Forex
Dollar eases as market shrugs off inflation revision data
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© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Herbert Lash and Amanda Cooper
NEW YORK/LONDON (Reuters) -The dollar eased on Friday as it headed for a fourth week of gains while traders reduced their bets on how quickly the Bank of Japan might raise interest rates and how soon the Federal Reserve will cut them.
Traders shrugged off revised U.S. monthly consumer prices that rose less than initially estimated in December. While underlying inflation remained a bit warm, the mixed picture did not alter the market’s outlook on the timing of Fed rate cuts.
The annual revisions published by the Labor Department also showed the consumer price index (CPI) increasing slightly more than previously reported in October and November.
“The revisions aren’t going to make the Fed cut rates,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York.
“The market’s in a rush, (but) the Fed is sitting there saying we’re not in a rush. Actually, things are really pretty good from their perspective,” he said.
The fell 0.07% to 104.04, while the euro was up 0.08% to $1.0785.
The widely anticipated revisions are more for economists and are too small to matter to the market, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“We’ve had a big move this week and I think they were just consolidating in the FX market,” he said. “The market last year got too aggressive about how far the Fed’s going to cut and when they’re going to begin.”
Fed officials this week again signaled the U.S. central bank has no pressing need to cut rates. The message gave the dollar an extra tailwind that pushed the yen to a 10-week low as traders reduced bets on how quickly the Bank of Japan (BOJ) might raise rates.
BOJ Governor Kazuo Ueda said on Friday there was a high chance for easy monetary conditions to persist even after the central bank ends its negative interest rate policy, which the market expects to happen as early as next month.
The yen was little changed at 149.32 per dollar after trading at 149.575 earlier, its weakest since Nov. 27. It is heading for about a 0.64% slide this week, having fallen in value in five out of the last six weeks.
Japanese Finance Minister Shunichi Suzuki said he was “watching FX moves carefully,” uttering a well-worn phrase for the first time since Jan. 19. Traders were unfazed by the warning.
The next major scheduled U.S. data release is CPI for January on Tuesday.
Traders have all but ruled out a cut at the Fed’s next policy meeting in March, versus a chance of 65.9% a month ago, according to CME Group’s (NASDAQ:) FedWatch Tool. It shows around a 60% chance of a cut by the Fed at its May meeting.
Sterling rose 0.15% to $1.2635. Both the euro and the pound have been relatively resilient this week, with officials from the European Central Bank and Bank of England pushing back against market wagers on early rate reductions.
The Swiss franc weakened to 0.8747, with the dollar up about 0.93% on the safe haven currency this week as traders digested data suggesting the Swiss National Bank could be intervening in markets to weaken the franc.
rose 4.9% to $47,549.00, after earlier hitting a high of $48,183.
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
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By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
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Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
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Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
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