Forex
Dollar index falls as traders weigh Fed rate path
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© Reuters
Investing.com – The dollar dipped in European trade on Thursday, as markets remained on edge before key U.S. labor data, while the yen appreciated as Bank of Japan Governor Kazuo Ueda offered more cues on a potential pivot away from the central bank’s ultra-dovish stance.
At 06:42 ET (11:42 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 103.94.
“The underlying dollar story […] will be determined, by tomorrow’s US jobs report and next week’s [Federal Open Market Committee] meeting,” analysts at ING said in a note.
While the Fed is widely projected to keep interest rates on hold in December, markets have been unsure when the U.S. central bank plans to begin trimming borrowing costs. The uncertainty has aided the dollar, even as data pointed to more cooling in the labor market.
report due on Friday is expected to provide definitive clues about the jobs picture in the world’s largest economy, and will likely factor into the trajectory of the dollar for the remainder of the year.
Yen in focus in Asia
The was the best performer in Asia for the day, strengthening by 1.6% against the greenback after Ueda flagged more challenges for the BOJ in the coming months, and also spoke about options the bank has when considering a move away from negative interest rates.
His comments reinforced expectations that the BOJ will wind down its ultra-dovish, stimulus-heavy policies in the coming year. But the unclear timing of the pivot kept traders wary.
Gains in the yen were still held back by Ueda stressing the need for loose policy in the near-term, especially amid signs that the Japanese economy was cooling further.
Yuan flat after mixed trade data, FX intervention eyed
The was steady in Asian trade on Thursday after data showed a bigger-than-expected improvement in China’s through November. Chinese rose for the first time in six months, albeit marginally.
But an unexpected drop in fueled concerns over easing domestic demand, especially as economic activity in the country remained languid. A string of readings for November, released earlier this month, exacerbated worries over sustained weakness in China’s economy.
Traders were also watching for any more currency market intervention by the Chinese government, after several state banks were seen selling dollars for yuan on the open market.
Swiss franc surges versus euro
The inched only marginally higher against the dollar and slumped to its lowest level since January 2015, as markets eyed the potential for early rate cuts by the European Central Bank next year following a string of weak economic data.
Recent figures have suggested that the eurozone economy may be heading into a recession in the final quarter of this year, after it contracted by 0.1% in the prior three month period.
On Thursday, numbers from Germany’s federal statistics office showed that industrial production in Europe’s largest economy dropped for the fifth consecutive month in October. Factory orders in the country also contracted by 3.7% in October, reversing a gain of 0.7% in September, according to separate data earlier this week.
Across the eurozone, retail sales inched up by 0.1% in October, below economists’ estimates for an uptick of 0.2%, hinting at a soft consumer spending environment heading into the key holiday shopping season.
A possible slowdown, coupled with inflation across the eurozone falling more quickly than most anticipated, has led many observers to suspect that the European Central Bank could deliver its first rate cut by March.
Ambar Warrick contributed to this report.
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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