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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.

Forex

Dollar hands back some gains ahead of Fed meeting; euro marginally up

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Dollar hands back some gains ahead of Fed meeting; euro marginally up
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Investing.com – The U.S. dollar edged lower in European trade Monday, handing back some of the previous week’s gains ahead of the upcoming Federal Reserve policy-setting meeting. 

At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.035, after gaining around 0.5% last week, its first weekly gain in four.

Dollar slips marginally ahead of Fed meeting

The U.S. currency has started the new week on a slightly negative note, but remains near two-week highs after strong U.S. inflation readings from last week put traders on guard over any hawkish sentiments from the , with the U.S. central bank holding a two-day policy-setting meeting this week, concluding on Wednesday.

Markets are currently pricing in around 75 basis points of cuts this year, down from around 140 bps at the start of the year, with around a 60% chance of the first rate cut coming by June, according to LSEG data.

The focus on Wednesday will be on whether Fed policymakers change their projections of rate cuts, or dot plots, for the year.

“There are currently three 25bp rate cuts in the median 2024 Dot Plot, but projections are so dispersed that it would only take two FOMC members changing their ‘dot’ to take the median to two or four rate cuts this year,” said analysts at ING, in a note. 

“We expect an unchanged Dot Plot but admit that a hawkish revision looks more likely than a dovish one.”

Euro just higher

In Europe, edged 0.1% higher to 1.0899, after eurozone consumer prices were confirmed falling nearer to the European Central Bank’s 2% medium-term target in February.

The final came in at 2.6% on an annual basis in February, a drop from 2.8% the prior month, as widely expected, while the core annual number fell to 3.1% from 3.3% in January.

There are a number of ECB speakers due this week, including President on Wednesday, and the latest noises emerging from this central bank have tended to point to a rate cut in June.

“My current view is that the picture should be sufficiently clearer when the Governing Council meets in June (as we will have a lot more information – particularly on wage dynamics – available in our deliberations) to give us sufficient confidence to make monetary less restrictive,” policymaker Gabriel Makhlouf said on Friday, adding to this opinion.

traded 0.1% lower at 1.2738, with the widely expected to keep rates unchanged when it meets on Thursday.

“After dropping its hawkish tone in February, we don’t see the Bank being in any rush to take further steps to the dovish side of the spectrum just yet, at least barring a major downward surprise in CPI on Wednesday,” ING said.

Volatile yen ahead of BOJ meeting

In Asia, traded 0.1% higher to 149.22, amid volatile trading ahead of the upcoming Bank of Japan meeting.

The kicked off its two-day meeting earlier Monday, with a hotly anticipated decision due on Tuesday.

USD/JPY had fallen as far as 146 on speculation that the central bank was set to end its ultra-dovish policies, but traders still remained split over whether the bank will raise rates in March or April, with general consensus leaning slightly towards an April move. 

edged 0.1% higher to 7.1982, after the release of a series of economic data that offered mixed cues on the Chinese economy. 

While grew more than expected in the first two months of 2024, missed expectations and unexpectedly rose.

The People’s Bank of China is also set to decide on its this week, but is widely expected to leave the rate unchanged.

 

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Asia FX muted, dollar steady ahead of Fed, BOJ meetings

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Asia FX muted, dollar steady ahead of Fed, BOJ meetings
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Investing.com– Most Asian currencies kept to a tight range on Monday, while the dollar steadied near two-week highs as focus turned squarely to a swathe of central bank meetings helmed by the Bank of Japan and Federal Reserve. 

Strong U.S. inflation readings from last week put traders on guard over any hawkish sentiments from the Fed, while positive wage data and sticky inflation spurred mass speculation over whether the BOJ will end its ultra-loose policies this week.

USDJPY steady, BOJ rate hike in focus

The Japanese yen moved little on Monday after clocking a volatile week on speculation over an end to the BOJ’s negative interest rate and yield curve control policies. The BOJ kicked off its two-day meeting on Monday, with a .

The pair had fallen as far as 146 to the dollar, especially after reports showed Japanese labor unions won large wage hikes this year. Recent data also pointed to inflation remaining sticky, with both factors giving the BOJ enough confidence to end its ultra-dovish policies.

But analysts still remained split over whether the bank will raise rates in March or April, with general consensus leaning slightly towards an April move. The BOJ is expected to raise rates by 20 basis points to 0.1% from negative 0.1%.

While any rate hikes bode well for the yen, speculation over the timing of the hike saw the USDJPY pair mark volatile moves in recent weeks. The currency pair hovered around 149 on Monday.

Fed meeting awaited for more rate cut cues 

The and moved little in Asian trade on Monday, steadying near two-week highs with focus squarely on the conclusion of a two-day Fed meeting on Wednesday.

While the Fed is widely expected to keep rates unchanged, any signals on its plans for interest rate cuts in 2024 will be closely watched. But the central bank may also strike a more hawkish chord than markets are hoping for, especially as recent data showed stickier-than-expected inflation in February. 

The prospect of higher-for-longer U.S. rates bodes poorly for Asian markets. This caution kept most regional currencies moving little on Monday, with a few more regional central bank decisions also on tap later in the week.

RBA, PBOC rate decisions also on tap

The rose 0.1% ahead of a rate decision on Tuesday. The RBA is widely expected to keep rates on hold and offer few signals on when it plans to begin easing policy, especially in the face of sticky inflation.

The Chinese yuan tread water on Monday, with the pair hovering around 7.1973. The People’s Bank of China is also set to decide on its this week, but is widely expected to leave the rate unchanged.

Data released on Monday offered mixed cues on the Chinese economy. While grew more than expected in the first two months of 2024, retail sales missed expectations and unexpectedly rose.

The South Korean won moved little with the pair hovering around 1,332.01. The Singapore dollar was flat with around 1.3378 following weaker-than-expected non-oil exports data from the island state.

The Indian rupee firmed slightly, with moving down 0.1% to 82.841, amid signs of continued support from the Reserve Bank of India. 

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US dollar poised for biggest weekly gain since mid-January; yen falls ahead of BOJ

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US dollar poised for biggest weekly gain since mid-January; yen falls ahead of BOJ
© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar rose to a more than one-week high on Friday after a mixed batch of data showed the U.S. economy remained stable with small pockets of weakness, suggesting the Federal Reserve could keep interest rates higher for longer or reduce the planned number of rate cuts this year.

The , which tracks the U.S. currency against six major peers, was on pace to post a weekly gain of 0.7%, the largest since mid-January. The index was last flat at 103.43.

Data on Friday showed a solid U.S. manufacturing sector, with output rebounding by 0.8% last month after a downwardly revised 1.1% decline in the prior month. Analysts at Citi, however, said in a research note that the rebound in February partly reflects the revisions lower to January output and the reversal of a “weather-related drag in January in non-durable goods manufacturing sectors.”

U.S. consumer sentiment and inflation expectations were little changed in March, a survey showed on Friday. The University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 76.5 this month, compared to a final reading of 76.9 in February.

The survey’s reading of one-year inflation expectations, a measure tracked by the Fed, was unchanged at 3.0% in March. The survey’s five-year inflation outlook held steady as well at 2.9% for the fourth straight month.

The Fed is scheduled to meet next week and while it is not expected to make any interest rate moves, hotter-than-expected U.S. producer and consumer price data this week has led traders to rein in bets on future cuts.

“Ahead of the meeting, there’s nothing to indicate that the Fed can afford to be dovish at this point,” said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

“That’s why we have Treasury yields going up and that’s why we have the dollar stronger. Gold fell as well. It’s all the standard correlations. So the Fed maybe gets higher for longer: they’re not being given any room to cut sooner than later.”

The rate futures market on Friday has priced in a 57% chance of the Fed cutting rates in June, compared to 71% on Monday, according to LSEG’s rate probability app. The market has also reduced the number of rate cuts it expects this year to less than three, from between three and four earlier this year.

Investors are also looking to a highly-anticipated meeting at the Bank of Japan next week.

The BOJ is close to ending eight years of negative interest rate policy, with internal preparations for an exit in the works since Kazuo Ueda took office as BOJ governor.

At the same time, Japan’s biggest companies agreed with labor unions to raise wages by the highest level in 33 years on Friday, reinforcing views the country’s central bank is poised to make a landmark shift away from negative interest rates.

The dollar continued to rise against the yen, up 0.5% at 149.02. On the week, the greenback rose 1.3%, on track for its biggest gain since mid-January.

The focus is also on other central bank decisions for signs of how quickly they will cut interest rates after a period of rapid rises to curb rampant inflation. The Bank of England and Swiss National Bank are due to meet next week.

The euro was slightly up at $1.0889. The European Central Bank council last week began a discussion on when to reduce its own rates, council member Olli Rehn said on Friday.

Sterling slipped 0.1% to $1.2737.

In cryptocurrencies, bitcoin prices fell as much as 7% in volatile trade from a record high touched on Thursday as risk sentiment took a hit. It was last down 0.3% at $70,483.

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