Economy

Safe-haven dollar set for fifth winning week on China woes, Fed bets

Published

1 year ago

August 19, 2023

Safe-haven dollar set for fifth winning week on China woes, Fed bets

By Hannah Lang and Joice Alves

WASHINGTON/LONDON (Reuters) – The dollar hit a fresh two-month high on Friday and was set for a fifth consecutive week of gains in its longest winning streak for 15 months, buoyed by demand for safer assets on worries over China’s economy and bets U.S. interest rates will stay high.

The People’s Bank of China (PBOC) set a much stronger-than-expected daily fixing, lifting the yuan from a 9-month low hit on Thursday.

The yuan weakened against the dollar to 7.3027 in offshore trading, bouncing back from Thursday’s nine-month lows, after the PBOC set the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters’ estimate.

China’s economic troubles have deepened, with property developer China Evergrande (HK:) seeking Chapter 15 protection in a U.S. bankruptcy court. Concerns are also growing over default risks in its shadow banking sector.

“People are getting a little concerned with some of the statistics we’ve seen out of China,” said Joseph Trevisani, senior analyst at FXStreet.com.

“When you get a sector that appears to be as overextended as the Chinese property sector, especially the retail and commercial sector, that really has a drag on the economy,” he said.

China’s securities regulator unveiled a package of measures aimed at reviving a sinking stock market, but investors said they may fail to boost confidence if the economy remains sluggish.

Beijing has so far disappointed with stimulus, while the PBOC cut rates earlier this week in a surprise move that widened the yield gap against the U.S., rendering the yuan even more vulnerable to decline.

“High yields and growing risks in China suggest the balance of risks is moderately tilted to the upside for the dollar,” said Francesco Pesole, FX strategist at ING.

The , which measures the currency against six peers, edged 0.019% lower at 103.360, after touching a new two-month high of 103.680 earlier in the session. For the week, it is set to gain 0.49%.

Minutes from the Federal Reserve’s last meeting showed this week that most members of the rate-setting committee continued to see “significant upside risks to inflation”. Strong economic data this week, particularly retail sales, also bolstered the case for additional tightening.

INTERVENTION RISK

The recent depreciation of the yen kept traders on edge against the risk of intervention by Japanese authorities.

The Japanese yen strengthened 0.42% versus the greenback at 145.22 per dollar after reaching a nine-month low of 146.56 on Thursday.

“When things go south in China, traditionally or historically there’s been a move into the yen, which would strengthen the yen, but that’s not been the case this time,” said Trevisani.

In autumn of last year, the dollar’s surge beyond 145 triggered the first yen buying intervention from Japanese authorities in a generation.

The Australian dollar, which often trades as a proxy for China, rose 0.08% to $0.641, after hitting a nine-month low of $0.6365 on Thursday.

Elsewhere, sterling fell 0.07% to $1.2739 after British retailers reported a bigger-than-expected drop in sales in July. The euro edged 0.06% higher at $1.0877, after touching on Thursday a six-week low of $1.0856.

Meanwhile, the world’s biggest cryptocurrency, bitcoin, slipped 1.74% to $26,179 after dipping to a fresh two-month low at $26,172, adding to a more than 7% plunge on Thursday, as a wave of risk-off sentiment grips world markets.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

1 year ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

1 year ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

1 year ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.