risk, which in turn could limit the Fed’s ability to tighten policy.But prior to the banking crisis, Powell had espoused a hawkish stance for the central bank amid high inflation and strength in the labor market. 

The central bank had also rolled out emergency liquidity measures to stem a broader crisis, which largely undermined its monetary tightening over the past year.

The Fed will announce its decision on interest rates by 14:00 ET (18:00 GMT), followed by a press conference by Chair Jerome Powell an hour later.

Still, rising interest rates bode poorly for Asian currencies, as the gap between risky and low-risk debt narrows. Regional units were hit hard by the Fed’s rate hikes through 2022. 

The Chinese yuan fell less than 0.1% on Wednesday as the People’s Bank set a slightly stronger daily midpoint, while the Taiwan dollar and South Korean won shed 0.2% and 0.3%, respectively.

The Japanese yen was flat, but traded near a one-month high against the dollar, having benefited from increased safe haven demand over the past week.

Risk-heavy Southeast Asian currencies fell the most, with the Philippine peso losing 0.4%. 

#FOREX

2023-03-22 12:16:00

Come from : Investing.com

Lebanon to sell unlimited US dollars to prop up collapsing pound

BEIRUT (Reuters) - Lebanon's central bank will begin selling unlimited amounts of U.S. dollars in a bid to halt the spiralling devaluation of the Lebanese pound, Governor Riad Salameh said on Tuesday.

Salameh set a new rate for Sayrafa, the central bank's exchange platform, at 90,000 Lebanese pounds per dollar on Tuesday. He set the rate at 70,000 on March 1 but it has steadily crept up, trading at 83,500 on the platform on Monday.

The Lebanese pound's parallel market rate weakened from roughly 121,000 to the U.S. dollar on Tuesday morning to 140,000 by the afternoon, prompting residents to briefly seal off roads in anger over their declining purchasing power.

The pound has lost more than 98% of its value since the economy began unravelling in 2019. The central bank revalued the pound officially from 1,507.5 to 15,000 per U.S. dollar in February but it has traded at a much lower and varying rate on Sayrafa.

Tuesday's move came with the approval of the caretaker premier and caretaker finance minister and aimed to "limit the devaluation of the Lebanese pound in the parallel market," Salameh said.

Those willing to trade could use Grade A exchange houses or banks which lift their strike, he said. Lebanese banks resumed a strike last week to protest against legal measures taken against them.

The pound began rising in value on the parallel market immediately after the decision was announced.

Unifying multiple exchange rates is one of several steps sought by the International Monetary Fund for Lebanon to clinch a $3 billion aid package that would help it emerge from the meltdown.

But as Lebanon approaches the one-year mark since it signed a preliminary deal with the IMF, residents are still dealing with a dizzying array of exchange rates.

Salameh said in February that Lebanon still had about $10 billion in foreign currency reserves. The country had more than $30 billion in FX reserves when the crisis began.

#FOREX

2023-03-21 22:36:00

Come from : Reuters

Dollar edges higher, off lows ahead of Federal Reserve meeting

By Peter Nurse 

Investing.com - The U.S. dollar edged higher in early European trade Tuesday but has struggled to climb much above recent five-week lows ahead of the start of the latest Federal Reserve policy-setting meeting.

At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 103.025, having earlier fallen below 103 for the first time since mid-February.

The ongoing turbulence in the banking sector has weighed upon the U.S. dollar, as traders have begun to price in the expectation that this banking stress will keep the Federal Reserve from hiking rates much further, or at all, later in the week.

The Fed unveiled an enhanced, seven-day dollar swap late on Sunday to try and ease funding stress in global markets.

Although the use of this facility has been limited, the rush to add liquidity into the monetary system is "the most overt sign" of financial stress and a clear negative for the dollar, said Alan Ruskin, chief international strategist at Deutsche Bank.

Aside from Wednesday's interest rate decision - with a hike of 25 basis points the current market favorite - markets will also be looking to hear what the Fed will say about its $8.6 trillion balance sheet, which has started to expand again.

EUR/USD edged higher to 1.0716, ahead of the release of the German ZEW survey of economic sentiment for March, which is expected to show a drop to 17.1 from 28.1, weighed by the banking unrest.

The European Central Bank increased interest rates by 50 basis points last week, but the uncertainty in the banking sector could limit the number of hikes the central bank authorizes this year.

"Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes," European Central Bank President Christine Lagarde told European lawmakers on Monday.

GBP/USD fell 0.2% to 1.2251, ahead of the latest Bank of England meeting on Thursday, at which it is expected to raise interest rates for the 11th meeting in a row.

That said, the British public's expectations for inflation have fallen, the Bank of England said in a survey it published on Friday, suggesting that the central bank is close to ending its hiking cycle.

AUD/USD traded 0.4% lower at 0.6690, after the minutes of the Reserve Bank's March meeting showed that policymakers were considering an eventual pause in interest rate hikes.

USD/JPY rose 0.4% to 131.85, with the yen handing back some of its recent gains that were based on its safe haven status, while USD/CNY fell 0.1% to 6.8743.

#FOREX

2023-03-21 16:24:00

Come from : Investing.com

Asia FX dips, dollar steadies as Fed meeting looms

By Ambar Warrick

Investing.com -- Most Asian currencies retreated on Tuesday, while the dollar firmed slightly as markets hunkered down ahead of a Federal Reserve interest rate decision this week, while lingering fears of a banking crisis also weighed on sentiment.

The South Korean won was the worst performer for the day, down 0.6% as soft inflation and trade data gave the Bank of Korea more impetus to keep interest rates on hold.

China’s yuan fell 0.1%, while the Thai baht led losses across Southeast Asian currencies with a 0.5% drop.

The Japanese yen rose 0.1% in holiday-thinned trade. But the currency was sitting on strong gains in recent sessions as fears of a U.S. and European banking crisis spurred safe haven demand.

While U.S. and European regulators rolled out liquidity measures to support the banking system, markets still remained on edge over the collapse of more banks, as the sector struggles with a sharp rise in interest rates.

The dollar saw limited safe haven demand as markets bet that the Federal Reserve could potentially soften its hawkish rhetoric to stem further pressure on the banking system. This also saw the greenback trade lower over the past week, as markets pivoted into traditional safe havens such as gold and other precious metals.

But the dollar index and dollar index futures rose about 0.1% each on Tuesday, ahead of the conclusion of the Fed’s two-day policy meeting on Wednesday. The central bank is widely expected to raise rates by 25 basis points, given that U.S. inflation is still trending well above its target range.

The central bank’s outlook on monetary policy will also be closely watched in the face of a potential banking crisis. Other Asian currencies retreated amid this uncertainty, with the Indian rupee and Singapore dollar down 0.2% each.

The Australian dollar fell 0.4% after the minutes of the Reserve Bank’s March meeting showed that policymakers were considering an eventual pause in interest rate hikes, amid easing inflation and pressure on economic growth.

But the bank is likely to keep raising rates in the near-term, the minutes showed, with inflation only expected to reach the RBA's target range by mid-2025.

#FOREX

2023-03-21 13:42:00

Come from : Investing.com

Dollar languishes as bank crisis fears ebb on Credit Suisse rescue

By Rae Wee

SINGAPORE (Reuters) - The dollar regained some ground on Tuesday but was pinned near a five-week low as traders tiptoed back into riskier assets after UBS' state-backed takeover of Credit Suisse allayed some fears of a widespread, systemic banking crisis.

Market sentiment remained fragile, however, as investors struggled to determine the scale of the ramifications from a sector hit that began with Silicon Valley Bank's collapse, putting a cap on risk appetite and giving some support to the safe haven dollar.

Sterling rose 0.02% to $1.2280, while the euro steadied at $1.0722.

The Aussie fell 0.22% to $0.6703.

News of UBS' planned takeover of rival Credit Suisse on Sunday - a shotgun merger engineered by Swiss authorities - gave way to a small risk-on rally on Monday, as worries over market-shaking turmoil across global banks waned.

"Markets remain nervous, but the rapidity of policymakers' response to the evolving banking sector risks is heartening," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

In another show of authorities' determination to stem widespread contagion and to ease market concerns, the Federal Reserve, in coordination with central banks elsewhere, announced on Sunday that it would offer daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone would have the dollars needed to operate.

"There has been pretty modest demand for U.S. dollars at the Fed swap lines, so that is a positive sign in and of itself," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).

"But there continues to be some signs of stress in funding markets ... so currencies will continue to be pretty cautious," she added.

The dollar slipped 0.12% to 131.15 against the Japanese yen, while the U.S. dollar index, which measures the greenback against a basket of currencies, fell 0.04% to 103.30.

Lower U.S. rate expectations also added to downward pressure on the dollar ahead of the Fed's two-day policy meeting commencing later on Tuesday.

According to the CME FedWatch tool, markets are pricing in a 26.2% chance that the Fed will stand pat when it announces its monetary policy decision on Wednesday, with a 73.8% chance of a 25 basis point rate hike.

"Given all the market turbulence and concerns around the global financial system, I think it will be important for Fed Chair (Jerome) Powell to give reassurance to market participants that the U.S. financial system, at least, is very resilient and robust," CBA's Kong said.

Elsewhere, the kiwi slid 0.16% to $0.6237. The Reserve Bank of New Zealand said on Tuesday it saw no immediate need to request the reinstatement of a U.S. dollar swap line that expired in 2021.

#FOREX

2023-03-21 09:21:00

Come from : Reuters

Fed Liquidity Boost Is Bad for the Dollar, Deutsche Bank’s Ruskin Says

(Bloomberg) -- The rush to add liquidity into the monetary system is “the most overt sign” of financial stress and a clear negative for the dollar, according to Alan Ruskin, chief international strategist at Deutsche Bank AG (NYSE:DB).

“The Fed adding to its balance sheet but being slow to resolve the underlying financial problem, is among the worst outcomes for the USD,” Ruskin said after the Federal Reserve and five other central banks announced a coordinated effort Sunday to inject US dollar liquidity in an effort to ease growing strains in the global financial system.

“We are inclined to take a USD negative line, in so much as the SVB problem has triggered a crisis of confidence that has long-term structural ramifications for the US banking system,” he wrote in a note to clients.

The greenback extended its decline into a third day Monday as investors curtail bets on the Fed tightening its monetary policy this week in the aftermath of the Silicon Valley Bank collapse and the Credit Suisse Group AG bailout. 

Apart from the question of whether the Fed is about to pause its interest-rate hikes, the markets are also keenly attuned to what the Fed will say about its $8.6 trillion balance sheet. It was shrinking, but now started expanding again over the recent emergency lending programs. Fed Chair Jerome Powell and his colleagues are gathering Tuesday for a pivotal two-day policy meeting.

“A shock of this nature, that has deep-seated implications for a sector’s structure, is typically not responsive to immediate fixes,” Ruskin wrote about the SVB fallout. “The issues as they relate to banking sector structure, are also very specific to US, which is another reason why we draw USD negative conclusions.”

Bloomberg Dollar Spot Index fell 0.4% on Monday, shedding about 2% in value since the recent peak earlier in March. 

©2023 Bloomberg L.P.

 

#FOREX

2023-03-21 01:45:00

Come from : Bloomberg

EU's EIB to break 4-year Turkey lending ban with earthquake aid

By Marc Jones

LONDON (Reuters) - The European Union's lending arm, the European Investment Bank, is to provide 500 million euros ($540 mln) for Turkey's post-earthquake rebuilding efforts, suspending an almost-total ban on financing for Turkey.

The EIB stopped virtually all lending in Turkey after a row over oil and gas drilling off Cyprus nearly four years ago.

But the severity of last month's quake, which killed nearly 56,000 people in Turkey and neighbouring Syria, has prompted it to make an exception.

"We are working together with the European Commission on a joint comprehensive package, of which up to 500 million euros is to be delivered by the EIB," the bank's vice president, Lilyana Pavlova, said in a statement.

"We will shortly present it to our Board of Directors for approval."

Speaking at an international donor conference, Commission President Ursula von der Leyen, said the overall package would add up to 1 billion euros ($1.1 bln).

While it is understood that all EU countries, including Cyprus, will give the green light for the EIB funding, formal approval might not come until June as the plans still need to be fleshed out and the timing is sensitive.

Turkey is set to hold pivotal presidential and parliamentary elections on May 14 and EU members are wary of a resumption of EIB lending being seen as an indirect backing of incumbent president Tayyip Erdogan's re-election campaign.

The EU has long accused Erdogan of human rights violations and the bloc's ties with Turkey are tense over Ankara's crackdown on dissent following a 2016 coup attempt as well as the oil and gas row in the Eastern Mediterranean.

More recently, Turkey has blocked a bid by Sweden - an EU member - to join NATO in the wake of Russia's war against Ukraine although it has just given Finland's membership its blessing.

The EIB lent around 2 billion euros a year in Turkey between 2009 and 2016 before the concerns about Ankara's domestic crackdown first saw the bank scale back its lending in the country.

($1 = 0.9328 euros)

#FOREX

2023-03-21 00:56:00

Come from : Reuters

Safe haven status helps dollar edge higher; Fed meeting in focus

By Peter Nurse 

Investing.com - The U.S. dollar edged higher in early European trade Monday with the safe haven in demand amid the ongoing banking crisis and ahead of this week's Federal Reserve policy-setting meeting.

At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 103.470.

The dollar retreated overnight after a group of major central banks announced emergency liquidity measures in order to ensure the stability of the financial system.

This followed the emergency rescue of Credit Suisse (SIX:CSGN) with the Swiss authorities organizing the takeover of the banking giant by rival UBS (SIX:UBSG).

However, tensions in the banking sector remain, particularly in the debt market, given that UBS will write off about $17 billion worth of Credit Suisse bonds as part of the takeover.

Traders are also cautious ahead of this week's Federal Reserve meeting.

Expectations are now running high that the U.S. central bank will lift interest rates by only 25 basis points given the turmoil in the banking sector, a smaller hike than seemed likely earlier this month.

However, there remains a great deal of uncertainty over what signals the Fed will send to markets, given inflation remains elevated.

EUR/USD fell 0.1% to 1.0659, ahead of a speech by ECB President Christine Lagarde later in the session as she appears before the European Parliament's economic committee.

The European Central Bank increased interest rates by 50 basis points last week, with Governing Council member François Villeroy de Galhau saying Monday that the decision shows the institution is confident in the region's banks.

GBP/USD rose 0.2% to 1.2193, with the Bank of England expected to hike interest rates later this week. However, the central bank will have to strike a difficult balance between the fight against inflation and worries about financial turmoil.

AUD/USD traded flat at 0.6694, NZD/USD edged lower to 0.6257, while USD/JPY fell 0.5% to 131.12, with the yen also benefiting from its safe haven status.

Minutes from the Bank of Japan's March meeting showed that many board members were in favor of maintaining the central bank's extra accommodative stance, but some members voiced concern over lingering distortions in the yield curve that its policy has caused.

USD/CNY edged higher to 6.8891 after the People's Bank of China unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions.

#FOREX

2023-03-20 16:30:00

Come from : Investing.com

Asia FX sinks, dollar rises amid Fed uncertainty, bank crisis fears

By Ambar Warrick

Investing.com -- Most Asian currencies fell on Monday and the dollar rose as markets hunkered down ahead of a Federal Reserve meeting this week, while fears of a banking crisis kept sentiment on edge despite government measures to assuage market concerns.

The Chinese yuan fell 0.2% after the People’s Bank unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions. The central bank also maintained its loan prime rates at record lows, as it moves to increase liquidity conditions and shore up economic growth.

But this has the added effect of applying more pressure on the yuan, as the gap between local and overseas interest rates widens. The Chinese currency was trading close to the 7 level against the dollar on Monday.

Other Asian currencies also retreated, with the South Korean won losing 0.3%, while the Japanese yen lost about 0.1%. But the yen was trading close to its strongest level in a month, aided by increased safe haven demand in the past week.

Japan's Chief Cabinet Secretary Hirokazu Matsuno reassured investors on Monday that the country's banking system was stable and faced no contagion from the U.S. and European crises.

The dollar advanced slightly on Monday, with the dollar index and dollar index futures up 0.1% each.

But the markets were cautious over the greenback ahead of a Federal Reserve meeting this week, where the bank is expected to hike rates by 25 basis points.

Recent ructions in the banking sector saw markets betting that the Fed will soften its hawkish rhetoric to prevent further economic pressure from high interest rates.

The central bank, along with other major peers rolled out emergency liquidity measures over the weekend to support the banking sector and prevent further collapses. Regulators also brokered a merger of Swiss banks UBS Group (SIX:UBSG) and Credit Suisse Group (SIX:CSGN), as the latter grappled with a looming liquidity crisis.

But markets still remained on edge over more pain from the banking sector, after the unexpected collapse of several U.S. lenders last week. Traders were also uncertain over what signals the Fed will send to markets, given that its recent liquidity measures undermine a year-long struggle to tighten monetary conditions and fight inflation.

Volatility in the debt market also loomed, given that UBS will write off about $17 billion worth of Credit Suisse bonds as part of the takeover.

#FOREX

2023-03-20 14:04:00

Come from : Investing.com

Yen eyes more gains as Fed balance sheet expands, bank turmoil brings dollar pain

By Yasin Ebrahim

Investing.com -- The turmoil in banking this week coaxed investors into the arms of the safe-haven yen at the expense of the dollar and many are calling for more of the same as the rewidening of the Fed’s balance sheet and the upcoming Federal Reserve decision points to more pain ahead for the dollar.

“We are maintaining a short USD/JPY trade idea,” MUFG said, targeting 129.00.

The yen, which racked up a 3% gain against the dollar this week, has been “one of the main beneficiaries so far from the loss of confidence in the health of the banking system,” MUFG added.

The concerns of a banking crisis -- brought on by the collapse of Silicon Valley Bank and Signature Bank -- over the past week triggered a rush to safe havens including gold, Treasuries and the yen as concerns about a contagion in the banking sector heated up.

The 2-year U.S. Treasury yield this week suffered its biggest three-day slump since Black Monday in October 1987 as investors piled into bonds and at the same repriced the Fed’s rate-hike path with cuts now forecast for the second half of the year.

The Fed, however, launched a new bank funding facility, allowing banks to receive loans up to one-year using qualifying assets including any underwater, or below par, bonds as collateral.

The lending facility will re-build bonds on the Fed’s balance sheet.

The move has not only blunted the Fed’s ongoing quantitative tightening program -- in which $95 billion of maturing bonds per month are allowed to mature – but triggered a rewidening of its balance sheet, likely keeping the pressure on the dollar.

“The rewidening of the Fed’s balance sheet and increase of USD liquidity are negative factors that are encouraging USD selling in the near-term,” MUFG said. The Fed’s balance sheet jumped by about $300B in the week to 15th March.

Much of the swelling of the Fed’s balance sheet was driven by a record $153B increase in borrowing from the Fed’s discount window, according to MUFG. But others expect it’s only a matter of time until an uptick in the Fed’s new lending program speeds up.

“The terms on this facility are so good that a significant take-up is quite probable,” ING said, adding that “once volumes build, more and more (mostly smaller) banks will likely use the facility.”

The Fed’s rate decision next week, meanwhile, isn’t likely to stop the rot in the dollar as many expect the turmoil in banking, which has already tightened financial conditions, may sway the Fed away from maintaining its hawkish tilt.

“Higher borrowing costs and reduced access to credit mean a higher chance of a hard landing for the economy. Rate cuts, which we have long predicted, are likely to be the key theme for the second half of 2023,” ING said.

“Our overall preference is to remain defensive this month and maintain overweight positions in the Japanese yen,” it added.

#FOREX

2023-03-18 05:58:00

Come from : Investing.com

Dollar retreats as banking support prompts relief rally

By Peter Nurse

Investing.com - The U.S. dollar slipped lower in early European trade Friday and riskier currencies rallied on easing concerns about a global banking crisis.

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% lower at 103.715.

The foreign exchange market has seen a relief rally after a number of large U.S. banks injected $30 billion in deposits into First Republic Bank (NYSE:FRC), supporting this regional bank which had been caught up in the backwash of the collapse of two other smaller U.S. banks over the past week.

The move followed Credit Suisse's (SIX:CSGN) announcement earlier on Thursday that it would borrow up to $54B from the Swiss National Bank, ensuring the embattled lender had sufficient liquidity to cope with hefty withdrawals in the wake of a number of banking scandals.

EUR/USD rose 0.5% to 1.0659, benefiting from the decision of the European Central Bank to go ahead on Thursday with its previously signaled 50-basis-point rate hike amidst the banking turmoil.

This suggested the ECB policy makers remain confident in the underlying strength of the Eurozone banking sector.

At her regular press conference, President Christine Lagarde trod a fine line between acting tough on inflation and acknowledging the need for caution amid growing signs of financial stability risks.

The final CPI data for the Eurozone is due later in the session, and is expected to show that inflation grew 0.8% on the month in February, up 8.5% on the year.

GBP/USD rose 0.5% to 1.2166, AUD/USD soared 0.8% to 0.6708, NZD/USD gained 0.8% to 0.6246, while USD/JPY fell 0.3% to 133.32.

Japan's government is closely coordinating with the Bank of Japan and financial authorities overseas to prevent fallout from the banking difficulties of a number of Western banks, Finance Minister Shunichi Suzuki said on Friday.

U.S. economic data will center around the release of the University of Michigan’s consumer sentiment reading for March later in the session, which will provide a clue as to how Americans are coping with the current economic difficulties.

That said, most eyes have now moved on to next week’s Federal Reserve monetary policy meeting, with expectations rising that the U.S. central bank could slow its aggressive rate-hike campaign in a bid to ease the stress on the financial sector.

Markets are now pricing in a nearly 90% chance that the Fed will hike rates by a smaller 25 basis points next week.

#FOREX

2023-03-17 16:34:00

Come from : Investing.com

Asia FX rises, dollar dips amid easing bank crisis fears

By Ambar Warrick

Investing.com-- Most Asian currencies rose sharply on Friday amid easing fears of a global banking crisis, while the dollar retreated as markets also bet that the Federal Reserve will soften its hawkish stance to prevent more economic pain.

China’s yuan was among the best performers for the day, rising nearly 0.5% as a positive outlook on the Chinese economy from Goldman Sachs also boosted sentiment. The investment bank expects China’s economy to grow 6% this year, more than government forecasts of 5%.

Economic data released this week showed that certain facets of the economy were recovering from three years of COVID lockdowns. But growth in the manufacturing sector still remained below full capacity. 

The Japanese yen rose 0.6% and was set to add 1.4% this week, having benefited greatly from increased safe haven demand. A mild improvement in Japan’s massive trade deficit also helped sentiment towards the yen, amid easing supply chain issues.

Broader Asian currencies advanced amid increased risk appetite, as fears of an imminent banking collapse were eased by several major U.S. lenders supporting First Republic Bank (NYSE:FRC). This came after Swiss lender Credit Suisse Group AG (SIX:CSGN) scored an up to $54 billion credit facility from the Swiss National Bank to fortify liquidity levels.

The support for banks, coupled with government reassurances that the banking sector was stable, helped ease concerns over an imminent collapse in the banking system, following the failure of several U.S. banks over the past week.

The dollar index and dollar index futures retreated about 0.3% each amid bets that the Fed will taper its hawkish stance to prevent further pressure on the economy from rising interest rates.

The collapse of several U.S. banks in recent weeks was driven largely by a slump in bond prices, to which lenders such as Silicon Valley Bank were disproportionately exposed. 

Markets are now pricing in a nearly 90% chance that the Fed will hike rates by a smaller 25 basis points next week. 

Risk-heavy Southeast Asian currencies advanced on Friday, with the Thai baht rising 0.6%, while the Philippine peso added 0.5%.

The Singapore dollar rose 0.3% after data showed the island state’s key non-oil exports shrank slightly less than expected in February from the last year.

The Indian rupee rose 0.2%, also benefiting from weakness in oil markets, while the Australian dollar surged 0.8% after logging sharp losses over the past week. 

#FOREX

2023-03-17 14:16:00

Come from : Investing.com

Dollar slips as banks rescue makes room for relief rally

By Rae Wee

SINGAPORE (Reuters) - The dollar slipped on Friday as risk sentiment improved after authorities and banks moved to ease stress on the financial system in major markets, taking heat off other major currencies that tumbled earlier in the week in the wake of bank turmoil.

Large U.S. banks on Thursday injected $30 billion in deposits into First Republic Bank (NYSE:FRC), swooping in to rescue the lender, which was caught up in a widening crisis triggered by the collapse of two other mid-size U.S. banks over the past week.

Cautious calm spread across markets on Friday, giving room for rises in risk-sensitive currencies like the Australian and New Zealand dollars, which were among the largest gainers in Asia trade.

The Aussie rose 0.4% to $0.6684, while the kiwi edged 0.3% higher to $0.62145.

The $30 billion rescue package, put together by top power brokers from the U.S. Treasury, Federal Reserve and banks, followed Credit Suisse's announcement earlier on Thursday that it would borrow up to $54 billion from the Swiss National Bank.

It had similarly become embroiled in widespread contagion following the implosion of U.S.-based Silicon Valley Bank (SVB).

But even as a 30% plunge in the embattled Swiss lender's shares stoked fears about the health of Europe's banks, the European Central Bank (ECB) nonetheless went ahead with a hefty 50-basis-point rate hike at its policy meeting on Thursday.

ECB policymakers sought to reassure investors that euro zone banks were resilient and that if anything, the move to higher rates should bolster their margins.

The euro's reaction to the decision was fairly muted, though it managed to eke out a 0.3% gain on Thursday. It was last 0.14% higher at $1.0625.

"The euro zone banking sector remains in reasonably solid shape," said Wells Fargo (NYSE:WFC) international economist Nick Bennenbroek.

"Should market strains ease and volatility recede in the weeks and months ahead, persistent inflation should in our view be enough to elicit further (ECB) tightening."

Elsewhere, sterling rose 0.15% to $1.2128, while the Swiss franc gained 0.1%. Earlier in the week, the Swissie had plunged the most against the dollar in a day since 2015.

The Japanese yen remained elevated, and was last roughly 0.3% higher at 133.30 per dollar.

Fragile market sentiment had traders flocking to the yen - typically considered a safer bet in times of turmoil - on mounting worries that the recent stress unfolding across banks in the U.S. and Europe could be just an early stage of a widespread systemic crisis.

"The market gyrations of the past week are not rooted in a banking crisis, in our view, but rather are evidence of financial cracks resulting from the fastest interest rate hike campaigns since the early 1980s," said analysts at BlackRock (NYSE:BLK) Investment Institute.

"Markets have woken up to the damage caused by that approach - a recession foretold - and are starting to price it in."

The Federal Reserve's monetary policy meeting next week now moves to centre stage. Some investors are hoping that the Fed could slow down on its aggressive rate-hike campaign in a bid to ease the stress on the financial sector.

"The turmoil in the banking sector is complicating the outlook for Fed policy, but the impact may be more nuanced than the Fed simply reversing course," said Philip Marey, senior U.S. strategist at Rabobank.

The U.S. dollar index slipped 0.12% to 104.27.

#FOREX

2023-03-17 10:00:00

Come from : Reuters

Nigeria tops list of countries withholding airline funds, IATA says

LAGOS (Reuters) - Nigeria is withholding $743 million in revenue earned by international carriers operating in the country, the highest amount owed by any nation, a spokesperson for the global airlines industry association said on Thursday.

Nigeria faces severe shortages of foreign currency, leading to restrictions on imports and meaning investors cannot convert local currency to repatriate their profits.

International Air Transport Association (IATA) spokesperson Katherine Kaczynska said governments around the world owed $2.2 billion to airlines. Nigeria had the highest amount of blocked funds, followed by Algeria and Lebanon, which owed $165 million and $146 million respectively.

"Enabling the efficient repatriation of revenues is critical for any economy to remain globally connected to markets and supply chains," Kaczynska said in emailed response to questions from Reuters.

Dubai's Emirates suspended flights to Nigeria last year after failing to repatriate ticket sales. Last month, President Muhammadu Buhari directed the central bank to increase the amount of foreign currency allocated to Emirates after speaking to UAE President Sheikh Mohamed bin Zayed Al Nahyan.

Emirates has yet to resume flights to Nigeria, which is Africa's most populous nation and is responsible for a large share of the continent's air travellers.

Industrial-scale theft of crude of oil, Nigeria's single biggest earner of foreign exchange, has greatly reduced the country's flow of dollars in the last year.

Apart from Nigeria's $743 million debt, Kaczynska said countries under the West African Economic and Monetary Union owed $132 million while Zimbabwe, which has perennial dollar shortages owed $80 million.

#FOREX

2023-03-17 02:11:00

Come from : Reuters

Dollar retreats, euro gains after Credit Suisse boosts risk sentiment

By Peter Nurse

Investing.com - The U.S. dollar retreated in early European trade Thursday and the euro pushed higher as Credit Suisse’s move to bolster its financial position boosted risk sentiment.

At 03:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 103.980, handing back some of the previous session’s 1% gain.

Credit Suisse (SIX:CSGN) announced late Wednesday plans to borrow as much as CHF 50 billion ($1 = CHF 0.9297) from the Swiss National Bank, strengthening its liquidity position.

Worries have been growing about the Swiss lender’s financial health for some time as it struggled with hefty customer outflows in the wake of a string of scandals. These came to head on Wednesday with its share price slumping to a record low as its main investor, Saudi National Bank, said it was unable to provide more funding to the lender.

The news of this credit line has boosted sentiment, soothing some concerns over an immediate collapse in the sector that had been hit hard by the three recent U.S. bank failures.

EUR/USD rose 0.4% to 1.0619, bouncing on the news, ahead of the European Central Bank’s latest policy-setting meeting later in the session.

The ECB had previously signaled the likelihood of another interest rate increase of 50 basis points as underlying Eurozone remained elevated, but concerns about potential repercussions to the banking sector from such a hefty hike could prompt the policy makers to act more cautiously.

“The market will … take its cue from the European Central Bank today. Pushing on with a 50bp rate hike will prove difficult and we should expect more volatility immediately after the … decision,” said analysts at ING, in a note.

ECB President Christine Lagarde’s press conference will also be of interest as she is sure to be asked how the central bank can balance efforts to deliver price stability while safeguarding financial stability.  

The question is the same in the U.S., with the Federal Reserve likely to hold back from increasing interest rates by an outsized 50 basis points next week, given the strain on the U.S. banking system.

Goldman Sachs has lifted its estimate of the odds of a U.S. recession to 35% over the next 12 months in response to increased uncertainty over the economic impact of bank stress, an increase from 25% previously.

Elsewhere, GBP/USD rose 0.3% to 1.2105, boosted by the improved risk sentiment. Also helping was Chancellor Jeremy Hunt's comments in the budget on Wednesday that the economy was likely to shrink 0.2% in 2023, an improvement from the previous forecast for a 1.4% contraction. 

USD/JPY fell 0.5% to 132.69, with the yen one of the best performers of the day. The risk-sensitive AUD/USD rose 0.6% to 0.665670, while USD/CNY edged 0.1% lower to 6.9007.

#FOREX

2023-03-16 16:31:00

Come from : Investing.com