Forex
Dollar down on profit taking but upbeat outlook remains
![](https://letizo.com/wp-content/uploads/2024/05/dollar-down-on-profit-taking-but-upbeat-outlookremains_66534f1541cea.jpeg)
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The dollar slipped against most major currencies on Friday as traders booked profits after recent gains but the U.S. currency remained well-placed for further advances, supported by strong U.S. economic data that has prompted markets to dial back expectations for interest rate cuts.
Data on Friday showed new orders for key U.S.-manufactured capital goods rebounded more than expected in April and shipments of these goods also increased, suggesting a pickup in business spending on equipment early in the second quarter.
This follows Thursday’s data that showed U.S. business activity in May accelerated to the highest level in just over two years and manufacturers reported surging input prices.
Minutes from the Federal Reserve’s last meeting published this week showed a lively debate among policymakers as to whether current rates were sufficiently restrictive to cool inflation.
The dollar was down 0.3% at 104.72 against a basket of currencies on Friday, after advancing in five of the last six trading sessions. For the week the index was up 0.2%.
The euro was up 0.3% at $1.08495 late on Friday.
“Investors are just now taking the opportunity to reflect back on the week and take some profits … it’s really purely a positioning play,” said Boris Kovacevic, global market strategist at payments company Convera in Vienna.
While stronger-than-expected U.S. economic data has led traders to push out the timing of the first Fed rate cut to September, expectations for rate cuts by other central banks have also slipped.
“For as much as expectations of easing from the Federal Reserve have cooled off over the last week, it’s a similar story for central bankers around the world – ECB rate cut changes have also downshifted after lots of official commentary since Monday,” said Helen Given, FX trader at Monex USA in Washington.
Despite Friday’s retreat, the near-term outlook for the dollar was upbeat, analysts said.
“This theme of the U.S. exceptionalism is still playing out,” Convera’s Kovacevic said.
The dollar is up almost 1% this week on the Japanese yen to 156.95 yen, even though Japanese government bond yields have climbed too, scaling decade highs and clearing 1% at the 10-year tenor. [JP/]
Japan’s core inflation slowed for a second straight month in April, meeting market expectations – and staying above the central bank’s target – at 2.2%.
“It’s having very little effect on the yen,” said Martin Whetton, head of financial markets strategy at Westpac in Sydney. “The carry of holding dollars is far juicier,” he said, while policymakers’ rhetoric has also made traders nervous about inflation and the risk rate cuts would be distant or small.
The pound rose 0.3% to $1.27365 on Friday.
Data showed wet weather hit UK consumer spending far more than expected in April, but evidence of sticky inflation, and the surprise announcement this week of a July general election kept sterling near two-month highs.
China started a second day of war games around Taiwan. held steady in the offshore market around 7.2627.
The New Zealand dollar was up 0.4% at $0.61225, underpinned by a hawkish shift in outlook from the Reserve Bank of New Zealand.
Among cryptocurrencies, ether was about flat at $3,735.90, on Friday, a day after the U.S. Securities and Exchange Commission approved applications from Nasdaq, CBOE and NYSE to list exchange-traded funds (ETFs) tied to the price of ether, potentially paving the way for the products to begin trading later this year. For the week, ether is up about 20%.
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
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By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
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Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
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Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
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