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Column-Mighty dollar shares in Fed’s heavy lifting: McGeever

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Column-Mighty dollar shares in Fed's heavy lifting: McGeever
© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Jamie McGeever

ORLANDO, Florida (Reuters) – If Federal Reserve officials want U.S. financial conditions to tighten enough to cool the economy and inflation without triggering a deep recession, they’re getting a strong helping hand right now from the dollar.

The dollar is at a six-month high and has surged 5.5% since mid-July. That rip higher has been fueled by a rise in U.S. bond yields that has made the dollar much more appealing relative to other currencies.

Since the hit a 15-month low and embarked on its current upswing on July 14, Goldman Sachs’ U.S. financial conditions index has risen 52 basis points.

The trade-weighted FX rate has been the biggest single component of that, accounting for 22 bps, even more than the 21 bps contribution from the jump in long rates which has probably grabbed more media and market attention.

It is a small sample size, but the exchange rate is becoming an increasingly important factor tightening U.S. financial conditions.

The Fed will probably welcome this from a macro level, although there is a debate to be had about how much a stronger exchange rate can cool inflation that is largely domestically generated in services and housing.

But continued dollar appreciation could tighten financial conditions further without the Fed having to raise rates again.

The dollar’s momentum seems justified – U.S. economic data refuses to roll over, the rest of the world appears more fragile than the U.S., the dollar’s rate and yield advantage remains wide, and market positioning is still underweight.

Against that backdrop, HSBC’s currency strategy team on Thursday flipped their dollar view, and now see it marching even higher.

“The dollar has been making a comeback lately but we see more upside ahead. We change our view and now see the dollar strengthening into 2024,” they wrote.


In the near term, speculative positioning is still weighted against the dollar despite the recent shakeout, which means hedge funds have room to cut back their bearish dollar bets even more in the coming weeks.

The last Commodity Futures Trading Commission data show that speculators halved their net short dollar position to $10.9 billion from $21.3 billion in late July. The last time they held a net long dollar position was November.

In periods of sustained dollar strength when the Fed is raising interest rates, the exchange rate’s contribution to tightening U.S. financial conditions is small. But when the dollar is rallying and rates are not rising, its impact is much greater.

In the January-September period last year when the dollar appreciated more than 20% – and the Fed was jacking up interest rates in clips of 75 basis points – Goldman’s U.S. financial conditions index rose around 350 bps.

The trade-weighted FX rate only accounted for around 65 bps of that, less than a quarter of the total and behind rising long rates and falling equities in terms of overall impact.

Of course, the stronger dollar would have fed into the bearish equity narrative as a higher exchange rate shrinks profits accrued from operations overseas.

Conversely, Goldman’s FC rose 90 bps between July 2014 and March 2015, a period in which the dollar appreciated 25% while interest rates remained anchored at the zero lower bound. The dollar accounted for all of the tightening conditions.

The Holy Grail for Fed Chair Jerome Powell and his Federal Open Market Committee colleagues is inflation returning smoothly to target and the economy achieving a ‘soft landing’.

Luck will determine that as much as sound wisdom and good judgment. The full impact of the 525 bps of policy tightening since March last year has probably not been felt although debate continues to swirl around how ‘long and variable’ the lags are.

Fed economists in June launched a financial conditions index called “FCI-G” – Financial Conditions Impulse on Growth – aimed at measuring the impact of conditions on activity and growth.

Over the second half of last year and into this year, the dollar has turned to being a headwind to growth from a tailwind, the authors found. The Fed will be comfortable with that continuing, as long as it doesn’t morph into a storm or worse.

(The opinions expressed here are those of the author, a columnist for Reuters)

Stock Markets

New Jersey fines Walmart over in-store pricing practices

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By Jonathan Stempel

(Reuters) – Walmart (NYSE:), the world’s largest retailer, agreed to pay $1.64 million to settle regulatory charges that its 64 New Jersey stores employed illegal pricing practices that made it hard for consumers to comparison-shop.

Matthew Platkin, New Jersey’s attorney general, said on Tuesday that the settlement includes a $1.62 million civil fine, and is the largest obtained by the Office of Weights and Measures of the state Division of Consumer Affairs.

New Jersey is one of nine U.S. states that requires grocery retailers to display prices using standard, easy-to-understand measurements such as pounds and quarts.

Platkin said Walmart store inspections in the first quarter of 2023 found more than 2,000 incorrect measurements, sometimes in the same category: coffee, for example, could be priced by the pound, the can or the number of pods.

“As the price of grocery items continues to rise,” Platkin said, “this settlement sends a clear message that New Jersey will not allow retailers to engage in unlawful pricing practices that deny shoppers the ability to easily compare prices to figure out which product is a better buy.”

Walmart did not immediately respond to requests for comment.

The Bentonville, Arkansas-based retailer did not admit wrongdoing, but in a consent order said it “takes seriously its obligations to provide accurate unit prices to enable customers to comparison shop.”

Walmart also agreed to improve employee training and randomly screen items to ensure it displays proper measurements.

© Reuters. FILE PHOTO: View of Walmart's newly remodeled Supercenter, in Teterboro, New Jersey, U.S., June 7, 2023. REUTERS/Siddharth Cavale/File Photo

In November, discount retailer Dollar General (NYSE:) agreed to pay $1.2 million, including a $1.18 million fine, to settle New Jersey charges that it scanned higher prices at checkout than it posted on merchandise displays thousands of times.

That settlement had been the largest obtained by the state’s weights and measures office.

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Stock Markets

Meta must face Australian billionaire Forrest’s US lawsuit over scam Facebook crypto ads

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By Jonathan Stempel

(Reuters) – A U.S. judge rejected Meta Platforms (NASDAQ:)’ bid to dismiss a lawsuit by billionaire Australian mining magnate Andrew Forrest over scam Facebook advertisements that show him promoting fake cryptocurrency and other fraudulent investments.

In a decision on Monday, U.S. District Judge Casey Pitts in San Jose, California said Australia’s second-richest person can try to prove that Meta’s negligence in allowing the ads breached its duty to operate in a commercially reasonable manner.

Forrest can also try to prove that his name and likeness was misappropriated by Meta, and not just by fraudsters behind the bogus ads.

“Dr. Forrest claims that Meta profited more from ads that included his likeness than it would have if the ads had not,” Pitts wrote. “This is enough to adequately plead that the alleged misappropriation was to Meta’s advantage.”

Lawyers for Meta declined to comment on Tuesday.

The Palo Alto, California-based company had argued that Section 230 of the federal Communications Decency Act immunized it from liability as a publisher of third-party content.

But the judge said Forrest’s claims “present a factual dispute regarding whether Meta’s ad systems were neutral tools that anyone could use (or misuse) or whether the tools themselves contributed to the content of the ads.”

Forrest said more than 1,000 of the ads appeared on Facebook in Australia between April and November 2023, leading to millions of dollars in losses for victims.

The 62-year-old is executive chairman of iron ore producer Fortescue Metals Group (OTC:), and with his family is worth US$16.5 billion (AUD$24.8 billion), according to Forbes magazine.

In a statement, Forrest said Pitts’ decision was the first where a social media company was unable to invoke Section 230 immunity in a U.S. civil case over its advertising business.

“This is a crucial strategic victory in the battle to hold Facebook accountable,” he said.

Forrest is seeking compensatory and punitive damages.

In April, Australian prosecutors declined to pursue criminal charges that he brought against Meta in that country over scam cryptocurrency ads.

© Reuters. FILE PHOTO: Fortescue's founder and executive chairman Andrew Forrest speaks during an interview with Reuters, in Beijing, China March 23, 2024. REUTERS/Tingshu Wang/File Photo

Forrest had sued under Australian laws that let individuals criminally prosecute foreign companies upon receiving prosecutors’ consent.

The case is Forrest v Facebook Inc et al, U.S. District Court, Northern District of California, No. 22-03699.

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Stock Markets

Justin Timberlake arrested for drunk driving in the Hamptons

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(Reuters) -Pop singer Justin Timberlake was arrested and charged with driving while intoxicated in a neighborhood in the Hamptons on New York’s Long Island, authorities said on Tuesday.

Timberlake was arrested in the town of Sag Harbor on Tuesday morning, according to a statement from the local district attorney’s office.

The 43-year-old was arraigned in Sag Harbor Village Justice Court and released, the statement said. His next court date will be a virtual appearance on July 26, the statement said.

Representatives for Timberlake did not immediately reply to an email seeking comment.

Timberlake was taken into custody after he left a dinner at the American Hotel, People magazine reported.

© Reuters. Justin Timberlake performs during the iHeartRadio Music Awards at Dolby Theatre in Los Angeles, California, U.S., April 1, 2024. REUTERS/Mario Anzuoni/File Photo

Timberlake rose to fame as a member of 1990s boy band ‘N Sync before starting a solo career. His hits include “Can’t Stop the Feeling!,” “Suit & Tie” and “SexyBack.”

He has two concerts scheduled in Chicago this weekend and two shows in New York City next week.

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