Forex

Euro drops as glum PMI readings stoke bets on more ECB easing

Published

4 hours ago

September 23, 2024

By Sruthi Shankar and Vidya Ranganathan

LONDON/SINGAPORE (Reuters) – The euro fell against the dollar on Monday as business activity readings painted a grim picture of the euro zone economy and fuelled bets on more interest rate cuts by the European Central Bank (ECB) this year.

The common currency dropped 0.4% to $1.1122, recovering from losses of as much as 0.7% earlier in the session but still slipping from late August’s 13-month high that was driven by bets of faster U.S. monetary policy easing.

A survey compiled by S&P Global showed euro zone business activity unexpectedly shrank this month as the bloc’s dominant services industry flat-lined, while a downturn in manufacturing accelerated.

The slump appeared broad-based, with Germany’s decline deepening, while France returned to contraction following August’s boost from the Olympic Games.

“The data certainly keeps the door open to a rate cut in October – whether they step through that door, it’s too early to say, but it’s a pretty grim reading,” said Kenneth Broux, head of corporate research, FX and rates at Societe Generale (OTC:).

“The Fed shifted from inflation to growth and the ECB, at some point, will make that transition as well.”

Traders now anticipate cuts of around 44 bps this year from the ECB, compared with around 38 bps last week, implying that they expect a stronger chance of the central bank cutting rates again in October.

The , which measures the greenback against six major currencies, rose 0.1% to 100.92 – continuing to stay above the one-year low it hit last week.

In weekend news, U.S. House Republicans unveiled a three-month stopgap bill to avert a government shutdown.

UK PMIS NOT SO BAD

The pound was nearly flat at $1.3314, erasing its morning losses of about 0.5%, after a similar survey showed British businesses reported a slowdown in growth this month, though it was less severe than the euro zone numbers.

Sterling touched its highest in over two years against the dollar on Friday after the release of strong British retail sales data. The Bank of England kept rates unchanged last Thursday, with its governor saying the central bank had to be “careful not to cut too fast or by too much”.

Among other currencies, the Swiss franc was little changed at 0.8497 per dollar and the Swedish crown slipped 0.3% to 10.22 crowns ahead of widely expected rate cuts from the Swiss National Bank and Riksbank later in the week.

The dollar slipped against the yen, albeit in thin trading due to a holiday in Japan. The greenback touched a two-week high at 144.50 yen last week after the Bank of Japan (BOJ) left interest rates unchanged and indicated it was in no hurry to hike them again.

That decision, coming just days after the Fed’s 50-basis-point (bps) rate cut, led to a pause in the yen’s sharp gains this month. The currency is up about 1.5% in September.

For the yen, a ruling party vote later this week to choose a new prime minister makes the BOJ’s job challenging in the coming months. A snap election is regarded as likely in late October.

Liberal Democratic Party frontrunners to replace outgoing Prime Minister Fumio Kishida have presented diverse views on monetary policy.

Sanae Takaichi – aiming to become the nation’s first female premier – has accused the BOJ of raising rates too soon. Shigeru Ishiba has said the central bank is “on the right policy track”, while Shinjiro Koizumi, son of charismatic former premier Junichiro Koizumi, has so far only said he will respect the BOJ’s independence.

edged up 0.5% to $63,507. It had risen 2.4% to a one-month high of 64,730 earlier in the session.

Forex

Dollar bounces off lows; euro hit by weak PMI data

Published

4 hours ago

September 23, 2024

Investing.com – The U.S. dollar rose Monday, climbing away from the one-year low seen last week, while disappointing economic activity data weighed on the euro.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher to 100.925, just above a 12-month low.

Dollar looks to PCE release

The U.S. dollar has recovered to a degree from the selloff in the wake of the hefty rate cut last week, with traders now appearing to write off the chance of a US recession.

“So far investors have bought into the soft landing narrative offered by Chair Jerome Powell last week,” said analysts at ING, in a note. “And instead of the 50bp rate cut spooking equity markets, key benchmarks have continued to push higher.”

That said, Fed futures traders are now pricing in 75 bps in rate cuts by the end of this year, and nearly 200 bps in cuts by December 2025, according to CME FedWatch.

The major economic data release this week is due on Friday, in the form of the Fed’s preferred inflation gauge, .

Analysts expect a 0.2% month-on-month rise taking the annual pace to 2.7%, while the headline index is seen slowing to just 2.3%.

“A 0.1% core PCE on Friday could potentially trigger another leg lower in US rates and the dollar,” ING added.

Euro hit by PMI data

In Europe, traded 0.5% lower to 1.1111, after data showed that German business activity contracted in September at its sharpest pace in seven months, suggesting Europe’s largest economy had tipped into recession.

The , compiled by S&P Global, fell to 47.2 from 48.4 in August, below the 48.2 forecast.

The cut rates for the second time this year earlier this month last week, and further signs of economic weakness could lift the chances of another rate cut in October.

“This is not a great environment for the euro, nor for EUR/USD to push above major resistance at 1.12. Further EUR/USD consolidation in a 1.11-1.12 range seems likely, with downside risks early this week,” said ING.

fell 0.4% to 1.3264, handing back some of the pair’s recent gains after last week hitting its highest level since March 2022.

The held its key interest rate at 5% on Thursday, after kicking off its easing with a 25-bp reduction in August.

“There is a sense that long sterling positioning is quite extreme,” said ING. “Yet the latest CFTC data published last Friday and covering activity to last Tuesday (17 September) actually showed quite a large reduction in sterling longs from the speculative community.”

Yuan slips slightly after PBOC cut

traded 0.1% higher to 7.0595, with the yuan slipping after the People’s Bank of China trimmed its 14-day repo rate to further loosen monetary conditions and support economic growth.

fell 0.1% to 143.72, with regional trading volumes muted on account of a Japanese market holiday, although the yen remains close to its strongest levels for 2024.

The held interest rates steady last week, and said it expected inflation and economic growth to steadily increase.

Forex

Japan top FX diplomat says watching for any build-up of yen carry trades, NHK reports

Published

4 hours ago

September 23, 2024

TOKYO (Reuters) – Japan’s top currency diplomat Atsushi Mimura said authorities are “always watching markets” as a renewed build-up of yen carry trades could heighten market volatility, public broadcaster NHK quoted him as saying in an interview that ran on Friday.

Mimura said yen carry trades built up in the past are likely to have been mostly unwound, according to NHK.

“But if such moves increase again, that could heighten market volatility. We are always watching markets to ensure that does not happen,” Mimura was quoted as saying.

He said authorities stood ready to act if currency moves become extremely volatile and deviate from fundamentals in a way that cause demerits to companies and households, according to NHK.

In July, Mimura took over as vice finance minister for international affairs, a role that oversees Japan’s currency policy, succeeding Masato Kanda.

Yen carry trades, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields, built up on expectations the Bank of Japan will keep interest rates ultra-low, and were partly behind the Japanese currency’s slide to near three-decade lows in early July.

The vast unwinding of such trades, caused in part by the BOJ’s decision on July 31 to raise short-term interest rates, have recently led to a sharp rebound in the yen.

Forex

Dollar strengthens versus yen as BOJ strikes cautious stance on rate hikes

Published

4 hours ago

September 23, 2024

By Chibuike Oguh and Linda Pasquini

NEW YORK/LONDON (Reuters) -The dollar strengthened against the yen on Friday, hitting its highest level in two weeks, after the Bank of Japan left interest rates unchanged and indicated that it was not in a hurry to hike them again.

The BOJ could afford to spend time eyeing the fallout from global economic uncertainties, Governor Kazuo Ueda said in a press conference following the central bank’s move, adding that its monetary policy decision will be based on “economic, price and financial developments.” The BOJ kept rates steady at 0.25%, a move that was widely expected.

The dollar rose as high as 144.50 yen, reaching its highest level since early September. It was last up 0.92% at 143.92. The euro also strengthened against the yen, gaining 0.93% to 160.59.

“We’re seeing a little bit of consolidation in markets that got the dollar-yen move, which has been quite significant in the past few days since the Fed,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto, referring to the Federal Reserve’s decision on Wednesday to cut interest rates by half a percentage point.

“The statement sounded perhaps a little bit more cautious than markets would have liked given the assumption that we will see another rate cut from the Bank of Japan before Christmas. I still think that’s likely.”

The dollar has traded in a choppy fashion since the Fed kicked off its monetary policy easing cycle.

Against the dollar, however, the euro weakened 0.01% to $1.115925. The , which measures the greenback against major currencies, gained slightly to 100.75 and just above a one-year low.

“There’s a sense in the market that the Bank of Japan doesn’t need to hike rates and also we’re turning more to the political situation in Japan,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Markets imply nearly a 49% chance the Fed will deliver another 50-basis-point rate cut in November and have priced in 74.8 bps of cuts by the end of this year. The Fed’s policy rate is expected by the end of 2025 to be at 2.85%, which is now thought to be the Fed’s estimate of the neutral rate.

That dovish outlook has bolstered hopes for continued U.S. economic growth and sparked a major rally in risk assets. Currencies leveraged to global growth and commodity prices also benefited, with the Australian dollar reaching as high as $0.68285. It was last down 0.13% to $0.68060.

“It runs counter-intuitive to what we’ve seen in the market, with a big cut from the Fed and the Bank of Japan holding rates. I think that the message really from dollar-yen is that the market is feeling better about global growth,” Button said.

China unexpectedly left benchmark lending rates unchanged at the monthly fixing on Friday. Beijing has been hinting at other stimulus measures, enabled in part by the Fed’s aggressive easing that shoved the dollar to a 16-month low against the yuan.

Major Chinese state-owned banks were seen buying dollars in the onshore spot foreign exchange market on Friday to prevent the yuan from appreciating too fast, two people with knowledge of the matter said. The dollar weakened 0.23% to 7.043 versus the offshore .

The Bank of England kept rates unchanged on Thursday, with its governor saying the central bank had to be “careful not to cut too fast or by too much.”

The pound was up 0.24% at $1.33180, supported by the release on Friday of strong British retail sales data.

Currency bid prices at 20

September 06:46 p.m. GMT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 100.74 100.67 0.07% -0.62% 101.01 100.41

Euro/Dollar 1.1162 1.1162 -0.01% 1.11% $1.1181 $1.1136

Dollar/Yen 143.84 142.62 0.9% 2.03% 144.485 141.84

Euro/Yen 1.1162 159.19 0.85% 3.16% 161.15 158.43

Dollar/Swiss 0.8506 0.8478 0.35% 1.09% 0.8516 0.8453

Sterling/Dollar 1.3314 1.3286 0.22% 4.63% $1.3341 $1.3269

Dollar/Canadian 1.356 1.3557 0.04% 2.31% 1.359 1.3543

Aussie/Dollar 0.6806 0.6815 -0.13% -0.18% $0.6829 $0.6784