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Dollar eases as growth fears push yields lower

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© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration

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By Herbert Lash

NEW YORK (Reuters) – The dollar fell on Wednesday as U.S. Treasury yields slid on fears the U.S. economy could slide into recession after Federal Reserve Chair Jerome Powell said higher rates are painful but are the means the U.S. central bank has to slow inflation.

The Fed is not trying to engineer a recession to heel inflation but is fully committed to bringing prices under control even if doing so risks an economic downturn, Powell said at a hearing of the U.S. Senate Banking Committee.

“Higher interest rates are painful, but it’s the tool we have to bring down inflation,” Powell said.

Investors worry that aggressive interest rate hikes by major central banks to tame inflation risk causing a sharp global slowdown or recession. Higher rates have strengthened the dollar but the euro has gained in recent days on the European Central Bank’s plans to raise rates to contain inflation.

“The Federal Reserve’s resolve is setting the stage for bigger moves by other central banks and that’s leading the euro higher, for example, and the Canadian dollar higher,” said Kathy Lien, managing director at BK Asset Management in New York.

“The sell-off in U.S. Treasuries tells us that the market was not surprised by anything that Powell said. I would attribute the dollar weakness more to the greenback’s moving in lock step with Treasury yields,” Lien said.

British consumer price inflation hit a 40-year high at 9.1% in May, while annual Canadian inflation surged to 7.7% last month to the highest rate since January 1983. The data is the latest to show consumer prices running hotter than expected.

Sterling initially lost almost 1% as it fell to a near one-week low of $1.2162, but it has pared most losses. The Canadian dollar rose against the U.S. currency, moving further away from the 1.30 level it breeched last Friday and on Monday.

“Powell is giving the greenlight for further dollar strength against the Japanese yen,” Lien said.

Market players are torn between recognizing that central banks are tightening financial conditions more aggressively than expected a month or two ago and concern about what the economic fallout is going to be, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Sentiment is fickle partly because we’re unsure when inflation will peak,” Chandler said. “Everything is being driven by inflation, inflation expectations and central bank policy.”

The dollar index fell 0.31%, with the euro up 0.47% at $1.0574. The yen strengthened 0.36% to 136.14 per dollar, while sterling was down 0.04% at $1.2267.

The safe-haven dollar has been gaining ground on most peers. The yen hit a fresh 24-year low as rising U.S. and European bond yields contrasted with low Japanese interest rates.

“Recession fears are growing as central bankers slow demand to curb inflation. Pro-cyclical currencies are on the back foot and the dollar remains very much in demand,” said Chris Turner, global head of markets at ING.

Analysts see no immediate end to a sell-off that has weakened the yen 18% this year from 115.08 at the end of 2021.

Currency bid prices at 2:08 PM (1808 GMT)

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

Previous Change

Session

Dollar index 104.0600 104.4300 -0.34% 8.778% +104.9500 +103.8500

Euro/Dollar $1.0580 $1.0535 +0.41% -6.95% +$1.0606 +$1.0470

Dollar/Yen 136.2400 136.6900 -0.32% +18.36% +136.7100 +135.6800

Euro/Yen 144.15 143.94 +0.15% +10.61% +144.1600 +142.6800

Dollar/Swiss 0.9604 0.9666 -0.61% +5.32% +0.9689 +0.9581

Sterling/Dollar $1.2281 $1.2279 +0.01% -9.20% +$1.2314 +$1.2163

Dollar/Canadian 1.2919 1.2917 +0.02% +2.18% +1.2996 +1.2915

Aussie/Dollar $0.6943 $0.6974 -0.44% -4.48% +$0.6972 +$0.6882

Euro/Swiss 1.0162 1.0175 -0.13% -2.00% +1.0188 +1.0133

Euro/Sterling 0.8613 0.8582 +0.36% +2.54% +0.8625 +0.8575

NZ $0.6296 $0.6330 -0.57% -8.05% +$0.6331 +$0.6244

Dollar/Dollar

Dollar/Norway 9.8820 9.8435 +0.40% +12.19% +9.9970 +9.8800

Euro/Norway 10.4573 10.3647 +0.89% +4.44% +10.5210 +10.3648

Dollar/Sweden 10.0688 10.1004 +0.17% +11.66% +10.1927 +10.0463

Euro/Sweden 10.6552 10.6371 +0.17% +4.12% +10.6915 +10.6400

Economy

Futures rise as easing China COVID curbs lift travel, leisure stocks

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© Reuters. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2022. REUTERS/Brendan McDermid

By Shreyashi Sanyal

(Reuters) – Travel and leisure shares propped up U.S. stock index futures after China relaxed some COVID-19 quarantine requirements for international travelers, raising hopes of a revival in global growth.

Airlines, cruises, casinos and hotels were among the gainers in premarket trading after China’s slashing of the quarantine time for inbound travelers by half boosted hopes of a big jump in international travel and spending.

Shares of Walt Disney (NYSE:DIS) Inc rose 2.5% to top the list of gainers on the Dow Jones Industrial Average, after the company’s Shanghai Disney Resort said it would reopen the Disneyland theme park on June 30 after being shut for more than three months.

Spirit Airlines (NYSE:SAVE) and American Airlines (NASDAQ:AAL) Group Inc were the biggest gainers in the sector, rising 4% and 2% respectively.

Melco Resorts jumped 10% and led the rise in the casino sector, closely followed by Wynn Resorts (NASDAQ:WYNN), MGM Resorts (NYSE:MGM) International.

Wall Street’s main indexes started the week on soft footing after worries of surging inflation and an aggressive Federal Reserve dominated sentiment amid few market moving catalysts till the start of earnings season in two weeks.

Investors are now looking at data to determine whether the economy can withstand large interest rate hikes by the U.S. central bank to stamp out inflation.

A survey from the Conference Board is expected to show its consumer confidence index slipped to a reading of 100.4 in June, from 106.4 in May, at 10 a.m. ET.

The S&P 500 and the Nasdaq are set to post losses in June and are on course to log two straight quarterly declines for the first time since 2015.

At 6:49 a.m. ET, Dow e-minis were up 175 points, or 0.56%, S&P 500 e-minis were up 20 points, or 0.51%, and Nasdaq 100 e-minis were up 52.25 points, or 0.43%.

Nike Inc (NYSE:NKE) shed 2.8% as it forecast first-quarter revenue below estimates on expectations of more discounts and pandemic-related disruptions in China, its most profitable market.

Occidental Petroleum Corp (NYSE:OXY) climbed 3.1% after top investor Warren Buffett raised stake in the shale producer.

China ADRs also rose on Beijing easing its COVID curbs, with e-commerce firms Alibaba (NYSE:BABA).com, JD (NASDAQ:JD).com and Pinduoduo (NASDAQ:PDD) up between 1.2% and 1.4%

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Economy

Euro below $1.06 as Lagarde keeps July policy options open

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Saikat Chatterjee

LONDON (Reuters) – The Aussie and the Canadian dollar climbed on Tuesday on firmer oil prices while the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight on the central bank’s policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to check soaring inflation though economists are divided on the magnitude of the rate hike to protect a struggling economic recovery due to high oil prices.

Oil prices are up 10% in barely a week on supply constraint concerns with Brent crude holding above $117, pushing the Canadian dollar and the Australian dollar up 0.3% and 0.4% respectively. [O/R]

“Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level,” said Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London.

The euro held below $1.06 after the ECB’s Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to around 280 bps two weeks ago.

Broader currency market moves were contained in a big week for markets in economic data terms. German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday.

At the other end of the dial, higher oil prices caused the partially convertible Indian rupee to open at a record low, and fall further to 78.67 per dollar.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

Elsewhere, the offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

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Economy

China’s economy recovering but foundation not solid, premier says

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© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via video link after the closing session of the National People’s Congress (NPC) in Beijing, China March 11, 2022. REUTERS/Ryan Woo

BEIJING (Reuters) -China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilise the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

“The task of stabilising employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.

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