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

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

By Peter Nurse - 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.


2023-03-28 15:16:00     Come from :

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

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

By Ambar Warrick 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. 


2023-03-28 12:15:00     Come from :

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

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

By Yasin Ebrahim – 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.


2023-03-28 04:33:00     Come from :

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

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

By Peter Nurse - 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.


2023-03-27 15:39:00     Come from :

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

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

By Ambar Warrick -- 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. 


2023-03-27 13:59:00     Come from :

Venezuela need for dollars helped spark PDVSA graft probe -sources

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.


2023-03-25 03:40:00     Come from : Reuters

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

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

By Peter Nurse - 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.


2023-03-24 16:23:00     Come from :

Asia FX weakens as dollar steadies from Fed-driven losses

Asia FX weakens as dollar steadies from Fed-driven losses

By Ambar Warrick -- 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.


2023-03-24 14:10:00     Come from :