Dollar slumps after Fed meeting; Sterling rises ahead of BOE

Dollar slumps after Fed meeting; Sterling rises ahead of BOE

By Peter Nurse - 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.


2023-03-23 16:19:00     Come from :

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

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):



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


2023-03-23 16:00:00     Come from : Reuters

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

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

By Ambar Warrick -- 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.


2023-03-23 13:22:00     Come from :

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

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

By Ambar Warrick 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. 


2023-03-23 08:25:00     Come from :

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

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

By Geoffrey Smith -- 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. 


2023-03-22 20:44:00     Come from :

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

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

By Peter Nurse - 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.


2023-03-22 16:14:00     Come from :

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

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

By Ambar Warrick 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%. 


2023-03-22 12:16:00     Come from :

Lebanon to sell unlimited US dollars to prop up collapsing pound

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.


2023-03-21 22:36:00     Come from : Reuters