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Dollar Up over Bets of Intensified Monetary Tightening Following Inflation Data

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© Reuters

By Zhang Mengying

Investing.com – The dollar was up on Monday morning in Asia as Friday’s red hot inflation data suggested more aggressive monetary tightening from the U.S. Federal Reserve.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.29% to 104.45 by 1:32 AM ET (5:32 AM GMT).

The USD/JPY pair was up 0.30% to 134.82. The yen rallied briefly late on Friday when Japan’s government and the central bank said that they were concerned about the yen’s recent sharp falls. The rare statement could be seen as a signal that Tokyo could intervene to support the currency. The Bank of Japan (BOJ) will hand it down on Friday while investors expect little change from the BOJ.

“Rising overseas yields and energy prices coupled with continued dovish Bank of Japan messages have pushed USD/JPY to two-decade highs,” Barclays analysts told Reuters. The pair is expected to trade between 131 and 136 this week.

“There are no clear thresholds above (2002 high) other than the round figures of 136, 137, and 138,” Barclays (LON:BARC) analysts added.

The AUD/USD pair fell 0.30% to 0.7029, and the NZD/USD pair fell 0.39% to 0.6345.

The USD/CNY pair was up 0.29% to 6.7282, while the GBP/USD pair edged down 0.16% to 1.2294.

Beijing announced on Sunday three rounds of mass testing as it saw new COVID-19 outbreaks, adding to investors’ concerns about a grim economic outlook.

The Bank of England will hand down its policy decision on Thursday, it is expected to hike interest rates.

The U.S. consumer price index released Friday rose 8.6% in May year-on-year, a fresh 40-year high, adding to investors’ concerns about a recession caused by aggressive monetary tightening.

The inflation data also sent the benchmark U.S. 10-year yield higher, touching 3.2% on Monday morning, having gained nearly 12 basis points on Friday.

The Fed will hold its June meeting Wednesday, where it is expected to deliver half-point interest rate hikes.

On the data front, the U.S. producer price index (PPI) is due on Tuesday, and China’s key economic activity data including industrial production is due the day following.

Forex

Eurozone GDP growth estimate raised to 0.3% in Q3

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Eurozone by GDP

The Eurozone GDP economy in 19 countries increased by 0.3% in Q3 compared to the previous quarter, final data from the EU Statistical Office showed. An increase of 0.2% was previously reported, and analysts on average did not expect to revise that estimate, according to Trading Economics.

Eurostat Eurozone GDP – current data

On an annualized basis, Eurozone GDP rose by 2.3% in July-September, not 2.1% as previously reported. In the 2nd quarter of this year, Eurozone GDP growth was 0.8% quarter-on-quarter and 4.1% year-on-year. This news had a positive effect on the current Euro Bund situation.

The GDP of the 27 EU nations grew 0.4% quarter over quarter in Q3, following a 0.7% increase in the previous quarter. Growth in annual terms was 2.5%.

The highest quarter-on-quarter growth was seen in Ireland (2.3%), Cyprus, Malta, and Romania (1.3%). The largest decrease was observed in Estonia (-1.8%), Latvia (-1.7%) and Slovenia (-1.4%).

Consumer spending in the euro area in the 3rd quarter grew by 0.9% relative to the 2nd quarter, in the EU – by 0.7%.

The volume of exports from the euro area increased by 1.7%, from the EU – by 1.9%. Imports increased by 3.4% in the euro area and by 3.2% in the EU.

The Eurostat report also includes data on the dynamics of employment in the euro area and the EU in Q3. According to the final data, the number of employed people increased by 0.3% in the euro area and by 0.2% in the EU compared to the previous quarter.

Germany’s quarterly GDP growth accelerated to 0.4% after rising 0.1% in Q2, France slowed to 0.2% from 0.5%; Italy to 0.5% from 1.1%, and Spain to 0.2% from 1.5% a quarter earlier.

Earlier, we reported that the dollar was appreciating against most currencies on December 7.

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The dollar is getting stronger against most currencies

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is the dollar getting stronger against the euro

The dollar is getting stronger. The U.S. currency continues to be supported by a general decline in risk appetite on world markets, due to growing fears of a recession in the U.S. and worldwide.

Inflation will drain Americans’ financial reserves and could lead to a recession sometime in the middle of next year, the head of JPMorgan Chase & Co (NYSE:JPM) said Tuesday. Jamie Dimon. His Goldman Sachs Group (NYSE:GS) colleague David Solomon also expects a recession in the United States in the coming months as the Federal Reserve (Fed) continues to tighten monetary policy.

Solomon estimates a 35% chance that the Fed can achieve a significant slowdown in U.S. inflation without triggering a recession in the economy. “That said, we have a reasonable expectation that we will still see a recession in one form or another,” The Wall Street Journal quoted Solomon as saying.

Is the dollar getting stronger against the euro? In the Euro / U.S. Dollar, the European currency fell by 0.06% – to $1.0461 compared to $1.0467 at the close of the previous session. The pound, by that time, fell by 0.07% to $1.2124 against $1.2133 the day before.

The dollar/yen rate rose by 0.26% to 137.35 yen against 137.00 yen at the close of the previous session.

The index, calculated by ICE, which shows the dollar dynamics against six currencies (euro, Swiss franc, yen, Canadian dollar, pound sterling and Swedish krona) is stable after a steady rise in the previous two sessions.

Earlier we reported that ICE warned the EU about the consequences of the gas price cap.

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Forex

ICE warns EU about how gas price cap affects the economy

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gas prices affecting the economy

ICE has warned the European Union that an attempt to cap the price of gas on the TTF index (Europe’s largest hub, located in the Netherlands) will likely only make it more expensive. The cap on gas prices will have a very significant effect on the economy. 

“In a memo sent to the European Commission, ICE, which trades on the TTF index, said the proposal to cap natural gas prices could lead to even higher prices, despite the fact that the initiative itself is designed to mitigate the effects of gas price hikes,” the agency wrote.

The gas price effect on the economy is hard to overstate. As Reuters notes, the note also says that liquidity providers are likely to buy short positions and stop selling TTF gas futures if prices rise even relatively close to the cap to hedge against the risk of holding those positions. According to ICE, the resulting shortage of sellers in the TTF market will result in higher prices.

On November 22, the European Commission proposed introducing a ceiling price for a monthly TTF futures price of 275 euros per MWh (a little over $2,800 per thousand cubic meters of gas at euro and dollar parity). However, on November 24, EU energy ministers didn’t agree on a price cap and postponed a decision until a meeting scheduled for December 13. As the Financial Times reported earlier on Tuesday, the EU countries are considering reducing the proposed gas price ceiling from 275 to 220 euros per MWh (2,275 euros per thousand cubic meters).

According to the previously proposed idea of the European Commission, the mechanism should be launched under two simultaneous conditions: the estimated monthly futures price on the index of Europe’s largest gas hub TTF exceeds 275 euros per MWh for two weeks, and the spread between the TTF price and the global price of LNG is at least 58 euros for 10 consecutive trading days.

When the mechanism is in place, there will be no corresponding trades above €275. However, this is a very high level. The settlement price of the TTF monthly futures has exceeded €275 for only a few days in the history of this hub in August this year. On August 19 it was at around €245 per megawatt hour, skyrocketed to a historic high of above €340 on August 26 (just over €3,500 per thousand cubic meters), and quickly declined to around €265 as early as August 30.

Earlier we reported that the inflation rate in the euro zone was close to its peak.

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