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

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

By Yasin Ebrahim

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

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

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

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

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-18 05:58:00     Come from : Investing.com

Dollar retreats as banking support prompts relief rally

Dollar retreats as banking support prompts relief rally

By Peter Nurse

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

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

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

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-17 16:34:00     Come from : Investing.com

Asia FX rises, dollar dips amid easing bank crisis fears

Asia FX rises, dollar dips amid easing bank crisis fears

By Ambar Warrick

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

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

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-17 14:16:00     Come from : Investing.com

Dollar slips as banks rescue makes room for relief rally

Dollar slips as banks rescue makes room for relief rally

By Rae Wee

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-17 10:00:00     Come from : Reuters

Nigeria tops list of countries withholding airline funds, IATA says

Nigeria tops list of countries withholding airline funds, IATA says

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

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

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

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

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

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

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

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

# FOREX

2023-03-17 02:11:00     Come from : Reuters

Dollar retreats, euro gains after Credit Suisse boosts risk sentiment

Dollar retreats, euro gains after Credit Suisse boosts risk sentiment

By Peter Nurse

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

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

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

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-16 16:31:00     Come from : Investing.com

Asia FX rattled by bank crisis fears, safe havens advance

Asia FX rattled by bank crisis fears, safe havens advance

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.

# FOREX

2023-03-16 13:56:00     Come from : Investing.com

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

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

By Geoffrey Smith 

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

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

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

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

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

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

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

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

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

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

# FOREX

2023-03-15 16:26:00     Come from : Investing.com