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Dollar Edges Lower, But Remains Near 20-Year High

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© Reuters.

By Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trade Friday, but remained near a 20-year high with Federal Reserve Chair Jerome Powell largely cementing the likelihood of further hefty interest rate rises to combat stubbornly high U.S. inflation. 

At 3:15 AM ET (0715 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 104.645, just off its overnight two-decade peak of 104.92.

The dollar has been in demand for much of the year, with the Federal Reserve seen as one of the most aggressive of the world’s central banks in combating soaring inflation.

The U.S. central bank raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, and is expected to continue to aggressively tighten monetary policy in the months ahead.

“If the economy performs about as expected … it would be appropriate for there to be additional 50-basis point increases at the next two meetings,” said Powell in an interview with the Marketplace public radio program on Thursday.

However, he added that the Fed wasn’t “actively considering” a larger 75 basis-point increase, comments that have prompted some traders to dial back their long dollar positions. 

USD/JPY rose 0.2% to 128.58, climbing again after falling to a two-week low of 127.50 overnight as the yen received some support as the benchmark U.S. 10-year yield continued to decline from Monday’s high of 3.203%.

EUR/USD rose 0.2% to 1.0398, still not far off its 2017 low of 1.0340, a break of which would place the pair at its lowest in nearly 20 years. 

This weakness occurs despite ECB President Christine Lagarde on Thursday joining the chorus of policymakers calling for the central bank to start lifting interest rates, amid expectations that it will take action in July.

“The EUR has blatantly struggled to draw any tangible benefits from the increasingly hawkish tone among ECB policymakers,” said analysts at ING, in a note, “which in our view boils down to the already quite aggressive tightening expectations (80-85 bp fully priced in by year-end) and lingering uncertainty around whether the ECB will be able to deliver many more hikes afterwards given the deteriorating economic outlook in the euro area.”

Additionally, GBP/USD rose 0.1% to 1.2209, rebounding slightly after dropping to a near 2-year low during the previous session after data showed the British economy grew less than expected in the first quarter.

USD/CNY rose 0.2% to 6.7989, with the yuan under pressure after Beijing recorded a few more COVID-19 cases, prompting officials to deny speculation that the capital city will be locked down.

 

 

Forex

Yellen: Not legal for U.S. to seize Russian official assets

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© Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen looks on during a U.S. House Committee on Financial Services hearing on the Annual Report of the Financial Stability Oversight Council, on Capitol Hill in Washington, DC, U.S. May 12, 2022. Graeme Jennings/

By David Lawder

BONN, Germany (Reuters) -The United States does not have legal authority to seize Russian central bank assets frozen due to its invasion of Ukraine, Treasury Secretary Janet Yellen said on Wednesday, but talks with U.S. partners over ways to make Russia foot the bill for Ukraine’s post-war reconstruction are starting.

Yellen also said it is likely that the special license granted to allow Russia to make payments to its U.S. bondholders would not be extended when it expires next week, leaving Russian officials a fast-narrowing window to avoid its first external debt default since the 1917 Russian revolution.

Russia’s Feb. 24 invasion of Ukraine is the central agenda item at this week’s gathering of Group of Seven finance ministers, and Yellen is calling for increased financial support for the war-torn country, which the World Bank estimates is suffering $4 billion in weekly physical damage.

“I think it’s very natural that given the enormous destruction in Ukraine, and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” Yellen told reporters here ahead of this week’s meetings.

Some European officials have advocated that the EU, the United States and other allies seize some $300 billion in Russian central bank foreign currency assets frozen by sanctions. The assets are held abroad, but remain under Russian ownership.

“While we’re beginning to look at this, it would not be legal now in the United States for the government to seize those” assets, Yellen said. “It’s not something that is legally permissible in the United States.”

U.S. Treasury officials have also expressed concerns about setting precedents and eroding other countries’ confidence in holding their central bank assets in the United States.

At the G7 meeting in the Bonn suburb of Koenigswinter, Yellen intends to focus on Ukraine’s more immediate budget needs, estimated at $5 billion a month. On Tuesday she pressed U.S. allies to step up their financial support, while a German government official said the ministers would pledge $15 billion of new budget aid.

RUSSIAN DEFAULT RISKS

Russia has some $40 billion of international bonds and has so far managed to keep current on its obligations and avoid default thanks to a temporary license from the Treasury granting an exception allowing banks to accept dollar-denominated payments from Russia’s finance ministry despite crippling sanctions on Russia.

The license expires on May 25, with the next major payment due that day.

On Wednesday Yellen said Treasury is unlikely to extend the exemption. This could result in a technical default if Russia then resorts to trying to pay in roubles rather than dollars as required under the bonds’ covenants.

“There’s not been a final decision on that, but I think it’s unlikely that it would continue,” Yellen said, adding that a technical default would not alter the current situation regarding Russia’s access to capital.

“If Russia is unable to find a way to make these payments, and they technically default on their debt, I don’t think that really represents a significant change in Russia’s situation. They’re already cut off from global capital markets.”

ECONOMY THREATS

Yellen outlined a number of threats to the global economy ahead of the G7 meeting, including spillovers from the war in Ukraine and sanctions on Russia, which have spiked energy and food prices, and a slowdown in China’s economy due to strict COVID-19 lockdowns. But she said she did not think a “synchronized” U.S., Chinese and European recession was likely.

Yellen said China’s zero-tolerance COVID policies appear to be impeding production of goods, compounding supply chain difficulties that have boosted prices and are contributing to its slowdown in growth.

“As one of the largest economies in the globe, China’s economic performance really has spillover impacts on growth all around the world,” Yellen said, adding that the Treasury was closely monitoring Beijing’s policy responses.

She confirmed that she is advocating within the Biden administration for dropping some U.S. tariffs on Chinese goods that “aren’t very strategic” to limit pain on U.S. consumers and businesses.

She said the G7 finance leaders will discuss further sanctions on Russia over its war in Ukraine and talk “about how best to design them to shield the global economy from the adverse effects while imposing maximum harm on Russia.”

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Forex

Yellen: Not legal for U.S. government to seize Russian central bank assets

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© Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen looks on during a U.S. House Committee on Financial Services hearing on the Annual Report of the Financial Stability Oversight Council, on Capitol Hill in Washington, DC, U.S. May 12, 2022. Graeme Jennings/

BONN, Germany (Reuters) – U.S. Treasury Secretary Janet Yellen said on Wednesday that it would not be legal for the United States to seize assets of Russia’s central bank.

Yellen told reporters ahead of a meeting of G7 finance ministers in Bonn, Germany, that the United States and its allies have blocked an estimated $300 billion of assets from Russia’s central bank.

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Forex

Dollar Up, Improving Risk Sentiment Boosts Euro and Pound

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© Reuters

By Gina Lee

Investing.com – The dollar was up on Wednesday morning in Asia. Overnight surges gave the euro and pound a boost in early trading, alongside strong U.K. jobs data and a general improvement in investor sentiment thanks to positive U.S. retail sales data and hopes that China will ease COVID-19 lockdowns.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.07% to 103.25 by 1:22 AM ET (5:22 AM GMT).

The USD/JPY pair edged down 0.15% to 129.19.

The AUD/USD pair inched down 0.07% to 0.7024 while the NZD/USD pair inched up 0.06% to 0.6365.

The USD/CNY pair edged up 0.16% to 6.7488 while the GBP/USD pair inched down 0.03% to 1.2486.

The European common currency touched $1.0563 in early Asia trade, after rising 1.1% overnight, its largest day of percentage gains since March. The pound touched $1.2501 after a 1.4% overnight rally, its best day since late 2020, with data showing that the U.K.’s jobless rate hit a 48-year low.

These gains pushed the dollar index to its lowest in nearly two weeks.

“The pound got a boost from the very strong jobs report yesterday, and on top of that, there has been a slight improvement in the broader risk sentiment in financial markets driven by some positive news out of China on the lockdowns and strong data out of the U.S.,” Commonwealth Bank Of Australia currency strategist Carol Kong told Reuters.

The Chinese city of Shanghai on Tuesday hit a long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones, with authorities setting out the city’s clearest timetable to date for exiting a lockdown the day before.

On the data front, U.S. retail sales rose strongly in April 2022, with core retail sales rising 0.6%. Retail sales grew 0.9% month-on-month and 8.19% year-on-year. The data also showed that industrial production grew 6.4% year-on-year and 1.1% month-on-month.

Reflecting the improved risk sentiment, equities jumped overnight, and U.S. benchmark Treasury yields were on an upward trend, last hitting the 2.9878% mark. The higher U.S. yields also saw an end to the yen’s small recent recovery, with the Japanese currency sensitive to higher U.S. rates.

U.S. Federal Reserve Chairman Jerome Powell also said at a Wall Street Journal event on Tuesday that the Fed will “keep pushing” to tighten its monetary policy until there are clear signs that inflation is slowing.

Meanwhile, the riskier Australian dollar was generally on an upward trend, boosted by the improved risk sentiment and extending a 0.8% gain on Tuesday. It was also helped by the Reserve Bank of Australia’s latest meeting minutes, published on Tuesday and hinting that the central bank will hike interest rates again when it meets in June 2022.

Cryptocurrency markets were quiet, with bitcoin little changed at around $30,400.

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