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Exclusive-Iraq to end all dollar cash withdrawals by Jan. 1 2024 – central bank official

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Exclusive-Iraq to end all dollar cash withdrawals by Jan. 1 2024 - central bank official
© Reuters. FILE PHOTO: A man counts U.S. dollars at a currency exchange shop in Baghdad, Iraq, January 23, 2023. REUTERS/Ahmed Saad/File Photo

By Timour Azhari

BAGHDAD (Reuters) -Iraq will ban cash withdrawals and transactions in U.S dollars as of Jan. 1 2024 in the latest push to curb the misuse of its hard currency reserves in financial crimes and the evasion of U.S. sanctions on Iran, a top Iraqi central bank official said.

The move aims to stamp out the illicit use of some 50% of the $10 billion that Iraq imports in cash from the New York Federal Reserve each year, Mazen Ahmed, director-general of investment and remittances at the Iraqi central bank (CBI), told Reuters.

It’s also part of a broader push to de-dollarize an economy that has seen the greenback preferred over local notes by a population weary of recurring wars and crises following the 2003 U.S. invasion.

People who deposit dollars into banks before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, Ahmed said. But dollars deposited in 2024 could only be withdrawn in local currency at the official rate of 1,320.

The parallel market rate of the Iraqi dinar sat at 1,560 on Thursday, roughly 15% percent below the official rate.

“You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars,” Ahmed said.

“But don’t talk to me about cash dollars anymore.”

A central bank statement later said the ban on cash dollar withdrawals would only apply to accounts receiving transfers from abroad.

Iraq has already set up a platform to regulate wire transfers that make up the bulk of its dollar demand and that used to be a hotbed of fake receipts and fraudulent transactions that siphoned dollars to Iran and Syria, both countries under U.S. sanctions

Set up in concert with authorities in the U.S., where Iraq’s$120 billion in reserves from oil sales are held, that system was now nearly airtight, Ahmed said, providing dollars at the official rate to those engaged in legitimate trade such as imports of food and consumer goods.

But the cash withdrawals have continued to be misused, he said, including by would-be travellers provided with a state quota of $3000 who have found ways to game the system.

Iraq is heavily reliant on Washington’s goodwill to ensure oil revenues and finances do not face U.S. censure.

At the same time, the current government, which is backed by powerful parties and armed factions close to Iran, has been careful not to alienate Tehran, nor anger the parties and armed groups with deep interests in Iraq’s highly informal economy.

DOLLAR SHORTAGE

Many local banks have already been limiting dollar cash withdrawals in the past months, compounding a shortage that has seen the parallel market exchange rate continue to rise.

Ahmed said some banks were low on dollars because many people were trying to withdraw dollars at once amid a feeling of unease over the financial system, while some banks also had shortages because they provided dollar-denominated loans that were then paid back in dinars.

The CBI had also limited the amount of dollars it was providing as part of an agreement with the Fed to limit cash and shift towards e-payment, he said. He denied reports of a stoppage in cash shipments to Iraq from the Fed, noting the latest regular shipment had arrived on Wednesday.

Ahmed said the CBI expected the dinar could lose more value as the new measures went into force but said it was an acceptable side-effect of formalising the financial system and the CBI was providing dollars at the official rate for all legitimate purposes.

“The cost we are carrying today is nothing compared to this goal,” he said, describing the parallel market rate as a rate used mostly for illegitimate transactions.

“We don’t have a problem with the (parallel) exchange rate hitting 1,700. If they tell me the rate is 1,700, I tell them: ‘you want to import from Iran. You want to smuggle. You have corrupt money that you want to get out.'”

He added: “As long as all transparent and legal financing operations happen via us (at the official rate), the rest does not matter.”

The central bank statement later quoted Ahmed as saying that the central bank was taking steps that would reduce the parallel market exchange rate and there was no indication that the market rate would hit 1,700.

Some signs of frustration with dollar shortages have already begun to emerge.

On Thursday, video circulated on social media showing a depositor at a Baghdad bank threatening to burn it down if he did not receive his deposit in cash dollars, a scene reminiscent of steps depositors have taken amid Lebanon’s banking crisis.

“I swear I will burn it down. I swear I will enter the safe and take my money” the man says.

Forex

Asia FX muted with nonfarm payrolls in sight; Yen scales 4-mth peak

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Asia FX muted with nonfarm payrolls in sight; Yen scales 4-mth peak
© Reuters.

Investing.com – Most Asian currencies moved little on Friday as traders positioned for a potentially softer U.S. nonfarm payrolls reading, while the yen sat near a four-month high to the dollar tracking hawkish signals from the Bank of Japan. 

The was the best-performing Asian currency this week, up over 2% after BOJ Governor Kazuo Ueda signaled that the central bank was considering an eventual move away from negative interest rates. 

The yen rose 0.2% to 143.88 against the dollar on Friday. 

Ueda’s comments, made during an address on Thursday, sparked a sharp reversal in bets for more weakness in the yen, while reinforcing expectations that the BOJ will end its negative rate regime in 2024.

This helped the yen strengthen past data showing that Japan’s in the third quarter. Ueda also noted that policy will remain loose in the near-term to keep supporting the Japanese economy. 

Dollar weakens as markets bet on softer nonfarm payrolls 

Broader Asian currencies were muted, while the dollar reversed a recent rebound following a string of soft labor market readings this week.

The and steadied in the mid-103s in Asian trade, after falling sharply on Thursday.

and readings suggested that the U.S. labor market was cooling, potentially setting the scene for a softer reading for November, which is due later in the day. 

Any signs of a cooling labor market give the Federal Reserve less impetus to keep interest rates higher for longer. Friday’s reading also comes just days before the for the year, where the central bank is expected to keep rates on hold.

But markets were still seeking more cues on when the Fed could begin cutting rates in 2024. Expectations that had boosted Asian currencies in recent sessions. 

Most regional units moved little in anticipation of the payrolls reading. The fell 0.1%, and was set for mild weekly losses amid persistent concerns over an economic slowdown in China. Dollar selling by Chinese state banks helped limit losses in the yuan this week. 

The was flat after the kept rates on hold as widely expected, and said that monetary policy will remain restrictive to curb persistent risks from inflation. 

The rose 0.2%, but was set to lose 0.8% this week following a string of weak economic readings. A slowdown in China, Australia’s biggest export market, appeared to be spilling over into the country. 

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Dollar at 2-week high, euro softer as market bets on rate cuts

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Dollar at 2-week high, euro softer as market bets on rate cuts
© Reuters. U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Hannah Lang

WASHINGTON (Reuters) -The U.S. dollar was at a two-week high on Wednesday, while the euro was weak across the board as markets ramped up bets that the European Central Bank (ECB) will cut interest rates as early as March.

Although markets are still pricing at least 125 basis points of interest rate cuts from the U.S. Federal Reserve next year, the dollar was able to hold steady as rate cut bets for other central banks intensified.

The , which measures the currency against six other majors, was last up 0.19% at 104.16. The euro was down 0.29% to $1.0764.

Traders are betting that there is around an 85% chance that the ECB cuts interest rates at the March meeting, with almost 150 basis points worth of cuts priced by the end of next year. Influential ECB policymaker Isabel Schnabel on Tuesday told Reuters that further interest rate hikes could be taken off the table given a “remarkable” fall in inflation.

The euro also touched a three-month low against the pound, a five-week low versus the yen and a 6-1/2 week low against the Swiss franc.

“It’s a reasonably sized sell-off and the market is trying to digest, is it just a correction? Did the market get over-exuberant in the previous weeks? I think there is definitely an element of that,” said Amo Sahota, director at FX consulting firm Klarity FX in San Francisco.

‘A BIT OVERBOARD’

The ECB will set interest rates on Thursday next week and is all but certain to leave them at the current record high of 4%. The Fed and Bank of England are also likely to hold rates steady next Wednesday and Thursday respectively.

The Bank of Canada on Wednesday held its key overnight rate at 5% and, in contrast to its peers, left the door open to another hike, saying it was still concerned about inflation.

Traders have priced around a 60% chance of the U.S. central bank cutting rates in March, according to CME’s FedWatch tool.

“Markets have aggressively priced in rate cuts, without any kind of confirmation from central banks,” said Adam Button, chief currency analyst at ForexLive in Toronto. “As December continues, we need either a change in tune from central bankers or a repricing in markets.”

If the Fed were to cut rates as markets expect, it could result in the dollar loosening its grip on other G10 currencies next year, dimming the outlook for the greenback, according to a Reuters poll of foreign exchange strategists.

The spotlight in Asia was on China, as markets grappled with rating agency Moody’s (NYSE:) cut to the Asian giant’s credit outlook.

The offshore was flat at $7.1728 per dollar, a day after Moody’s cut China’s credit outlook to “negative”.

China’s major state-owned banks stepped up U.S. dollar selling forcefully after the Moody’s statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.

Elsewhere in Asia, the Japanese yen weakened 0.15% versus the greenback at 147.38 per dollar. The Australian dollar fell 0.02% to $0.65495.

In cryptocurrencies, bitcoin eased 0.06% to $44,049, still near its highest since April 2022.

The world’s largest cryptocurrency has gained 150% this year, fueled in part by optimism that a U.S. regulator will soon approve exchange-traded spot bitcoin funds (ETFs).

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Canadian dollar forecasts turn less bullish as BoC rate cuts eyed: Reuters poll

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Canadian dollar forecasts turn less bullish as BoC rate cuts eyed: Reuters poll
© Reuters. FILE PHOTO: A Canadian dollar coin, commonly known as the “Loonie”, is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch/File Photo

By Fergal Smith

TORONTO (Reuters) – Analysts see less upside for the Canadian dollar than previously thought over the coming year as recent data showing a slowdown in the domestic economy brings forward the expected start of Bank of Canada interest rate cuts, a Reuters poll found.

The median forecast of 35 foreign exchange analysts surveyed in the Dec. 1-5 poll was for the Canadian dollar to strengthen 0.4% to 1.3533 per U.S. dollar, or 73.89 U.S. cents, in three months, compared with 1.3450 in a November poll.

It was then expected to advance to 1.3130 in a year, versus 1.3000 in last month’s forecast.

“Our view is the Canadian dollar is going to face a difficult next three months as the data starts to look like the Canadian economy is teetering on the edge of recession if not in a mild recession,” said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

The Canadian economy unexpectedly contracted at an annualized rate of 1.1% in the third quarter, avoiding a recession after an upward revision to the previous quarter but showing growth stumbling.

Soft domestic data “should bring forward expectations of BoC easing, especially relative to the Federal Reserve,” Harvey said. “Earlier Bank of Canada easing is going to widen rate differentials in favor of USD-CAD.”

Money markets expect the Canadian central bank to leave its benchmark interest rate on hold at a 22-year high of 5% at a policy announcement on Wednesday and then begin easing policy as soon as March. As recently as October, there were no rate cuts priced in for 2024.

A separate Reuters poll, from last week, showed economists expect the BoC to start cutting rates in the second quarter of next year and borrowing costs will drop by at least one percentage point by the end of next year.

The Canadian 2-year yield has fallen further below its U.S. equivalent in recent weeks to a gap of 54 basis points, which is the widest since March.

A lower yield tends to make a currency less attractive to investors.

(For other stories from the December Reuters foreign exchange poll:)

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