Forex

Sterling prepped for rate decisions, shakes off UK political ructions

Published

2 years ago

June 12, 2023

Sterling held mostly steady on Monday, ahead of a week packed with central bank decisions and key economic data, starting with a read on the UK jobs market that could be pivotal in setting expectations for what the Bank of England may do next week.

The currency market showed little reaction to developments on the political front in the UK, after the surprise resignation from parliament of former Conservative Prime Minister Boris Johnson and two fellow lawmakers over the weekend.

The pound, which is heading for its third successive quarterly gain against the dollar, was up 0.1% at $1.2594.

Volatility across the broader financial market was subdued on Monday, as traders prepared for a flurry of central-bank decisions on interest rates, starting with the U.S. Federal Reserve on Wednesday.

The Fed is widely expected to leave U.S. interest rates unchanged in a range of 5.00-5.25%. Tuesday’s Consumer Price Index (CPI) report might fine-tune what traders expect the central bank to do beyond the June meeting, as inflation remains well above its 2% target.

Expectations have also ratcheted higher for the BoE to keep raising interest rates beyond their current level of 4.5%, which has helped boost the pound. But, for now, the focus will remain squarely on the dollar.

“In cable in particular, you’ve probably got more risk on the dollar side this week than the sterling side. So taking a view on cable should be really more about the CPI than on anything in the UK,” RBC Capital Markets strategist Adam Cole said.
“If I were playing sterling, I’d be doing it more on the crosses than through cable,” he said.

Against the euro, sterling fell 0.2% to 85.61 pence. The pound is heading for its sixth consecutive monthly gain against the euro, having risen 0.4%, largely as a function of how much more the BoE may raise interest rates relative to what the European Central Bank may have to do.

BoE Monetary Policy Committee member Jonathan Haskel said in an article published on Monday the central bank may need to raise interest rates more than once from their current level to bring inflation under control.

Meanwhile, Britain’s economy now looks likely to sidestep recession entirely this year but deep-rooted problems like weak business investment will persist, the Confederation of British Industry trade body said on Monday.

UK political risk has ticked higher, after Johnson’s resignation and that of two other lawmakers will lead to three by-elections in a matter of weeks, an unwelcome development for Prime Minister Rishi Sunak.

Stephen Gallo, global FX strategist at BMO Capital Markets, said in a note the chances of a general election in 2023, rather than next year, had increased.

But he said this was unlikely to result in a big drop in the pound unless the gilts market reacted negatively.

“It’s not clear where the impulse for such a move would come from in gilts, but the remaining June data releases on GDP (June 14), CPI inflation (June 21), public sector net borrowing (June 21) need to be monitored closely,” he said.
“If the data are indicative of deteriorating real growth, stubbornly high inflation, and a deteriorating fiscal picture, I would argue that the political backdrop will cause the response in gilts and sterling to be more severe,” he added.

Forex

Dollar edges lower as yields slips; hefty annual gain likely

Published

14 hours ago

December 31, 2024

Investing.com – The US dollar slipped slightly Monday, as US bond yields retreated, but remained near recent highs as the end of the year draws near.

At 04:5 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.690.

However, the index was still on course for monthly gains of over 2%, bringing year-to-date gains to almost 7%.

Dollar on course for hefty annual gains

The dollar has been helped by rising US Treasury yields, with the benchmark 10-year note hitting a more than seven-month high last week. This yield, however, slipped by to 4.599% on Monday.

The election of Donald Trump as the new president also gave the dollar a boost as his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary, and are likely to keep the Federal Reserve from cutting interest rates rapidly next year.

The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year earlier this month, and markets are now pricing in just about 35 basis points of easing for 2025.

Trading ranges are likely to be tight this holiday-impacted week, and the focus will be on weekly numbers on Thursday and data a day later, as well as comments from FOMC member .

Euro gains after Spanish inflation

In Europe, rose 0.1% to 1.0439, bouncing slightly after data showed that Spain’s annual EU-harmonized rose to 2.8% in December, up from the 2.4% figure recorded in November.

The cut interest rates earlier this month and signaled more cuts ahead as economic growth in the region stagnates.

However, the next interest rate cut could be longer in coming after a recent uptick in inflation, ECB Governing Council member Robert Holzmann was quoted as saying on Saturday.

accelerated in November to 2.2% from 2.0% a month earlier and above the ECB’s 2% target rate.

traded 0.1% higher to 1.2595, with little in the way of UK economic data to study ahead of Thursday’s release.

That is expected to show that the country’s manufacturing sector remained firmly in contraction in December, after data showed that Britain’s economy failed to grow in the third quarter.

Bank of England policymakers voting 6-3 to keep interest rates on hold at the meeting earlier this month, a more dovish split than expected, suggesting rate cuts will continue next year.

Yen remains weak; risk of intervention supports

In Asia, traded largely flat at 157.76, around five-month highs for the pair, with only the risk of Japanese intervention preventing another test of the 160 level last seen in July.

The signaled that it will take its time to consider more interest rate hikes after the central bank held interest rates steady at 0.25% at this month’s meeting.

rose 0.2% to 7.3136, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.

Forex

Dollar slips, but on track for hefty gains in 2024

Published

14 hours ago

December 31, 2024

Investing.com – The US dollar edged lower Tuesday, but was still on course to record hefty gains in 2024 given the more cautious stance by the Federal Reserve regarding rate cuts and expectations for the incoming Donald Trump administration.

At 05:35 ET (10:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.830, but remains just below the two-year high seen earlier this month.

The index was still on course for monthly gains of around 1.5%, bringing year-to-date gains to almost 7%.

Dollar in demand

The Fed’s recent signal of fewer cuts in 2025 has provided renewed strength to the dollar, pushing the benchmark to a more than seven-month high last week.

The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year earlier this month, a sharp reduction from the four cuts it had indicated in September.

Trading volumes are likely to be limited Tuesday, ahead of Wednesday’s holiday, and the focus will then be on weekly numbers and data later in the week, as well as comments from FOMC member .

Euro looks to ECB rate cuts

In Europe, edged higher to 1.0409, trading in a tight range with the German market on holiday.

The pair is set for a decline of just under 6% this year, with the likely to cut interest rates more sharply than the Federal Reserve in 2025.

The ECB cut interest rates earlier this month and signaled more cuts ahead as economic growth in the region stagnates, while the US central bank recently cut its projection for rate reductions in the new year.

The eurozone economy could also suffer from President-elect Donald Trump’s trade policies, given the prospect of tariff hikes and the potential of a trade war.

traded 0.1% lower to 1.2539, moving in a tight trading range ahead of Thursday’s release.

That is expected to show that the country’s manufacturing sector remained firmly in contraction in December, after data showed that Britain’s economy failed to grow in the third quarter.

Chinese manufacturing activity expands in December

In Asia, rose 0.6% to 7.3443, after China’s expanded for a third straight month in December as a raft of fresh stimulus measures continued to provide support, purchasing managers index data showed on Tuesday.

However, the rise was slightly lower than market expectations and below the previous month’s reading.

Markets are holding out for more clarity on Beijing’s plans for stimulus measures in the coming year. Recent reports suggested that the country will ramp up fiscal spending to support economic growth.

traded 0.1% higher to 156.92 on Tuesday after it reached a five-month high in the previous session, with the pair up more than 11% over the course of the year.

The signaled that it will take its time to consider more interest rate hikes after the central bank held interest rates steady at 0.25% at this month’s meeting.

Forex

Asia FX set for yearly losses as strong dollar weighs; China factory data in focus

Published

14 hours ago

December 31, 2024

Investing.com– Most Asian currencies edged lower on Tuesday and headed for yearly losses as the dollar remained strong heading into 2025, while the Chinese yuan weakened after data showed the country’s factory activity expanding at a slower pace.

The was 0.1% weaker in Asian trade but remained near a 2-year high it touched earlier in the month. The also ticked lower.

Asian currencies have weakened sharply this year as the Federal Reserve’s interest rate outlook, and fears about a potential U.S-China trade war under Donald Trump’s administration, have eroded risk sentiment.

The Fed’s recent signal of fewer cuts in 2025 has provided renewed strength to the dollar and created downward pressure on Asian currencies.

Chinese yuan slips as factory activity expands at a slower-than-expected pace

The Chinese yuan’s onshore pair rose 0.2% on Tuesday, while the offshore pair was largely unchanged.

China’s expanded for a third straight month in December as a raft of fresh stimulus measures continued to provide support, purchasing managers index data showed on Tuesday. However, the rise was slightly lower than market expectations and below the previous month’s reading.

Asian currencies set for yearly declines

The Japanese yen’s pair fell 0.3% on Tuesday after it reached a five-month high in the previous session. The yen was set to lose more than 10% against the U.S. dollar for the year.

The Singapore dollar’s pair was largely unchanged but headed for a yearly rise.

The Australian dollar’s was slightly lower on Tuesday.

The Indian rupee’s pair inched up 0.1%, and was on track to rise more than 3% this year. The rupee has been hitting fresh record lows against the U.S. dollar this month.

The Thai baht’s pair rose 0.3%, while the Indonesian rupiah’s pair gained 0.2% on Tuesday.

South Korean won slips amid deepening political unrest

The South Korean won’s pair edged up 0.1% on Tuesday. The won has weakened nearly 6% against the U.S. Dollar in December, which saw a failed imposition of martial law in the country.

The won is the worst-performing currency amongst its Asian peers, tracking an over 12% decline in 2024.

In the latest updates, A South Korean court approved an arrest warrant on Tuesday for President Yoon Suk Yeol, who has been impeached and suspended from office following his December 3 decision to impose martial law.

The Corruption Investigation Office for High-ranking Officials (CIO) stated that the Seoul Western District Court granted the warrant sought by investigators probing Yoon’s brief imposition of martial law.