Forex
Dollar steady near 6-month high on growth fears, weak yen draws warning
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© Reuters. FILE PHOTO: U.S. Dollar and Chinese Yuan banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) – The dollar held close to a six-month peak as jitters over China and global growth weighed on risk appetite, while the yen strengthened as Japan’s top currency diplomat sent a warning about the currency after it earlier dropped to a 10-month low.
The yen strengthened by as much as 0.4% to 147.02 per U.S. dollar after Japan’s top currency diplomat, Masato Kanda, said they won’t rule out options if speculative moves persist, the strongest warning since mid-August.
By 1040 GMT, it stood at 147.34 per dollar, compared with 147.82 earlier in the session, which was its lowest since Nov. 4.
The Asian currency has hovered around the key 145-per-dollar level for the past few weeks, leading traders to keep a wary eye on signs of intervention by Tokyo.
Kanda, Japan’s vice-minister of finance for international affairs, has been the central figure in the country’s efforts to stem the sharp decline of the yen since last year.
“The remarks suggest that intervention could be imminent with the yen in the intervention zone we saw last year,” said Chris Turner, ING global head of markets and regional head of research for UK and CEE.
Japan intervened in currency markets 12 months ago when the dollar rose past 145 yen, prompting the Ministry of Finance to buy the yen and push the pair back to around 140 yen.
“I think we’ll probably see intervention but that doesn’t necessarily mean the underlying trend will turn around any time soon,” Turner added, citing the ongoing strength in the U.S. dollar.
Against a basket of currencies, the dollar was at 104.69, not far off the six-month high of 104.90 touched on Tuesday. Economic data from China and Europe on Tuesday fanned some fears of slowing global growth, pushing investors to scramble for the greenback.
“Dollar strength remains the dominant play,” said Christopher Wong, currency strategist at OCBC in Singapore. Higher-for-longer U.S. interest rates and the relative U.S. growth resilience are supporting the greenback, Wong said.
Data from the euro zone and Britain on Tuesday showed a decline in business activity last month, while a private-sector survey showed China’s services activity expanded at the slowest pace in eight months in August.
“There’s been a hangover from soft PMIs particularly in the manufacturing space,” ING’s Turner said.
“The energy story, as we saw last summer, can also really hurt the euro, although it’s not as bad now as it was back then.”
Oil prices settled at a ten-month high on Tuesday as Saudi Arabia and Russia extended supply cuts, although European prices are well below the peaks reached in August last year.
The euro was last up 0.2% at $1.0739 as three influential rate-setters at the European Central Bank warned investors to not rule out a rate hike in September.
Speaking on the last day before the ECB’s self-imposed quiet period before their meeting next week, the heads of the German, French and Dutch central banks’ said the decision was still open.
Traders are pricing in around a one-in-three chance that the central bank raises rates by 25 basis points at the September meeting and a two-in-three chance they keep rates unchanged.
Meanwhile, sterling was last at $1.2549, having touched a three-month low of $1.25285 on Tuesday.
fell to a 10-month low against the dollar on Wednesday before paring some losses as state banks stepped in to offer support.
The Australian dollar rose 0.3% to $0.6398, after diving 1.3% on Tuesday following the weak data from China and as the Reserve Bank of Australia kept rates on hold.
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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