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Dollar Consolidates After Strong Gains; Tapering Could Be Speeded Up

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Dollar Consolidates After Strong Gains; Tapering Could Be Speeded Up
© Reuters

By Peter Nurse

Investing.com – The dollar edged lower Thursday, consolidating after hitting 16-month highs after the minutes from the last Federal Reserve meeting pointed to the potential of a faster tapering pace.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 96.733, just below Wednesday’s high of 96.938, the strongest level since July 2020.

fell 0.1% to 115.35, not far removed from the overnight high of 115.53, a level not seen since January 2017. edged 0.2% higher to 1.33485, rose 0.2% to 1.1218 after falling below 1.12 on Wednesday  and rose 0.1% to 0.7204.

The from the Fed’s meeting held in early November, when the central bank agreed to start tapering, were released on Wednesday. These showed that a number of policymakers were open to the idea of speeding up the withdrawal of the bank’s bond-buying program if inflation remained at elevated levels. This would likely lead to the quicker introduction of higher interest rates. 

At the same time, data showed that and both rose by more than forecast, while the , widely seen as the Fed’s preferred gauge of inflation, rose at its fastest rate since April in October, and rose to multi-decade highs on an annual basis. 

San Francisco Fed President Mary Daly added to the reasons to be bullish about the dollar, saying on Wednesday that she could see a case being made to speed up asset tapering.

“We find increasing evidence of a new leg of inflationary pressures in the U.S., increasing our conviction of a hawkish shift from the Fed during 2022,” said analysts at Nordea, in a note.

There’s little in the way of news expected from the U.S. to influence the foreign exchange markets Thursday due to the Thanksgiving holiday, but the from the European Central Bank’s meeting at the end of October are due for release.

“Despite the fourth [Covid] wave in Europe, the ECB seems to be sticking to the view that the PEPP [pandemic emergency purchase program] scheme will end in March,” said analysts at ING, in a note.

Elsewhere, fell 0.3% to 12.0497, with the Turkish lira rebounding to an extent after falling to record lows earlier in the week on the back of President Tayyip Erdogan defending the central bank’s recent rate cuts. The pair climbed to a high of 13.45 on Tuesday. 

Additionally, fell 0.1% to 9.1039 ahead of a meeting by the Riksbank, with investors looking to see whether Sweden’s central bank still plans to keep its policy rate at zero into 2024. That comes after Sweden’s Prime Minister was forced to resign after her coalition partner refused to approve her budget bill.

fell 0.1% to 328.67, with the National Bank of Hungary widely expected to hike its one-week deposit rate another 10 basis points to 2.60%.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Forex

Turkey Central Bank Intervenes in FX Markets to Stabilize Lira

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Turkey Central Bank Intervenes in FX Markets to Stabilize Lira

(Bloomberg) —

Turkey’s central bank intervened in markets by selling foreign currencies for the first time in seven years to stem the lira’s decline against the U.S. dollar.

The intervention is due to “unhealthy price formations” in the market, the monetary authority said in a statement.

The swung to gains after the statement and was trading 0.8% stronger at 13.3855 per dollar as of 12:21 p.m. in Istanbul.

©2021 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Dollar Edges Lower After Powell’s Comments Prompted Gains

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Dollar Edges Lower After Powell's Comments Prompted Gains
© Reuters.

By Peter Nurse

Investing.com – The dollar edged lower Wednesday, consolidating after strong gains during the previous session after Fed Chair Jerome Powell indicated the U.S. central bank is likely to speed up the tapering of its asset purchases.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 95.970, after having recorded its biggest monthly rise since June in November on the idea of U.S. rates being hiked sooner rather than later.

rose 0.1% to 1.1337, having dropped as far as 1.1258 on Tuesday, rose 0.2% to 113.37, climbed 0.2% to 1.3316, while the risk-sensitive rose 0.4% to 0.7151, rebounding from a one-year low.

Driving the earlier dollar gains were from the head of the Federal Reserve, Jerome Powell, to the Senate Banking Committee on Tuesday.

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, perhaps a few months sooner,” said Powell, while indicating that it was time to “retire” the word transitory when talking about high inflation levels.

At its November meeting, the Fed said it would reduce bond purchases by $15 billion a month. A move to speed this up would likely bring forward the time the central bank feels confident in raising its benchmark interest rates. 

The dollar had been hit earlier in the week as traders preferred safe havens such as the Japanese yen and the Swiss franc on a burst of risk aversion surrounding the emergence of the omicron variant of the Covid-19 virus. 

Powell’s testimony continues later on Wednesday, while the release of the will also be in the spotlight ahead of Friday’s official monthly jobs report.

Elsewhere, rose 0.1% to 6.3661 after the pair earlier fell to a six-month low of 6.3596, with the yuan resilient after the release of better-than-expected official manufacturing PMI data from November. The Korean won also hit a two-week high after stronger-than-expected trade data, the two data releases showing that global manufacturing remained in rude health last month.

fell 0.1% to 13.4557, with the lira edging higher after falling to a record low on Tuesday as Powell’s comments compounded concerns over President Recep Tayyip Erdogan’s drive for lower borrowing costs despite raging inflation.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Factbox-Yellen’s watchlist for the U.S. currency manipulator tag

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Factbox-Yellen's watchlist for the U.S. currency manipulator tag
© Reuters.

(Reuters) – Treasury Secretary Janet Yellen’s second foreign exchange report, yet to be released, risks labeling some U.S. trading partners as currency manipulators, although the department held off from applying that label in its last report.

The foreign exchange manipulator designation is based on three broad criteria: a $20 billion-plus trade surplus with the United States, a current account surplus exceeding 2% of GDP, and currency intervention exceeding 2% of gross domestic product.

The Treasury in April stopped short of formally branding Vietnam, Switzerland and Taiwan as currency manipulators even though they tripped some of its thresholds under a 2015 U.S. trade law. The Trump administration had labeled Switzerland and Vietnam as currency manipulators in December 2020.

In its April report, the Treasury said it found 11 economies warranted placement on its “Monitoring List” of major trading partners.

There is no automatic punishment resulting from a currency manipulator label, though U.S. law requires Washington to demand negotiations with designated trading partners.

For the next report, originally due on Oct. 15, analysts said the following trading partners are at risk – but doubt they will get the label. 

Graphic: FX valuations, https://fingfx.thomsonreuters.com/gfx/mkt/byprjkagape/FX%20valuations.JPG SWITZERLAND

* Switzerland was labeled a currency manipulator by the Trump administration in December 2020, but was spared being formally branded in Yellen’s first report in April.

* Switzerland is likely to meet all three criteria, although analysts doubt it will be given the designation.

    * Switzerland’s bilateral goods trade surplus of $39 billion in the 12 months to June 2021 exceeds the Treasury’s threshold, and it has a current account surplus equivalent to 3% of GDP in the 12 months to the end of the second quarter.

* Although the Swiss National Bank has scaled back its interventions recently, it spent 25.4 billion francs in the 12 months to June 2021 – equivalent to 3.5% of Swiss economic output and more than the 2% limit set by the Treasury.

    * Still, analysts believe Switzerland won’t be on the list because the Treasury Department (TD) can also look at other factors like currency development, monetary policy and trade policy action.

TAIWAN

* Taiwan was last formally labeled a currency manipulator by the United States in December 1992. It was put back on the monitoring list in 2020.

* Taiwan breached all three of the criteria, according to analysts at TD, although they do not expect Taiwan to be labeled a currency manipulator.

* Taiwan’s trade surplus with the United States hit $29.9 billion in 2020, according to official data, almost $7 billion more than in 2019, while the current account surplus last year was around 11% of GDP, exceeding Washington’s criterion.

* In the first nine months of this year Taiwan’s trade surplus with the United States hit $17.94 billion, up $5.13 billion on the year-ago period. The current account surplus in the first half of this year reached around 14.6% of GDP.

* The central bank said in September that in the first half of this year it bought a net $8.73 billion to intervene and “avoid serious disorder” in the currency market.By comparison, the central bank purchased a net $39.1 billion for all of 2020. Analysts at TD said Taiwan’s purchases amounted to 7.8% of GDP.

* The Taiwan dollar’s 5.6% gain against the greenback last year was among the strongest in Asia. It is up about 2.5% against the greenback this year and among the best-performing Asian currencies.

* Taiwan’s case is complicated by geopolitical pressures, including heightened military tensions with China, and the island’s position as a major exporter of semiconductors that are needed to help ease a supply shortage for U.S. manufacturers.

* The U.S. is likely to take into account both Taiwan’s special economic situation vis-à-vis its booming tech exports and key role in making chips, as well as the need to show U.S. support for Taiwan in the face of Chinese pressure when it comes to making a decision on whether to label it a manipulator.

VIETNAM:

* Vietnam was labeled a currency manipulator by the Trump administration in December 2020 but was spared being formally branded in Yellen’s report in April.

* Vietnam met the criteria for its trade surplus with the United States of $83.8 billion and its foreign exchange intervention, 4.1% of GDP, but not on its current account, according to analysts at TD.

* After having reached an agreement with the U.S. Treasury to refrain from “competitive devaluation” and make its monetary and exchange rate policies more transparent in July, the State Bank of Vietnam (SBV) stopped buying U.S. dollars in the forward markets after seven months of doing so, and reverted to purchasing spot dollars.

CHINA

* The Treasury Department under the Trump administration designated China a currency manipulator on Aug. 5, 2019, but in January 2020 Treasury dropped the designation days before the signing of a preliminary agreement to end the China-U.S. trade war.

* Trade remains a contentious bilateral issue despite a recent bilateral summit between President Joe Biden and Chinese leader Xi Jinping.

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