Asia FX rattled by bank crisis fears, safe havens advance

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2023-03-16 13:56:00

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  • © Reuters

    © Reuters

By Ambar Warrick 

Investing.com -- Most Asian currencies kept to a tight range on Thursday amid renewed concerns over a U.S. and European banking crisis, with investors largely pivoting into safe haven currencies amid fears of broader economic headwinds. 

The Japanese yen was among the best performers for the day, rising 0.5% and sticking close to its strongest level in a month, while the Thai baht, which is generally seen as a safer investment among risk-heavy Southeast Asian currencies, advanced 0.4%. 

The Chinese yuan was flat after Goldman Sachs) hiked its outlook for Chinese economic growth in 2023 to 6% from 5.5%. The forecast, which is more than the 5% posited by the Chinese government, helped spur some optimism over a Chinese economic recovery, as the country reemerges from three years of COVID lockdowns. 

Still, weak risk appetite saw the yuan creep back toward the key 7 level against the dollar. 

Fears of a potential banking crisis came back to the fore on Wednesday following a rout in the shares of beleaguered Swiss lender Credit Suisse Group AG (SIX:CSGN). But the lender secured a $54 billion credit line from the Swiss National Bank, soothing some concerns over an immediate collapse in the banking sector. 

But this offered little relief to Asian currencies, as investors pivoted out of risk-heavy assets. Most regional currencies were muted on Thursday, while the Malaysian ringgit led losses in the region with a 0.6% tumble.

The dollar fell slightly against a basket of currencies, but was sitting on strong overnight gains. The dollar index and dollar index futures both fell 0.1% after rallying 1% in overnight trade. 

The greenback was largely buoyed by safe haven demand, and also saw bids amid increased uncertainty over the path of U.S. monetary policy. Focus is now squarely on a Federal Reserve meeting next week, where the bank is expected to hike interest rates by 25 basis points.

But fears of a brewing bank crisis, after the collapse of three regional U.S. banks, saw traders question whether the Fed will have enough economic headroom to keep raising rates. This caused sharp losses in the dollar earlier this week, offering some relief to Asian currencies. 

Focus was also on an upcoming interest rate decision by the European Central Bank, which is expected to raise rates by 50 basis points later in the day. The euro rose 0.3% in Asian trade.

The Australian dollar was among the few outliers for the day, rising 0.4% as stronger-than-expected employment data pushed up expectations of more interest rate hikes by the Reserve Bank.

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Dollar edges lower; safe haven loses appeal as banking turmoil eases

By Peter Nurse

Investing.com - The U.S. dollar drifted lower in early European trade Tuesday as returning confidence in the global banking sector weakened demand for this safe haven.

At 04:00 ET (07:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 102.320.

The S&P 500 banks index rose 3.1% on Monday, helped by the news that First Citizens BancShares (NASDAQ:FCNCA) would acquire the deposits and loans of Silicon Valley Bank, which failed earlier this month, as well as reports from Bloomberg that U.S. authorities were considering more support for banks.

Signs of stability in this crucial sector have reduced demand for the dollar, usually regarded as a safe haven in times of stress.

The dollar index had climbed to a three-month high of 105.88 on March 8, before sliding as low as 101.91 last week as risk sentiment fluctuated with the differing banking headlines.

The turbulence in the banking sector has also changed the market’s expectation of the Federal Reserve’s likely interest-rate hiking path, with a pause in May now widely expected.

“Markets have turned increasingly doubtful that the Fed will be able to tighten policy any further, and have simultaneously speculated on an early start to the easing cycle,” said analysts at ING, in a note. “Fed Funds futures currently price in only a 30% chance of a rate hike in May while fully pricing in a 25bp cut in July, and a total of 80bp of easing by year-end.”

Elsewhere, EUR/USD rose 0.2% to 1.0817, with European Central Bank officials keen to emphasize not only the continued need to tackle inflation but also the underlying strength of the region’s banks.

Governing Council member Mário Centeno said Monday that the European Central Bank must consider recent financial-market stress when making decisions on interest rates, but “our main focus right now is to control inflation and to bring it down to 2%.”

French business confidence remained healthy in March despite the recent turmoil in the banking sector, according to data released Tuesday, and this follows on from German business morale unexpectedly rising in March.

GBP/USD rose 0.3% to 1.2321, maintaining recent strength after Bank of England Governor Andrew Bailey said on Monday that inflation remained the main driver of monetary policy decisions.

Data from the British Retail Consortium, released early Tuesday, showed that overall shop price inflation rose to 8.9% in March from 8.4% in February, the largest increase since its records started in 2005.

Risk-sensitive AUD/USD rose 0.6% to 0.6689, USD/JPY fell 0.5% to 130.92, with the yen seen benefiting from some consolidation of overseas profits by Japanese firms ahead of the end of Japan’s financial year on Friday.

USD/CNY fell 0.1% to 6.8816, with the focus on the release of Chinese business activity data later this week to provide clues of the state of an economic recovery in the country.

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2023-03-28 15:16:00

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Japanese yen leads Asia FX gains as bank fears ease, dollar slips

By Ambar Warrick

Investing.com-- The Japanese yen led gains across Asian currencies on Tuesday, while the dollar retreated as traders grew less concerned over an imminent banking crisis and pivoted into more risk-driven assets. 

The yen surged 0.8% to 130.58 against the dollar, sharply reversing overnight losses. The currency, which usually acts as a safe haven, was also seen benefiting from some consolidation of overseas profits by Japanese firms ahead of the end of Japan’s financial year on Friday. 

An uptick in Japanese business to business services inflation also showed that underlying price pressures remained high in the country, which could invite eventual policy tightening by the Bank of Japan this year.

Other risk-driven currencies advanced on Tuesday, with the Malaysian ringgit and Thai baht up 0.5% and 0.4%, respectively, while the Australian dollar surged 0.6%. The Australian dollar was also aided by slightly stronger-than-expected retail sales data, which pointed to some resilience in the economy. 

The Chinese yuan lagged its peers, rising only 0.1% after a slightly weaker midpoint fix by the People’s Bank. Focus this week is also on Chinese business activity data to gauge the state of an economic recovery in the country. 

On the other hand, the dollar retreated further against a basket of currencies in Asian trade, as safe haven demand for the greenback waned amid easing concerns of a banking crisis. The dollar index and dollar index futures fell about 0.2% each on Tuesday.

Investors grew less wary of a U.S. banking crisis after the government-brokered takeover of collapsed lender Silicon Valley Bank (NASDAQ:SIVB) by peer First Citizens BancShares Inc (NASDAQ:FCNCA). A slew of reassurances from U.S. regulators on the stability of the banking system, as well as promises of more liquidity support also helped improve sentiment.

Fears of a banking crisis had driven heavy outflows from Asian markets through March, as investors dumped risk-heavy assets. But regional markets could now see a strong rebound as sentiment improves.

Still, any upside in Asian currencies is expected to be limited, given that U.S. interest rates are likely to increase further. A deterioration in economic growth towards the end of the year also stands to dent sentiment. 

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2023-03-28 12:15:00

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Pound gains as BoE's Bailey keeps inflation fight in focus despite banking woes

By Yasin Ebrahim

Investing.com – The pound held its gains against the dollar Monday after Bank of England Governor Andrew Bailey said inflation remained the main driver of monetary policy decisions in the wake of concerns about the turmoil in banking.

GBP/USD rose 0.45% to remain close to its highs of the day at $1.2285.

The Bank of England, or BoE, governor said the Financial Policy Committee -- set up after the great financial crisis to ensure the stability of the UK Financial system – was “on the case of securing financial stability,” allowing the central bank to focus on its “own important job of returning inflation to target,” Bailey said in a speech at the London School of Economics on Monday. 

Bailey also signaled that the bank would be ready to deliver more monetary tightening if “signs of persistent inflationary pressures become more evident.”

The ongoing worries about price pressures come less than a week after the BoE hiked rates by 0.25% last week, revised its economic growth forecast higher and flagged the strong labor market as a threat to inflation.

About 50% of traders expect the BoE to hike more times this year before a pause. 

The less depressing growth economic outlook at a time when the UK government’s fiscal plan is on a much more steady footing than it was six months ago - when the then Prime Minister Lizz Truss’ mini budget sparked chaos – forced market participants to reassess their bearish calls on the pound.

“We no longer look for idiosyncratic GBP weakness, as investor sentiment on the fiscal side has improved meaningfully,” Goldman Sachs said in a recent note.

The comments from Bailey come just a day ahead of his testimony before parliament on issues related to the collapse of Silicon Valley Bank.

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2023-03-28 04:33:00

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Dollar steadies on improved banking confidence; First Citizens to buy SVB

By Peter Nurse

Investing.com - The U.S. dollar steadied in early European trade Monday on rising optimism the U.S. banking turmoil could be contained, although confidence in the sector remained fragile.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 102.745, above the seven-week low seen last week.

News released early Monday that First Citizens BancShares (NASDAQ:FCNCA) agreed to acquire Silicon Valley Bank's deposits and loans has soothed market nerves surrounding the health of smaller U.S. banks.

This followed both U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell attempting to reassure the market that the U.S. banking system remained sound.

However, deposits at small banks fell by $120 billion in the week to March 15, while borrowing jumped $253B, indicating pressures remain severe.

Minneapolis Fed president Neel Kashkari said on Sunday the recent stress in the banking sector and the possibility of a follow-on credit crunch has brought the U.S. closer to recession.

This has led the market to largely price in the Fed standing pat with interest rate hikes in May, before cutting in the summer, to the detriment of the dollar.

"There are around 90bp of cuts priced in, starting in July, and the unclear Fed communication is doing very little to reliably push back against those," said analysts at ING, in a note.

Elsewhere, EUR/USD edged higher to 1.0762, after falling 0.6% on Friday when German banking giant Deutsche Bank's (ETR:DBKGn) shares slumped on contagion fears.

European Central Bank President Christine Lagarde told European Union leaders on Friday that the euro-area banking sector remains healthy because of the strong regulatory regime.

Traders will keep an eye on the German Ifo release for March later in the session, for clues of sentiment in businesses in the Eurozone’s largest economy.

GBP/USD rose 0.2% to 1.2257, having fallen 0.5% on Friday, while the risk-sensitive AUD/USD rose 0.3% to 0.6663.

USD/JPY rose 0.4% to 131.25, with the safe-haven yen losing a degree of appeal, while USD/CNY rose 0.2% to 6.8785 after data showed industrial profits fell sharply in the first two months of 2023, pointing to a slow economic recovery in China.

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2023-03-27 15:39:00

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Asia FX dips as bank fears, weak China data keep sentiment dim

By Ambar Warrick

Investing.com -- Asian currencies fell on Monday as persistent fears of a banking crisis kept investors wary of most risk-driven assets, while a weak economic indicator from China also dampened optimism over a recovery in Asia’s largest economy. 

China’s yuan fell 0.2% after data showed industrial profits fell sharply in the first two months of 2023. The reading pointed to a mixed economic recovery in China, and that local manufacturers were struggling despite a rebound in business activity after the relaxing of anti-COVID measures.

Other China-exposed currencies also fell, with the Singapore dollar down 0.2%, while the South Korean won fell 0.3%. A slow economic recovery in China bodes poorly for the Asian countries that depend on Beijing as a major trading partner. 

Focus this week is also on Chinese business activity data for March, due on Friday. The reading is expected to show further improvement after a strong recovery earlier this year. 

Broader Asian currencies retreated amid continued concerns over a banking crisis. The Thai baht was the worst performer among Southeast Asian units, down 0.5%, while the Indian rupee steadied after recent losses.

Deutsche Bank (ETR:DBKGn), Germany’s largest lender, was now in focus after the cost of insuring the bank’s debt against default surged to a near five-year high last week.

The bank’s shares were also sold off heavily, indicating that investors were positioning for a potential credit crunch.

The dollar steadied against a basket of currencies as markets also awaited more cues on U.S. monetary policy in the face of a brewing bank crisis. 

The dollar index and dollar index futures steadied near 103 points.

Comments from Federal Reserve officials over the weekend suggested that the central bank could hike interest rates at least two more times by June. But officials also expressed uncertainty over how much space the bank still has to hike rates, given the increased economic headwinds presented by a banking crash.

While Asian currencies took some support from recent weakness in the dollar, broader gains were limited as traders largely pivoted out of risk-heavy assets and into safe haven such as gold.

The Japanese yen also benefited from safe haven bids, and fell much lesser than other Asian currencies on Monday. 

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2023-03-27 13:59:00

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Venezuela need for dollars helped spark PDVSA graft probe -sources

By Mayela Armas and Vivian Sequera

CARACAS (Reuters) - Venezuela's need for dollars to shore up its exchange rate and enable government largesse ahead of 2024 elections is among the motives for a crackdown on alleged corruption at state oil company PDVSA, four sources with knowledge of the matter said.

The arrests this week of more than 20 PDVSA officials prompted former oil minister Tareck El Aissami, long prominent in the government of President Nicolas Maduro, to resign. He was replaced by Pedro Rafael Tellechea, who had been named to head PDVSA in January.

Maduro said that his government was committed to "going to the root" of corruption, calling the probe which began last year "professional, scientific and disciplined." His administration has provided scant further details of the alleged wrongdoing.

Three of the sources said the arrests of the PDVSA officials were linked to an investigation into heavy losses the company suffered last year, as tankers left the country carrying cargoes that had not been fully paid for.

PDVSA has accumulated $21.2 billion in unpaid bills, according to documents seen by Reuters, after turning to dozens of little-known intermediaries to export its oil under U.S. sanctions.

Those pending payments are a sore spot for the government as it gears up for next year's presidential elections, which traditionally see a jump in public spending, the sources said. The government has said it expects oil exports to finance 63% of its national budget in 2023.

"The money is what's important, the money is the central point of this mess," said a political source. "If you don't have money what do you do? Invent votes."

The Finance Ministry, the central bank, and PDVSA did not respond to requests for comment.

Nearly all of PDVSA's commercial crude and fuel exports have been halted amid a review of contracts, part of an audit begun by Tellechea after taking the helm.

It is unclear whether the corruption probe and contract review will concretely improve PDVSA's cash flows in the near future.

But it has come at a time when Maduro's government faces pressure to raise public sector pay, which has held steady for a year even as prices for food and public services have shot up.

Maduro increased the monthly minimum wage by 58% in March 2018, two months ahead of the last presidential contest, whose results are contested.

Maduro relaxed currency controls in 2019, allowing a de facto dollarization. In a bid to combat rampant inflation the government later used dollar injections to stabilize the exchange rate, along with public spending cuts and other measures.

Cash flows from PDVSA to the central bank, which injects dollars into the economy, have been intermittent in recent months, said three of the sources, who have knowledge of finance and ruling party economic strategies.

Consumer price increases fell to single digits for about a year, but annualized inflation surged back to 537% in February, according to the non-governmental Venezuelan Observatory of Finances. Falling dollar cash flows have led to a sharper depreciation of the bolivar currency since late last year.

"The (government's) exchange strategy will remain the same in the coming months," said one of the sources, adding the government will need more foreign cash to keep up injections of dollars, which local companies need to pay providers and for imports.

The central bank had just $420 million to offer to banks between the start of 2023 and mid-March, according to estimates from economic firm Sintesis Financiera.

During all of 2022, it had tripled dollar injections to $3.7 billion.

Some $3.6 billion of PDVSA's pending payments may be unrecoverable, Reuters reporting showed, because they are tied to tankers that left the country without prepaying at least a portion of the cargoes' value.

PDVSA last year delayed cash payments in dollars to several of its suppliers because of dwindling income.

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2023-03-25 03:40:00

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Dollar steadies near seven-week low; Fed set to pause?

By Peter Nurse 

Investing.com - The U.S. dollar steadied near its seven-week low in early European trade Friday as traders contemplated the Federal Reserve's next move as confidence in the banking sector remained fragile.

At 03:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally higher at 102.243, just above the seven-week low of 101.91 it touched on Thursday. 

U.S. Treasury Secretary Janet Yellen reiterated on Thursday that she was prepared to take further action to ensure that Americans' bank deposits stay safe.

This is a stance that she may well have to honor as strains are showing with borrowing at the Federal Reserve's discount window a hefty $110.2 billion as of Wednesday. 

Additionally, lending from the Fed's new Bank Term Funding Program ballooned to $53.7B, while loans to foreign central banks surged to $60B.

With this in mind, the market is beginning to position for the Fed ending its rate-hiking cycle earlier than previously envisaged, to the detriment of the dollar, particularly after Fed Chair Jerome Powell indicated that the central bank policymakers had considered such a move last week.

"Markets are, so far, not trusting the ability of the Fed to treat inflation and financial stability independently," said analysts at ING, in a note. "This looks unlikely to change soon, which means that rate expectations should remain strictly tied to developments in the banking crisis."

Elsewhere, GBP/USD traded 0.1% lower at 1.2271, having touched a seven-week high of 1.2344 on Thursday.

U.K. retail sales unexpectedly rebounded by 1.2% in February from the month before, returning sales volumes to their pre-pandemic level, but this is having little impact on sterling after the Bank of England hinted on Thursday that it may have ended its run of rate hikes.

EUR/USD edged higher to 1.0833, having climbed to a seven-week high of 1.0931 on Thursday.

European Central Bank President Christine Lagarde is set to speak at the European Council meeting later in the session and is expected to confirm that the battle against inflation remains alive and there won't be any talk of loosening policy in the near term.

"We think that 1.1000 [in EUR/USD] can be tested quite soon as the dollar bias should stay mostly bearish and European currencies are backed by hawkish central banks and a quieter banking environment," ING added.

AUD/USD traded 0.1% higher at 0.6691, USD/JPY fell 0.4% to 130.26, while USD/CNY rose 0.4% to 6.8487.

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2023-03-24 16:23:00

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Asia FX weakens as dollar steadies from Fed-driven losses

By Ambar Warrick

Investing.com -- Most Asian currencies fell on Friday and the dollar steadied near seven-week lows as markets speculated over how imminent a pause in interest hikes may be, although dovish signals from the Federal Reserve put most regional units on course for strong weekly gains.

The safe haven Japanese yen outperformed its peers, rising 0.5% even as data showed Japanese consumer inflation eased as expected in February, lending further credence to the Bank of Japan’s ultra-dovish stance.

Japanese manufacturing activity also remained in contraction territory through March, preliminary data showed. Worsening risk appetite put the yen on course to add over 1% this week.

The Chinese yuan was the worst performer for the day, down 0.4% despite a stronger midpoint fix by the People’s Bank. Ructions in the property sector soured sentiment towards China, clouding the outlook for an otherwise strong post-COVID economic recovery.

A hotly-anticipated debt restructuring plan by beleaguered property developer China Evergrande Group (HK:3333) saw little fanfare, given that it proposed some investors take an up to 98% haircut on their bond holdings.

Still, the yuan and most other Asian currencies were set to close the week higher, aided largely by a sharp drop in the dollar as fears of a U.S. banking crisis saw traders question whether the Federal Reserve had enough economic headroom to keep raising interest rates.

The South Korean won fell slightly on Friday, but was the best performer this week with a 1.5% bounce, while the Malaysian ringgit led gains in Southeast Asia with a 1.3% jump this week.

Malaysian inflation also read slightly higher than expected for February.

The Fed hiked interest rates as expected this week, and said it will continue to act against high inflation. But a change in the bank’s language suggested a potential pause in interest rate hikes, due to pressure on the banking sector.

The dollar steadied from recent losses on Friday, with the dollar index and dollar index futures trading flat. But the greenback was set to lose over 1% this week.

Still, uncertainty over when exactly the Fed could pause its rate hikes kept sentiment subdued, while fears of a U.S. economic slowdown also kept investors wary of risk-driven Asian assets.

Weak economic signals also weighed on Asian units on Friday. The Singapore dollar fell 0.1% as industrial production shrank far more than expected in February.

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2023-03-24 14:10:00

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Dollar slumps after Fed meeting; Sterling rises ahead of BOE

By Peter Nurse

Investing.com - The U.S. dollar slumped to a seven-week low in early European trade Thursday following the latest Federal Reserve interest rate increase, while the pound surged ahead of a Bank of England get-together.

At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 101.763, just above levels last seen in early February.

The Fed raised its benchmark funds rate by 25 basis points, as widely expected, but took a more cautious stance about further increases, hinting it could pause interest rate rises following turmoil in the banking sector.

The U.S. central bank also cut its median forecast for real GDP growth this year to 0.4% from 0.5%, suggesting the banking crisis was already having an impact on economic activity, albeit limited at the moment.

"The Federal Reserve has raised the policy rate by 25bp, but signaled it 'may' only hike once more. This is a little more dovish than anticipated, but the Fed is not expecting recent banking woes to significantly derail the economy," said analysts at ING, in a note.

"We are more cautious and fear a tightening of credit conditions raises the chances of a hard landing for the economy."

Elsewhere, GBP/USD rose 0.4% to 1.2313, near a seven-week high, ahead of the latest Bank of England's latest policy-setting meeting.

BOE Governor Andrew Bailey hinted earlier this month that the policymakers could be looking to pause its rate-hiking cycle, but the latest U.K. inflation data makes that look very unlikely.

British consumer price inflation rose to 10.4% in February from January's 10.1%, way above expectations and almost back to where it was in December.

EUR/USD rose 0.4% to 1.0901, near a seven-week high.

The European Central Bank increased interest rates by 50 basis points last week, and more hikes look likely even as the Fed hesitates over its next move.

"We need to get inflation under control, need to keep working until we have confidence that the backbone of inflation is broken," said Governing Council member Madis Müller, in an interview Thursday, adding that the bulk of the tightening had probably already been done.

USD/CHF fell 0.2% to 0.9162, with the Swiss National Bank also seen raising rates 50 bps to 1.5% later this session as it is expected to view tackling inflation as more important than any concerns over financial market turmoil.

AUD/USD traded 0.8% higher at 0.6737, USD/JPY fell 0.4% to 130.88, while USD/CNY dropped 0.8% to 6.8278, with these Asian currencies benefiting from the prospect of a less hawkish Fed.

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2023-03-23 16:19:00

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Investors cut bearish bets on most Asian FX as policy rate bets shift: Reuters poll

By Savyata Mishra

(Reuters) - Investors turned less bearish on the Chinese yuan and the Singaporean dollar as they cut short bets across most Asian currencies, a Reuters poll found, as fears of a banking crisis likely prompted a shift towards a pause in policy tightening by major central banks.

Short bets on the yuan fell to their lowest since December 15, 2022, according to the fortnightly poll, as home sales in China logged much narrower declines - signs that recovery in the embattled property sector and the economy are gathering strength.

The currency firmed on Thursday, following dovish comments from the U.S. Federal Reserve that reined in expectations for more interest rate hikes and lifted sentiment for other Asian currencies.

All the 10 responses were received, however, before the Fed raised its key rate by an expected quarter of a percentage point on Wednesday and pointed to just one more rate hike this year, after a run on Silicon Valley Bank two weeks ago and the crisis in Credit Suisse wobbled investor confidence in banks.

The dollar index slipped to near seven-week lows following the Fed's latest policy statement that no longer says that "ongoing increases" in rates will likely be appropriate.

Over the weekend, some of the world's largest central banks came together to stop the banking crisis from spreading as Swiss authorities persuaded UBS Group AG (SIX:UBSG) to buy rival Credit Suisse Group AG in a historic deal.

Back in Asia, analysts at Barclays (LON:BARC) said they expect "domestic growth and inflation considerations to drive the monetary policy trajectory for most of EM Asia, despite financial stability issues emanating from the U.S. and Europe".

"Still, if the fallout from the recent events worsens, we think EM central banks may yet again have to re-evaluate their decisions."

Bearish bets on Singapore's dollar eased to their lowest since Nov. 18, 2021. Data on Thursday showed the country's February core inflation rose lower-than-expected.

Short bets on the Indonesian rupiah and the Indian rupee rose slightly from a fortnight ago, while sentiment toward South Korea's won improved.

Last week, Bank Indonesia left interest rates unchanged for a second straight time, while the Philippine central bank raised its key rate by an expected 25 basis points on Thursday.

The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE USD/CNY USD/KRW USD/SGD USD/ID USD/TWD USD/INR USD/MYR USD/PHP USD/THB

R

23-Mar-23 0.17 0.87 0.16 0.74 0.63 0.58 0.74 0.36 0.37

09-Mar-23 0.68 1.3 0.65 0.56 0.78 0.28 0.78 0.42 0.3

23-Feb-23 0.36 0.77 0.21 0.12 0.30 0.80 0.49 0.33 0.37

09-Feb-23 -0.80 -0.63 -0.72 -0.53 -0.68 0.25 -0.64 -0.40 -1.00

26-Jan-23 -1.29 -1.14 -1.40 -1.15 -0.68 -0.47 -1.25 -0.78 -1.77

12-Jan-23 -1.58 -1.39 -1.31 -0.10 -0.67 0.07 -0.82 -0.61 -1.85

15-Dec-22 0.08 -0.55 -0.85 0.92 -0.22 0.63 -0.36 -0.15 -0.69

1-Dec-22 0.63 -0.15 -0.3 1.08 0.15 0.76 -0.02 0.33 -0.16

17-Nov-22 0.74 0.21 -0.06 1.06 0.84 1.13 1.18 0.89 0.4

03-Nov-22 1.81 1.38 0.47 1.57 1.81 1.47 2.02 1.36 1.34

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2023-03-23 16:00:00

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Asia FX surges, dollar sinks on Fed’s ‘dovish hike’

By Ambar Warrick

Investing.com -- Most Asian currencies rose sharply on Thursday, while the dollar fell to a seven-week low after the Federal Reserve raised interest rates but hinted at a potential pause in its tightening cycle, although rates are likely to remain higher for longer.

China’s yuan surged 0.7%, while the South Korean won was the best performer for the day with a 1.3% bounce.

The Indian rupee rose 0.4%, while the Japanese yen jumped 0.5%, with focus also turning to key Japanese consumer inflation data due on Friday.

On the other hand, the dollar retreated further against a basket of currencies in Asian trade, after tumbling 0.7% on Wednesday. The dollar index and dollar index futures fell about 0.2% each on Thursday.

Treasury yields also sank after the Federal Reserve hiked interest rates as expected, and changed its language when addressing future interest rate hikes. The central bank no longer sees “ongoing increases” in interest rates as appropriate, and instead said that policy firming "may be appropriate.”

The change in language comes in the wake of a banking crisis, which analysts bet will reduce the economic headroom available for the Fed to keep raising rates. The central bank also slightly trimmed its GDP outlook for the year, and maintained its median outlook for interest rates at 5.1% for 2023.

“With markets perceiving the unchanged 2023 median projections at 5.1% as moderately dovish and the general investors’ sentiment on the banking crisis having gradually improved in the past couple of days, the dollar was left without a floor,” analysts at ING wrote in a note, noting that the Fed had opted for a “dovish hike.”

The Fed’s less hawkish outlook helped break a nearly week-long lull in Asian currencies, as a potential banking crisis spurred increased risk-aversion.

Most regional currencies saw strong gains on Thursday as the Fed reiterated that a bigger banking crisis had likely been averted. But the central bank also said that it will continue to act against overheated inflation, and said that it was planning no interest rate cuts this year.

While Asian currencies benefited on the prospect of a less hawkish Fed, high interest rates are likely to limit major gains for the rest of the year.

Regional units were battered by a sharp rise in interest rates through 2022, and are still reeling from the move this year.

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2023-03-23 13:22:00

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Dollar hits near 7-week low as Fed’s terminal rate approaches

By Ambar Warrick

Investing.com-- The dollar tumbled to a near seven-week low on Wednesday after the Federal Reserve hiked interest rates as expected, although some language in the central bank’s announcement suggested that interest rates may be close to reaching their peak. 

The dollar index fell about 0.7% against a basket of currencies to 102.185 points- its weakest level since early-February.

The Fed hiked rates by 25 basis points to 4.75%-5%, within market expectations. But a change in the bank’s language signaled a potential policy shift, which could see the bank hit its terminal rate sooner than expected. 

The central bank said that it will raise rates by at least 25 bps more this year. But it also said that “some additional policy firming may be appropriate,” a shift from its previous language of  “ongoing increases in the target range will be appropriate-” a statement it has mentioned in every policy meeting since March 2022, when it had embarked on its latest hiking spree. 

The central bank kept its benchmark rate forecast unchanged from December and forecast a peak rate of 5.1% in 2023, and said it was not considering any rate cuts this year.

The Fed hiked rates by a cumulative 500 bps over the past year- its most aggressive tightening spree in 40 years, as it moved to curb rising inflation.

But the recent collapse of several regional U.S. banks raised concerns over damage to the economy from rising interest rates. While the bank had swiftly intervened to prevent a larger crisis and restore faith in the banking system, the event spurred increased bets that the Fed had limited economic headroom to stay hawkish this year. 

“This has been the most aggressive monetary policy tightening cycle for 40 years and by going harder and faster into restrictive territory you naturally have less control over the outcome,” analysts at ING wrote in a note.

Still, Chairman Jerome Powell said on Wednesday that the banking system is “sound and resilient,” and downplayed fears of a bigger crisis. He also reiterated that the fight against inflation was set to continue, given that price pressures remained stubborn in recent months. 

But markets are still pricing in an at least 25 bps to 50 bps rate cut this year, while ING forecast increased headwinds for the economy from a more restrictive stance. 

#FOREX

2023-03-23 08:25:00

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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

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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

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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

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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

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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.

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2023-03-21 13:42:00

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