Forex
Dollar eases as traders focus on upcoming central bank decisions
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© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The U.S. dollar eased against a basket of currencies on Tuesday as traders awaited a raft of central bank interest rate decisions this week, including one by the Federal Reserve on Wednesday.
The , which measures the currency against six major counterparts, was down 0.07% at 105.01, not far from the six-month high of 105.43 touched on Thursday. The index rose for its ninth straight week last week, its longest winning streak in nearly a decade.
Resilient U.S. growth has fueled a rebound in the dollar in recent weeks though the rally will likely be tested by a gauntlet of data and Wednesday’s Fed interest rate decision.
The dollar came under some pressure against the euro on Tuesday following a report that indicated the European Central Bank may soon start discussing how to drain some of the excess liquidity in the banking system, while the yen wallowed near 10-month lows against the dollar.
A Reuters report on Monday citing six sources said the debate over the multi-trillion-euro pool of excess liquidity sloshing around banks was likely to start next month.
The excess cash dulls the impact of the ECB’s rate hikes by reducing competition for deposits and results in hefty interest payments – and ensuing losses – by some central banks.
The euro was about flat at $1.06915, after rising as high as $1.0718 earlier in the session.
Some analysts, however, see further gains for the U.S. currency.
“If we look at the price action, it has generally been peripheral stories that have weighed on the dollar, like the minimum reserves leak out of the ECB yesterday,” said Simon Harvey, head of FX analysis at Monex Europe.
“This will do little to weigh on the dollar when the more dominant narratives of U.S. exceptionalism and a more credible higher for longer message from the Fed come back into play,” Harvey said.
Traders expect the Fed to keep rates on hold at its upcoming meeting, according to the CME FedWatch tool, though focus will be on the central bank’s forward guidance.
The Australian dollar was 0.43% higher after minutes of the Reserve Bank of Australia’s latest policy meeting signaled that there would be more interest rate hikes to come.
The Canadian dollar was trading 0.62% higher after having strengthened to a six-week high against its U.S. counterpart on Tuesday, as investors raised bets on additional interest rate hikes by the Bank of Canada following hotter-than-expected inflation data.
The yen was last down 0.07% versus the greenback at 147.70 per dollar, drawing a lot of focus at the moment, as the BOJ prepares to meet to discuss monetary policy on Friday.
The last time the yen was this weak was last autumn, when Japanese authorities intervened to prop it up.
Expectations are for the BOJ to maintain its policy of ultra-low interest rates and reassure markets that monetary stimulus will stay in place, at least for now, even as Governor Kazuo Ueda stoked speculation of an imminent move away from the central bank’s current policy stance.
Meanwhile, the British pound was 0.12% higher at $1.2399, hovering near three-month lows, ahead of a Bank of England interest rate decision on Thursday which is expected to yield a final rate rise in the current cycle.
In cryptocurrencies, bitcoin rose 0.68% to $26,951, close to a 3-week high.
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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