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Economy

Dollar hits two-decade high amid rising U.S. rates, Ukraine war, China’s lockdowns

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© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Tom Westbrook

SINGAPORE (Reuters) – The dollar hit a two-decade high on Monday as investors searched for safety and yield due to growing concerns over slowing global economic growth and rising interest rates.

Surging inflation, the war in Ukraine, and tighter lockdowns against COVID-19 in Beijing and Shanghai, have left investors uncertain on many counts, but they are sure that U.S. interest rates are going up — and the dollar is following.

“Moves in U.S. interest rates are not the only dollar support,” said strategists at NatWest Markets in a note.

“Downside risks to global growth stemming from Ukraine and China are more pressing for Europe and Asia relative to the U.S., creating an air of 2018-style dollar exceptionalism.”

The greenback made a 22-month high on the growth-sensitive New Zealand dollar and rose 1% to a three-month high against the Australian dollar as Asia’s stockmarkets tumbled. It rose 0.3% to its highest since 2019 on the Swiss franc.

The euro was down 0.4% at $1.0508 and a whisker above a recent trough of $1.0469. The yen was close to two-decade lows at 130.96 per dollar, while sterling wallowed at $1.2294, barely above Friday’s 22-month low. The Canadian dollar hit its lowest since December.

In China trade data showed imports flatlined in April and exports rose 3.9% – a little better than expected and enough to hold the Australian dollar at $0.7006 and off January’s low of $0.6967.

However the yuan was dragged to a fresh 18-month low of 6.7110 per dollar as lockdowns in Shanghai were tightened. Traders see the fallout from the inevitable drag on China’s economy raking across the region.

The kiwi fell 0.9% to $0.6346 and the U.S. dollar made multi-year highs on the trade-sensitive Taiwan dollar, South Korean won, Singapore dollar and Malaysian ringgit.

It hit its highest in nine months against the Indonesian rupiah.

FORGOTTEN DREAM

The yield on benchmark 10-year U.S. government bonds has climbed a staggering 163 basis points this year and taken the dollar with it.

The dollar index is up nearly 9% for the year and gained for a fifth week in a row last week. It equalled Friday’s near 20-year high of 104.070 during the jittery Asia session.

Speculation that Russian President Vladimir Putin might declare war on Ukraine in order to call up reserves during his speech at “Victory Day” celebrations also hurt market sentiment.

Putin has so far characterised Russia’s actions in Ukraine as a “special military operation”, not a war, or an invasion.

The U.S. Federal Reserve hiked its benchmark funds rate 50 basis points (bps) last week and strong jobs data has reinforced bets on further big hikes, with inflation figures due on Wednesday in focus as next risk of an upside surprise.

Futures markets are pricing a 75% chance of a 75 bp rate rise at the Fed’s next meeting in June and more than 200 bps of tightening by year’s end.

“Risks around U.S. CPI feel binary; a moderation from 8.5%would be mildly comforting, but a lift would doubtless revive expectations for 75 bp Fed hikes, and probably give the dollar a boost,” said analysts at ANZ Bank.

“The idea that synchronised global tightening might proceed gently now feels like a forgotten dream.”

Cryptocurrencies have been battered in the rush from risky assets and bitcoin was nursing weekend losses and near its lowest levels of the year at $33,780 while ether, which fell 4% on Sunday, was at $2,470.

Economy

Dollar slips from 2-decade highs; yuan falls on weak China data

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© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Sinéad Carew

NEW YORK (Reuters) – The U.S. dollar index was lower on Monday after hitting a 20-year peak last week, with the global economy in focus after weak economic data from China highlighted worries about the prospects for a global slowdown.

Creating a risk-off mood on Monday, China’s retail and factory activity fell sharply in April as extensive COVID-19 lockdowns confined workers and consumers to their homes. But Shanghai did set out plans for the return to more normal life from June 1.

Following the release of China’s data, Bipan Rai, North America head of FX Strategy at CIBC Capital Markets, said trading was focused on macro economic data on Monday.

“It’s important to highlight that the risks are towards a stronger dollar and primarily, that’s because if you look at the macro economic climate, the fundamentals don’t look good. From a risk-off perspective that should still support the dollar against most currencies,” Rai said.

But he said the greenback was consolidating after its recent strength and that more range-bound trading sessions were possible: “It makes sense for some period of consolidation before the next leg higher.”

Trading in the dollar may be muted partly because a lot of bad news has already been priced in but also because investors are waiting for events such as the U.S. retail sales data release and a public appearance by Fed Chair Jerome Powell both scheduled for Tuesday, according to Mazen Issa, senior FX strategist at TD Securities. [nL2N2X52F6]

Still Issa said he doesn’t “think we’re in a market where we’re going to see the dollar weaken … It’s going to take a lot to get investors out of the dollar.”

The euro was pulled from its earlier lows after European Central Bank policymaker Francois Villeroy de Galhau said the common currency’s weakness could threaten the ECB’s efforts to steer inflation towards its target.

The Australian dollar, which is highly exposed to the Chinese economy, reversed course as the day wore on and was last up against the dollar after falling as much as 0.9%.

The dollar index was last down 0.37% at 104.16, after briefly crossing the 105 level on Friday – its highest level since December 2002, after six successive weeks of gains. Weekly positioning data showed that investors had built their long dollar bets.

The euro was up 0.26% at $1.0438 but not far from last week’s low of $1.0354, its lowest level since early 2017. Analysts see $1.0340 as a crucial level of euro support.

HSBC strategists expect the euro to fall to parity against the dollar in the coming year. “Much weaker growth and much higher inflation leave the ECB facing one of the toughest policy challenges in G10 (central banks),” they said.

Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, which broke its dollar peg. An affiliate of the company behind TerraUSD said it had spent the bulk of its reserves trying to defend its dollar peg and would use the remainder to try to compensate some users who had lost out.

Bitcoin was last trading at around $29,881, down more than 4%, after having dropped to $25,400 on Thursday, its lowest mark since December 2020.

Currency bid prices at 3:03PM (1903 GMT)

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Economy

Taliban dissolve Afghanistan’s Human Rights Commission, other key bodies

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© Reuters. FILE PHOTO: An Afghan woman walks on a street in Kabul, Afghanistan, May 9, 2022. REUTERS/Ali Khara/File Photo

By Mohammad Yunus Yawar

KABUL (Reuters) – Taliban authorities in Afghanistan dissolved five key departments of the former U.S.-backed government, including the country’s Human Rights Commission, deeming them unnecessary in the face of a financial crunch, an official said on Monday.

Afghanistan faces a budget deficit of 44 billion Afghanis ($501 million) this financial year, Taliban authorities said on Saturday as they announced their first annual national budget since taking over the war-torn country last August.

“Because these departments were not deemed necessary and were not included in the budget, they have been dissolved,” Innamullah Samangani, the Taliban government’s deputy spokesman, told Reuters.

Also dissolved was the High Council for National Reconciliation (HCNR), the once high-powered National Security Council, and the commission for overseeing the implementation of the Afghan constitution.

The HCNR was last headed by former Afghan President Abdullah Abdullah, and was working to negotiate a peace between the U.S.-backed government of former President Ashraf Ghani and the then-insurgent Taliban.

In August 2021, 20 years after invading Afghanistan, foreign forces withdrew from the country leading to the collapse of the government and a Taliban takeover.

Samangani said the national budget was “based on objective facts” and intended only for departments that had been active and productive.

He added that the bodies could be reactivated in the future “if needed”.

The Taliban ruled Afghanistan from 1996 to 2001 with an iron fist and implemented a harsh version of Islamic rule, including banning women from education and work. After taking over last year, the Taliban assured the world they would be more moderate.

However, they are yet to allow older girls to restart education, and have also introduced rules that mandate that women and girls wear veils and requiring them to have male relatives accompany them in public places.

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Economy

U.S. SEC chair says much to be done to protect crypto investors

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2/2

© Reuters. FILE PHOTO: Representations of virtual cryptocurrencies are placed on U.S. dollar banknotes in this illustration taken November 28, 2021. REUTERS/Dado Ruvic

2/2

By John McCrank

(Reuters) – Cryptocurrency assets are highly speculative and investors in them need more protections or they could lose trust in the markets, Gary Gensler, chair of the U.S. Securities and Exchange Commission, said on Monday.

Generally, people who buy cryptocurrencies do not get the disclosures they get when they make other asset purchases around things like whether the trading platform they are using is actually trading against them, or whether they actually own the assets they store in digital wallets, Gensler said.

“We have this basic bargain: You the investing public can make your choices about the risk you take, but there is supposed to be full and fair disclosure, and people are not supposed to lie to you,” he said at the Financial Industry Regulatory Authority’s annual conference in Washington.

His comments came after last week’s spectacular collapse of TerraUSD, a so-called stablecoin that lost its 1-to-1 dollar peg.

The token’s crash sent cryptocurrencies tumbling, a slide that resumed on Monday, as bitcoin erased the gains it had eked out over the weekend to trade under $30,000, far below its Nov. 10 record of $69,000.

While crypto markets are thought of as decentralized, the reality is that most activity occurs on a handful of trading platforms, which, along with token issuers, need to work with the SEC to improve industry rules and disclosures, Gensler said.

He pointed to basic market principles like, “anti-fraud, anti-manipulation, making sure there’s not front-running, making sure an order book is actually real and not made up.”

The SEC will continue to be “a cop on the beat,” while working with the Commodity Futures Trading Commission to ensure all cryptocurrencies are covered, Gensler said.

“There’s a lot to be done here, and in the meantime the investing public is not that well protected,” he said.

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