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Euro falls back towards 2017 lows on Russian energy crisis

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© Reuters. A money changer counts U.S. dollar banknotes at a currency exchange office in Ankara, Turkey November 11, 2021. REUTERS/Cagla Gurdogan/Files

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LONDON (Reuters) – The euro hovered near its weakest point since early 2017 on Friday after Russian sanctions led to disruptions in gas supplies to Europe, renewing fears about an economic slowdown in the euro zone.

The single currency has been battered in recent weeks by a combination of fears for the economy suffering from the fallout of the war in Ukraine, and a huge rally in the U.S. dollar fuelled by bets the Federal Reserve will deliver a series of big interest rate hikes to tame inflation.

While investors expect the European Central Bank to lift rates out of negative territory this year, yields in the euro zone will lag the United States by a significant margin. Predictions from investors and analysts that the euro could fall to parity with the dollar are growing louder.

On Friday, the euro ceded earlier gains to drop 0.1% to $1.0373, close to the $1.0354 level it hit on Thursday, its lowest since early 2017. The euro is down 1.6% versus the dollar this week.

“In the very short-term, it’s difficult to see what is going to turn around the euro/dollar bearish trend,” said Lee Hardman, a currency analyst at MUFG. Hardman reckons the euro could fall below parity with the dollar within weeks or even days on the back of more bad news.

“Unless the Ukraine risks start to recede, it is going to be very difficult for the euro to move much higher.”

Russia on Wednesday imposed sanctions on European subsidiaries of state-owned Gazprom (MCX:GAZP). Germany, Russia’s top client in Europe, said some subsidiaries of Gazprom Germania were receiving no gas because of the sanctions.

Barclays (LON:BARC) strategists said that if Russia switches off the gas taps, they expect euro/dollar will fall below parity.

“Our economists estimate that a total loss of Russian supplies, combined with rationing of the remainder, could dent euro area GDP by more than 5pp (percentage points) over one year,” the strategists wrote in a research note.

The dollar index rose 0.1% to 104.82, close to Thursday’s two-decade high of 104.92.

The rally in the dollar, aided by a flight-to-safety bid by investors concerned about inflation and economic uncertainty, has hit most major currencies. But the Japanese yen looked set to snap a nine-week losing streak.

The dollar regained 0.5% on the yen to 128.89 per dollar after hitting a two-week low of 127.5 overnight. However, the dollar is still down against the yen this week, its first week of declines since early March.

Sterling fell 0.2% to $1.2176. The pound was knocked by data on Thursday showing Britain’s economy unexpectedly shrank in March.

The Australian dollar rallied 0.2% to $0.6869 as broad investor risk appetite improved.

Crypto markets were steadier on Friday after a week of turmoil, as the risk-off mood combined with the spectacular collapse of stable coin TerraUSD.

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

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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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