Markets continued to run away from risk early on Monday, with investors remaining cautious amid fears of a likely global recession. Traders prefer to stay on the sidelines. The Fed is set to raise rates by 75 bps on Wednesday in response to strong inflation measures. Over the weekend, U.S. Treasury Secretary Janet Yellen warned of a slowdown in the U.S. economy, but said a recession was not imminent.
Concerns about slowing economic growth intensified after preliminary S&P Global PMI business activity indexes in the euro zone and Germany recorded declines in July. The S&P Global U.S. Services PMI dipped into contraction territory for the first time since June 2020.
China stepped up mass COVID-19 testing in Shanghai and Tianjin. This means there is a risk of new and costly lock-ins. A record number of Australians affected by COVID have been hospitalized. The number of people sickened by covid has skyrocketed, undermining investor confidence.
Meanwhile, China privately warned the Biden administration of the consequences should U.S. House Speaker Nancy Pelosi travel to Taiwan in August, the Financial Times (FT) reported Saturday. Citing sources, Reuters reported that Beijing plans to create a real estate fund worth up to $44 billion, despite looming problems with Evergrande’s restructuring.
Amid a flood of disappointing news in Asia, regional stock indexes are falling, partly echoing Friday’s sell-off on Wall Street. U.S. S&P 500 futures are down 0.22%, reflecting a dismal mood. Investors remain wary ahead of earnings releases from U.S. tech titans Google’s Alphabet Inc. and tech titan Apple Inc.
Among G10 currencies, the U.S. dollar is showing a modest comeback from more than two-week lows amid a flight from risk.
EUR/USD is trading near 1.0200, stalling the climb. ECB head Christine Lagarde said early on Saturday that the Bank will raise rates as much as necessary to bring inflation to our target level over the medium term. Meanwhile, ECB hawk Robert Holzmann noted that they will see what the economic situation is like in the fall. Then they can probably decide whether to raise the rate by another 0.5% or less. The IFO survey on Monday will shed more light on the euro zone’s economic outlook.
GBP/USD is falling towards 1.1950, failing once again to secure above 1.2000. Political uncertainty in the UK is offsetting expectations of a 50bp BOE rate hike in August. British Prime Ministerial candidate Liz Truss laid out her investment plans, while Rishi Sunak, another candidate, announced on Friday that he would put the government on a “crisis management” stance after taking office.
The USD/JPY pair regained ground above 136.00 as U.S. Treasury yields stabilized, pausing last week’s sell-off. The pair is ignoring news that the Bank of Japan (BOJ) is reshuffling its board members to bring in two new hawkish members.
Gold paused its recovery, gathering around $1,730, with all eyes on key U.S. data and the Fed’s event next week.
Bitcoin fell back below $22,000 amid concerns over Fed action, and Ethereum attacked the $1,500 mark, losing nearly 4.50% for the day.
Asia FX weak, dollar steady after hawkish Fedspeak, strong labor data
Investing.com– Most Asian currencies fell on Friday, while the dollar steadied from recent losses as hawkish signals from the Federal Reserve and strong U.S. labor data cast more doubts over early U.S. rate cuts.
The and both moved little in Asian trade, and were set for mild weekly losses, as they fell from three-month highs earlier in the week.
But the outlook for the greenback remained upbeat amid more signals that the Fed will keep rates higher for longer.
Hawkish Fed comments, strong labor data further dent early rate cut bets
said on late-Thursday that he needed more evidence that inflation was cooling, before the central bank would consider interest rate cuts.
His comments were the latest among a slew of other Fed officials who said that the bank was in no hurry to begin trimming monetary policy. The of the Fed’s late-January meeting had also reiterated this message earlier in the week.
Waller’s comments came just hours after data showed unexpectedly fell over the past week, signaling continued strength in the labor market, which gives the Fed even less impetus to cut rates early.
The prospect of higher for longer U.S. rates bodes poorly for Asian markets, as the gap between risky and low-risk yields narrows. This notion kept most regional currencies trading lower for the week.
The showed traders further paring back expectations for May and June rate cuts by the Fed.
Yen above 150, on intervention watch
A market holiday in Japan kept regional trading volumes muted on Friday. But the remained above the 150 level to the dollar, even as Japanese ministers offered more warnings on potential intervention measures.
The outlook for the yen was also somewhat soured by persistent concerns over a slowing Japanese economy, after it unexpectedly entered a recession in the fourth quarter.
Levels above 150 yen had drawn record-high intervention by the Japanese government in 2022- a trend that could be repeated again if weakness in the currency persists.
Among other Asian units, the fell slightly amid continued focus on whether Beijing will unlock more stimulus measures to support the economy.
The shed 0.2%, while the was flat before key inflation readings due later on Friday.
The was among the few gainers for the day, rising 0.2% as it extended a rebound from three-month lows.
The was flat but appeared to be moving further away from the 83 level. Sentiment towards India was aided by a strong reading on the service sector, released on Thursday.
Dollar index on track for first weekly fall this year
© Reuters. FILE PHOTO: A banknote of Japanese yen is seen in this illustration picture taken June 15, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Karen Brettell
NEW YORK (Reuters) -The was on track for its first weekly fall in 2024 on Friday as investors took a breather from buying the currency following an almost two-month rally built on expectations that the Federal Reserve will begin cutting rates later than previously expected.
Investors have pushed back expectations for the first Fed rate cut to June, from May, and dramatically reduced how far they see the U.S. central bank cutting its benchmark rate. Fed officials have projected three 25 basis point cuts this year, while markets had priced for as many as seven.
“The dollar’s rally this year has been predicated on the markets converging back to the Fed,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
Traders may also be pricing for the likelihood that economic data will begin to slow.
“I think starting with the February jobs data, which is due March 8, we’re going to begin seeing a series of weaker U.S. economic data,” Chandler said.
Personal Consumption Expenditures (PCE) due next week may also provide clues for Fed policy.
New York Fed President John Williams sees the U.S. central bank on track for interest-rate cuts “later this year,” despite stronger-than-expected readings on inflation and the labor market in January, according to an interview published Friday by Axios.
The was little changed on the day on Friday at 103.93 and on track for a weekly loss of 0.34%. It has bounced from a five-month low of 100.61 on Dec. 28 and is holding below a three-month high of 104.97 reached on Feb. 14.
The greenback has risen this year on enduring economic strength and as Fed officials caution against cutting rates too soon as they seek to bring inflation back closer to their 2% annual target.
Now, however, investors are waiting on further economic indicators for fresh clues on monetary policy.
“It’s not the time yet to sell the dollar, but we think it will start to weaken in the second quarter, assuming that the Fed will cut in June and continue cutting rates once a quarter,” said Athanasios Vamvakidis, global head of G10 forex strategy at BofA Global Research.
BofA expects the euro to strengthen to 1.15 versus the greenback by the end of the year.
“If the U.S. economy remains so strong, we have to change our view, as the Fed might not be able to cut in June or not even this year,” Vamvakidis added.
Improved risk appetite that has seen stock markets set records in several countries this week may have also reduced demand for the U.S. currency, which is seen as a safe haven.
The euro was little changed on the day at $1.0822. It has dropped from $1.11395 on Dec. 28, but is up from $1.0695 on Feb. 14.
German business morale improved in February, a survey showed on Friday, though probably not enough to prevent Europe’s biggest economy from slipping into another recession.
ECB President Christine Lagarde on Friday called the relatively benign fourth quarter wage growth data encouraging but not yet enough to give the European Central Bank confidence that inflation has been defeated.
YEN WORST PERFORMER
The yen is the worst-performing G10 currency this year, with the greenback gaining 6.7% against the Japanese currency. The dollar fell 0.04% to 150.45 yen on Friday.
The Japanese currency is headed for a fourth weekly drop as investors chased better yields just about everywhere else, wagering Japan’s rates would stay near zero for some time.
With the Fed expected to hold rates higher for longer, investors are staying in carry trades in which they sell or borrow the yen and invest in higher yielding currencies.
“For the dollar/yen to weaken, we need the Fed to start cutting rates,” said BofA’s Vamvakidis.
In cryptocurrencies, bitcoin fell 1.01% to $51,122.
Canadian dollar weakens vs. USD as spreads, Bank of Canada bets prove a headwind
Investing.com – The lost further ground against its US counterpart today, and with the greenback gaining roughly a third of a percent vs. the loonie for the week.
Analysts at Scotiabank (TSX:) note that market drivers of loonie weakness this week include a stronger correlation with spreads at a time when spreads are working against the loonie.
“Spreads have moved against the CAD in the past week or so, reflecting somewhat lower Canadian yields following the softer than expected Canadian CPI data, and the grind higher in US rates.”
Canadian data this week came in cooler than expected, bringing forth bets of a Bank of Canada rate cut as early as April. Meanwhile, hawkish rhetoric and Fed minutes have set from the U.S. Federal Reserve in June.
Scotiabank analysts also note that the past week has seen “some softening in the CAD’s linkage with stocks”, with a market rally in equities failing to lend significant support to the loonie.
Looking ahead for the Canadian dollar, Wells Fargo (NYSE:) analysts expect the loonie’s muted performance to be “a trend that could continue for the time being”. They note that “Given a broadly similar growth and monetary policy outlook for Canada and the United States, it is also possible that Loonie could be an underwhelming performer over the medium term.”
Wells Fargo expects a cumulative 100 bps of rate cuts from the Bank of Canada in 2024, vs. a cumulative 125 bps of rate cuts from the Federal Reserve over the same period. They see the trading at 1.3300 by the end of 2024, with the Canadian currency set to see only modest gains.
Next week for the pair, all eyes will be on the Canadian December and Q4 GDP. U.S. data meanwhile will include Consumer Confidence, Q4 GDP revisions, and the Jan PCE data.
For next week, Scotiabank’s week ahead model “suggests spot could trade between 1.3610/1.3390, with 75% confidence”.
- Forex2 years ago
Forex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex1 year ago
Unbiased review of Pocket Option broker
- Forex2 years ago
How is the Australian dollar doing today?
- Forex1 year ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- World1 year ago
Why are modern video games an art form?
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- Stock Markets2 years ago
Morgan Stanley: bear market rally to continue
- Economy1 year ago
Crude oil tankers double in price due to EU anti-Russian sanctions