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.
2023-03-21 16:24:00 Come from : Investing.com
Asia FX dips, dollar steadies as Fed meeting looms
By Ambar Warrick
Investing.com -- Most Asian currencies retreated on Tuesday, while the dollar firmed slightly as markets hunkered down ahead of a Federal Reserve interest rate decision this week, while lingering fears of a banking crisis also weighed on sentiment.
The South Korean won was the worst performer for the day, down 0.6% as soft inflation and trade data gave the Bank of Korea more impetus to keep interest rates on hold.
China’s yuan fell 0.1%, while the Thai baht led losses across Southeast Asian currencies with a 0.5% drop.
The Japanese yen rose 0.1% in holiday-thinned trade. But the currency was sitting on strong gains in recent sessions as fears of a U.S. and European banking crisis spurred safe haven demand.
While U.S. and European regulators rolled out liquidity measures to support the banking system, markets still remained on edge over the collapse of more banks, as the sector struggles with a sharp rise in interest rates.
The dollar saw limited safe haven demand as markets bet that the Federal Reserve could potentially soften its hawkish rhetoric to stem further pressure on the banking system. This also saw the greenback trade lower over the past week, as markets pivoted into traditional safe havens such as gold and other precious metals.
But the dollar index and dollar index futures rose about 0.1% each on Tuesday, ahead of the conclusion of the Fed’s two-day policy meeting on Wednesday. The central bank is widely expected to raise rates by 25 basis points, given that U.S. inflation is still trending well above its target range.
The central bank’s outlook on monetary policy will also be closely watched in the face of a potential banking crisis. Other Asian currencies retreated amid this uncertainty, with the Indian rupee and Singapore dollar down 0.2% each.
The Australian dollar fell 0.4% after the minutes of the Reserve Bank’s March meeting showed that policymakers were considering an eventual pause in interest rate hikes, amid easing inflation and pressure on economic growth.
But the bank is likely to keep raising rates in the near-term, the minutes showed, with inflation only expected to reach the RBA's target range by mid-2025.
2023-03-21 13:42:00 Come from : Investing.com
Dollar languishes as bank crisis fears ebb on Credit Suisse rescue
By Rae Wee
SINGAPORE (Reuters) - The dollar regained some ground on Tuesday but was pinned near a five-week low as traders tiptoed back into riskier assets after UBS' state-backed takeover of Credit Suisse allayed some fears of a widespread, systemic banking crisis.
Market sentiment remained fragile, however, as investors struggled to determine the scale of the ramifications from a sector hit that began with Silicon Valley Bank's collapse, putting a cap on risk appetite and giving some support to the safe haven dollar.
Sterling rose 0.02% to $1.2280, while the euro steadied at $1.0722.
The Aussie fell 0.22% to $0.6703.
News of UBS' planned takeover of rival Credit Suisse on Sunday - a shotgun merger engineered by Swiss authorities - gave way to a small risk-on rally on Monday, as worries over market-shaking turmoil across global banks waned.
"Markets remain nervous, but the rapidity of policymakers' response to the evolving banking sector risks is heartening," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
In another show of authorities' determination to stem widespread contagion and to ease market concerns, the Federal Reserve, in coordination with central banks elsewhere, announced on Sunday that it would offer daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone would have the dollars needed to operate.
"There has been pretty modest demand for U.S. dollars at the Fed swap lines, so that is a positive sign in and of itself," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).
"But there continues to be some signs of stress in funding markets ... so currencies will continue to be pretty cautious," she added.
The dollar slipped 0.12% to 131.15 against the Japanese yen, while the U.S. dollar index, which measures the greenback against a basket of currencies, fell 0.04% to 103.30.
Lower U.S. rate expectations also added to downward pressure on the dollar ahead of the Fed's two-day policy meeting commencing later on Tuesday.
According to the CME FedWatch tool, markets are pricing in a 26.2% chance that the Fed will stand pat when it announces its monetary policy decision on Wednesday, with a 73.8% chance of a 25 basis point rate hike.
"Given all the market turbulence and concerns around the global financial system, I think it will be important for Fed Chair (Jerome) Powell to give reassurance to market participants that the U.S. financial system, at least, is very resilient and robust," CBA's Kong said.
Elsewhere, the kiwi slid 0.16% to $0.6237. The Reserve Bank of New Zealand said on Tuesday it saw no immediate need to request the reinstatement of a U.S. dollar swap line that expired in 2021.
2023-03-21 09:21:00 Come from : Reuters
Fed Liquidity Boost Is Bad for the Dollar, Deutsche Bank’s Ruskin Says
(Bloomberg) -- The rush to add liquidity into the monetary system is “the most overt sign” of financial stress and a clear negative for the dollar, according to Alan Ruskin, chief international strategist at Deutsche Bank AG (NYSE:DB).
“The Fed adding to its balance sheet but being slow to resolve the underlying financial problem, is among the worst outcomes for the USD,” Ruskin said after the Federal Reserve and five other central banks announced a coordinated effort Sunday to inject US dollar liquidity in an effort to ease growing strains in the global financial system.
“We are inclined to take a USD negative line, in so much as the SVB problem has triggered a crisis of confidence that has long-term structural ramifications for the US banking system,” he wrote in a note to clients.
The greenback extended its decline into a third day Monday as investors curtail bets on the Fed tightening its monetary policy this week in the aftermath of the Silicon Valley Bank collapse and the Credit Suisse Group AG bailout.
Apart from the question of whether the Fed is about to pause its interest-rate hikes, the markets are also keenly attuned to what the Fed will say about its $8.6 trillion balance sheet. It was shrinking, but now started expanding again over the recent emergency lending programs. Fed Chair Jerome Powell and his colleagues are gathering Tuesday for a pivotal two-day policy meeting.
“A shock of this nature, that has deep-seated implications for a sector’s structure, is typically not responsive to immediate fixes,” Ruskin wrote about the SVB fallout. “The issues as they relate to banking sector structure, are also very specific to US, which is another reason why we draw USD negative conclusions.”
Bloomberg Dollar Spot Index fell 0.4% on Monday, shedding about 2% in value since the recent peak earlier in March.
©2023 Bloomberg L.P.
2023-03-21 01:45:00 Come from : Bloomberg
EU's EIB to break 4-year Turkey lending ban with earthquake aid
By Marc Jones
LONDON (Reuters) - The European Union's lending arm, the European Investment Bank, is to provide 500 million euros ($540 mln) for Turkey's post-earthquake rebuilding efforts, suspending an almost-total ban on financing for Turkey.
The EIB stopped virtually all lending in Turkey after a row over oil and gas drilling off Cyprus nearly four years ago.
But the severity of last month's quake, which killed nearly 56,000 people in Turkey and neighbouring Syria, has prompted it to make an exception.
"We are working together with the European Commission on a joint comprehensive package, of which up to 500 million euros is to be delivered by the EIB," the bank's vice president, Lilyana Pavlova, said in a statement.
"We will shortly present it to our Board of Directors for approval."
Speaking at an international donor conference, Commission President Ursula von der Leyen, said the overall package would add up to 1 billion euros ($1.1 bln).
While it is understood that all EU countries, including Cyprus, will give the green light for the EIB funding, formal approval might not come until June as the plans still need to be fleshed out and the timing is sensitive.
Turkey is set to hold pivotal presidential and parliamentary elections on May 14 and EU members are wary of a resumption of EIB lending being seen as an indirect backing of incumbent president Tayyip Erdogan's re-election campaign.
The EU has long accused Erdogan of human rights violations and the bloc's ties with Turkey are tense over Ankara's crackdown on dissent following a 2016 coup attempt as well as the oil and gas row in the Eastern Mediterranean.
More recently, Turkey has blocked a bid by Sweden - an EU member - to join NATO in the wake of Russia's war against Ukraine although it has just given Finland's membership its blessing.
The EIB lent around 2 billion euros a year in Turkey between 2009 and 2016 before the concerns about Ankara's domestic crackdown first saw the bank scale back its lending in the country.
($1 = 0.9328 euros)
2023-03-21 00:56:00 Come from : Reuters
Safe haven status helps dollar edge higher; Fed meeting in focus
By Peter Nurse
Investing.com - The U.S. dollar edged higher in early European trade Monday with the safe haven in demand amid the ongoing banking crisis and ahead of this week's Federal Reserve policy-setting meeting.
At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 103.470.
The dollar retreated overnight after a group of major central banks announced emergency liquidity measures in order to ensure the stability of the financial system.
This followed the emergency rescue of Credit Suisse (SIX:CSGN) with the Swiss authorities organizing the takeover of the banking giant by rival UBS (SIX:UBSG).
However, tensions in the banking sector remain, particularly in the debt market, given that UBS will write off about $17 billion worth of Credit Suisse bonds as part of the takeover.
Traders are also cautious ahead of this week's Federal Reserve meeting.
Expectations are now running high that the U.S. central bank will lift interest rates by only 25 basis points given the turmoil in the banking sector, a smaller hike than seemed likely earlier this month.
However, there remains a great deal of uncertainty over what signals the Fed will send to markets, given inflation remains elevated.
EUR/USD fell 0.1% to 1.0659, ahead of a speech by ECB President Christine Lagarde later in the session as she appears before the European Parliament's economic committee.
The European Central Bank increased interest rates by 50 basis points last week, with Governing Council member François Villeroy de Galhau saying Monday that the decision shows the institution is confident in the region's banks.
GBP/USD rose 0.2% to 1.2193, with the Bank of England expected to hike interest rates later this week. However, the central bank will have to strike a difficult balance between the fight against inflation and worries about financial turmoil.
AUD/USD traded flat at 0.6694, NZD/USD edged lower to 0.6257, while USD/JPY fell 0.5% to 131.12, with the yen also benefiting from its safe haven status.
Minutes from the Bank of Japan's March meeting showed that many board members were in favor of maintaining the central bank's extra accommodative stance, but some members voiced concern over lingering distortions in the yield curve that its policy has caused.
USD/CNY edged higher to 6.8891 after the People's Bank of China unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions.
2023-03-20 16:30:00 Come from : Investing.com
US funding stress metric hits three-month high as crisis rattles regional banks
LONDON (Reuters) - A market-based indicator of stress in the U.S. banking system jumped on Monday to its highest in three months, as turmoil engulfed regional lenders following the collapse of Silicon Valley Bank.
The gap between the U.S. three-month forward rate agreement and the three-month overnight index swap rate, a funding stress indicator, rose to around 18 basis points in London trade from 23.7 bps on Thursday.
The so-called FRA/OIS spread which is used to gauge U.S. banking sector stress jumped to 18.2 bps, from closer to 12 bps last week, its highest since Dec. 22.
A U.S. official said on Sunday that the deposit outflows that left many regional banks reeling in the wake of SVB's failure had slowed and in some cases reversed, as investors tried to ascertain whether the crisis was contained.
2023-03-20 15:11:00 Come from : Reuters
Asia FX sinks, dollar rises amid Fed uncertainty, bank crisis fears
By Ambar Warrick
Investing.com -- Most Asian currencies fell on Monday and the dollar rose as markets hunkered down ahead of a Federal Reserve meeting this week, while fears of a banking crisis kept sentiment on edge despite government measures to assuage market concerns.
The Chinese yuan fell 0.2% after the People’s Bank unexpectedly cut reserve requirement ratios for local lenders, loosening liquidity conditions. The central bank also maintained its loan prime rates at record lows, as it moves to increase liquidity conditions and shore up economic growth.
But this has the added effect of applying more pressure on the yuan, as the gap between local and overseas interest rates widens. The Chinese currency was trading close to the 7 level against the dollar on Monday.
Other Asian currencies also retreated, with the South Korean won losing 0.3%, while the Japanese yen lost about 0.1%. But the yen was trading close to its strongest level in a month, aided by increased safe haven demand in the past week.
Japan's Chief Cabinet Secretary Hirokazu Matsuno reassured investors on Monday that the country's banking system was stable and faced no contagion from the U.S. and European crises.
The dollar advanced slightly on Monday, with the dollar index and dollar index futures up 0.1% each.
But the markets were cautious over the greenback ahead of a Federal Reserve meeting this week, where the bank is expected to hike rates by 25 basis points.
Recent ructions in the banking sector saw markets betting that the Fed will soften its hawkish rhetoric to prevent further economic pressure from high interest rates.
The central bank, along with other major peers rolled out emergency liquidity measures over the weekend to support the banking sector and prevent further collapses. Regulators also brokered a merger of Swiss banks UBS Group (SIX:UBSG) and Credit Suisse Group (SIX:CSGN), as the latter grappled with a looming liquidity crisis.
But markets still remained on edge over more pain from the banking sector, after the unexpected collapse of several U.S. lenders last week. Traders were also uncertain over what signals the Fed will send to markets, given that its recent liquidity measures undermine a year-long struggle to tighten monetary conditions and fight inflation.
Volatility in the debt market also loomed, given that UBS will write off about $17 billion worth of Credit Suisse bonds as part of the takeover.
2023-03-20 14:04:00 Come from : Investing.com
Bitcoin rises 5.19% to $28,380
(Reuters) - Bitcoin rose 5.19% to $28,380 at 20:01 GMT on Sunday, adding $1,400 to its previous close.
Bitcoin, the world's biggest and best-known cryptocurrency, is up 72% from the year's low of $16,496 on Jan. 1.
Ether, the coin linked to the ethereum blockchain network, rose 3.58% to $1,827.2 on Sunday, adding $63.1 to its previous close.
2023-03-20 04:35:00 Come from : Reuters