Category: Currency

Yen slides past 150 per dollar as yield gap with US remains wide

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The yen weakened past 150 per dollar after the Bank of Japan ended the world’s last negative policy rate while keeping financial conditions easy for now. Bonds and shares both gained.

The Japanese currency slid as much as 0.8% to 150.38 per dollar, the weakest in two weeks, as of 2:20 p.m. in Tokyo. Government bonds advanced on the BOJ’s slightly dovish tone, sending the 10-year yield down 2 basis points to 0.735%. The benchmark Topix equity gauge climbed 0.8% while the Nikkei 225 Stock Average rose 0.4%.

Ahead of the decision some 90% of central bank watchers had seen the risk of authorities ending their negative rate settings at the meeting. The likelihood had been bolstered after the largest union group announced first-round results to annual wage negotiations that exceeded expectations.

“The decision today itself may be considered quite dovish, dragging the yen lower,” said Koji Fukaya, a fellow at Market Risk Advisory Co. in Tokyo, who said the ending of negative rates and yield-curve control was already priced in. “Keeping an accommodative stance does not mean they will not raise rates from here and therefore, investors would need time to assess the policy outlook.”

The yen had weakened slightly over the course of the week leading up to the BOJ decision as the dollar appreciated on the outlook for slowing rate cuts from the Federal Reserve.

Expectations for the yen to outperform its peers this year had all but evaporated recently, with strategists earlier this month forecasting the currency to end 2024 within a few percent of where it started.

Meanwhile, benchmark 10-year Japanese government bond yields had been edging higher while the nation’s stocks have rallied this year, with the Nikkei 225 reclaiming the high it set back in 1989.

High rates and a strong currency in the US have kept Japan’s 10-year yields and the yen under pressure — the 10-year US Treasury yield is around 4.3%.

The dynamic looks set to continue despite the BOJ’s hike given ongoing strength in the US economy and resilient consumer spending there. In addition, Japan’s central bank will continue to buy bonds and pledges to respond to any rapid rise in yields.

The “new era” of positive interest rates is “a confirmation of the recovery in Japanese economy,” said Charu Chanana, market strategist for Saxo Capital Markets Pte. “Higher returns on savings and investments in Japan can fuel spending power for consumers, and builds a case for Japanese equities to extend their momentum.”

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The British Pound is beating 92% of global currencies on UK economic rebound

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The British pound is beating more than 90% of the world’s currencies this year on signs the nation’s economy is holding up better than expected, keeping interest rates higher for longer.

Only 11 currencies — including those of Kenya, Zambia and Sri Lanka — have outperformed sterling in 2024, according to a universe of more than 140 global foreign-exchange rates tracked by Bloomberg.

The reason is simple, according to analysts: Britain’s economy is looking more resilient than feared. That’s set to encourage the UK to keep interest rates at their current levels for longer than many of its largest counterparts, including the US Federal Reserve and European Central Bank.

While the Fed and ECB are seen cutting in June, traders only expect the Bank of England to begin easing in August.

“Last year the UK had the worst growth-inflation mix in major economies. Now, the economy seems to be recovering, while inflation is coming down,” said Athanasios Vamvakidis, head of G-10 currency strategy at Bank of America, who sees the pound rising to $1.37 by year-end. “The data mix is getting better, which supports GBP, particularly given a bearish consensus.”

The pound rose to around $1.29 last week, its highest level in seven months, recording its best week since November versus the dollar. Data in coming days could help reinforce those gains and bolster the narrative that the UK economy is making a comeback.

Average weekly earnings are forecast to show the job market in the UK remains robust, with wages rising 5.7%. Monthly gross domestic product data will likely show the economy growing again in January after a mild contraction in December, while industrial production is set to post a 0.7% annual advance, a slightly faster pace than the month prior.

The UK avoided the sharp downturn that many had predicted for 2023, but aggressive interest rate hikes that took the key rate to 5.25% still left the economy stagnating. Consumers came under immense pressure as the cost of food, energy and mortgage payments all soared, crimping spending, and business confidence plunged to its lowest since the global financial crisis.

But Bank of England Governor Andrew Bailey last month said there had been “encouraging signs” on the key indicators in the jobs market and services prices, even as he stressed that policymakers are looking for evidence that progress can be sustained. And there’s ample reason to remain cautious: UK consumer confidence for example slipped back in February, suggesting households are not ready to splash out.

Bailey’s “assertion that the worst is already over for the UK economy is finding a little traction,” said Jane Foley, the head of FX strategy at Rabobank. “This will be tested next week with the release of key data.”

The rally also comes as the market leaves behind the uncertainty surrounding the UK budget announcement last week.

Some investors had been worried the government could announce big giveaways before elections later this year — especially given the Conservatives are trailing in the polls by a wide margin to opposition Labour. Markets went into a tailspin in 2022 after Liz Truss’ government tried to stimulate growth with unfunded tax cuts.

“The fact that the pound has risen and bond yields have fallen in a Budget week is a sign of how far we have moved on from the ill-fated Truss era,” said Kathleen Brooks, research director at XTB. “The pound’s rally is also a sign of confidence in the UK, after a fairly dismal few years.”

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Egypt devalues its currency by over 30%, rates hike by 600 basis points

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Egypt devalued its currency, allowing it to weaken around 35%, following a massive interest-rate hike by a country embroiled in its worst economic crisis in decades.

The pound plunged to 48.18 per dollar as of 12 pm in Cairo on Wednesday, having traded at about 30.9 for the past year. It moved minutes after the central bank raised rates at an unscheduled meeting and said it will allow the market to determine the exchange rate.

The move raised the key rate by 600 basis points to 27.25%, according to a statement by the central bank, which also said that unifying the nation’s exchange rates is “crucial.” The decision likely paves the way for an agreement with the International Monetary Fund on increasing Egypt’s current $3 billion loan to more than $10 billion, including funds from other partners.

A new devaluation became possible after Cairo struck a $35 billion deal late last month with the United Arab Emirates to develop parts of Egypt’s Mediterranean coast and elsewhere. Authorities described it as the biggest investment commitment ever secured by Egypt and the scale of it took investors by surprise.

Egypt’s dollar bonds rallied significantly after Tuesday’s decisions. Government debt due in 2047 led the advance, gaining 4 cents on the dollar to around 82 cents.

“We’ll have to wait to see where it settles,” said Farouk Soussa, an economist at Goldman Sachs Group Inc., referring to the currency. “We expect 45-50. The big surprise of the day was the mega hike, which over delivered and has boosted confidence in the market.” 

The devaluation brought the pound to a level around its value on the black market. The IMF has encouraged Egypt to tighten monetary policy to counter inflation of almost 30% and adopt a more flexible official exchange rate.

The central bank’s Monetary Policy Committee said it had “decided to accelerate the monetary tightening process in order to fast-track the disinflation path and ensure a decline in underlying inflation.”

The Muslim holy month of Ramadan, set to begin on Sunday, posed an informal deadline for authorities to implement a devaluation. It’s a period of big family gatherings and expansive evening meals, and authorities were unlikely to wait until then to hand Egyptians a sudden price shock.

What Bloomberg Economics says

“The arrival of the UAE bailout has unlocked the policy chain reaction in Egypt. The central bank has lifted interest rates. Authorities have floated the currency, and the gap with the black market should close. What’s next? A deal with the IMF is likely in the next few hours.”

Egypt’s bond spreads over US Treasury yields narrowed, according to indicative quotes from JPMorgan Chase & Co. indexes. They fell to 43 basis points to 529, the data showed.

Egypt’s benchmark EGX30 stock index gained as much as 4.5% to a record, led by gains in Commercial International Bank. Lenders stand to benefit from higher interest rates.

Exporters like Abou Kir Fertilizers & Chemical Industries Co., which benefit from a weak domestic currency, were also among the stocks rising the most.

The IMF has delayed two reviews of Egypt’s existing program after the country appeared to fall short on promises to allow what the central bank called a “durably flexible” exchange-rate regime. Previous bouts of depreciation — in March 2022, October 2022 and January 2023 — were followed by long stretches of stability. 

The IMF is keen to protect the $400 billion economy that’s vulnerable after growing reliant on substantial foreign-exchange inflows from both tourism and Suez Canal fees. 

The waterway—a critical source of income usually amounting to billions of dollars a year — could be threatened by attacks in the Red Sea that are causing many shipping firms to stop using the canal. 

“It cannot be ruled out that in the short-term the exchange rate will overshoot, it might take a few days or weeks for the exchange rate to stabilize around its new equilibrium level,” said Gergely Urmossy, emerging markets strategist at Societe Generale SA. If the central bank “transitions away from the hard peg, Egypt’s outlook will improve not only cyclically but also structurally,” he said.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI’s new rule on exchange-traded rupee derivatives confuses brokers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reserve Bank of India’s (RBI’s) requiring underlying foreign exchange exposure for exchange-traded rupee derivative transactions has confused brokers and left them worried about the potential impact on activity in this growing segment.

The Reserve Bank of India (RBI) in a January 5 circular said that stock exchanges may offer forex derivative contracts involving the rupee to users ”for the purpose of hedging contracted exposure”.

In 2008, the RBI had allowed transactions in dollar/rupee currency futures “to hedge an exposure to foreign exchange rate risk or otherwise”.

The new rule comes into effect on April 5.

”The exposure requirement needs explanation,” Abhilash Koikkara, head – forex and rates at Nuvama Professional Clients Group, said.

“We and other brokers have written to the exchanges and are awaiting clarification,” he said.

The RBI’s January circular differentiates between exposure requirements for rupee and non-rupee derivatives. Derivative contracts not involving the rupee can be offered without “any restriction in terms of purpose”.

As per the new rule for rupee derivatives, the stock exchanges will inform clients that while they are not required to provide proof of underlying exposure for positions of up to $100 million, the clients have to ensure such exposures exist and that they have not already been hedged.

”The way we read this is that no matter the size of the position, you need an underlying exposure,” the head of currency derivatives segment at a large broker said. The person did not want to be named since he is not authorised to speak to the media.

Only a very small percentage of his clients have an actual forex exposure and most are speculators and arbitrageurs. As such, a large number of clients may decide to not trade in forex derivatives anymore, hurting volumes, he said.

It will not be the broker’s responsibility to ensure clients have exposure to FX, but they will need to inform clients that exposures are needed to transact in derivatives, the person said.

The RBI did not immediately respond to an email seeking clarity about the underlying exposure requirements for rupee derivatives offered by exchanges.

Exchange-traded futures and options have grown to occupy an important place in India’s foreign exchange markets. Apart from speculators, exporters and importers, the RBI has at times used dollar/rupee futures to intervene in the forex markets. Banks arbitrage between currency futures and the over-the-counter market.

The open interest on dollar/rupee futures on the most popular National Stock Exchange is over $5 billion and average daily volumes were $2.8 billion last year.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Dollar index on track for first weekly fall this year

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The U.S. dollar index 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 dollar index 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.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Nigeria orders banks to cut forex exposures as Naira plunges

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Central Bank of Nigeria ordered banks to limit their foreign exchange exposure to curb risks to the financial system, in the latest move to improve liquidity in the country’s volatile currency market.

The net open position limit of foreign currency assets and liabilities “should not exceed 20% short or 0% long of shareholders’ funds unimpeded by losses,” the regulator said in statement on Wednesday, asking lenders to meet the limits by February 1. The move could push banks to cut speculative bets against the naira, according to Ronak Gadhia, director of sub-Saharan banks research at EFG Hermes

The central bank’s directive comes amid a steep drop this week in the official rate of the naira against the dollar, which has moved it closer to where the Nigerian currency trades on the street. The 31% slide in value was triggered by a change in the method for setting its rate, and is part of larger push by the government since June to stop managing the exchange rate and unify the two markets.

“A dramatic decline in the value of the FX position held by a bank due to a sudden movement in the exchange rate could have an impact on the capital adequacy and solvency of the bank,” said Gadhia. “Reducing the net open position limit also reduces banks’ ability to speculate against the naira and thus makes the currency more stable, which must also be a secondary aim of the regulation.”

Large depreciations in the past created incentives for Nigerian banks to lift dollar holdings to guard against the risk of further naira losses.

The central bank said that it had “noted with concern the growth in foreign currency exposures,” which it said made banks potentially vulnerable to foreign exchange rate and other risks. It said lenders with excess dollars will have to sell them before the deadline or face sanction.

The central bank also directed lenders with an early redemption clause on their eurobonds to seek approval before exercising the option.

In addition, banks are to have an “adequate stock” of liquid assets to cover maturing foreign currency obligations and also put in place a “contingency funding arrangement” with other financial institutions, it said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Dollar locked in a range ahead of US Federal Reserve interest rate decision, jobs data

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US dollar held to narrow ranges against its major peers on January 30, as traders awaited the Federal Reserve’s monetary policy decision on January 31 for clues on when the US central bank might cut rates.

Data on job openings from the U.S. Department of Labor Statistics due later on Tuesday will in the meantime offer a prelude to the closely watched payroll report to be released on Friday.

The dollar index held steady during Asian hours, last trading around 103.50 as market participants moved cautiously ahead of the two-day Fed meeting that begins on Tuesday.

With the Fed expected to hold interest rates steady, markets will focus on the tone that Fed Chair Jerome Powell strikes at the press conference on Wednesday and any hints of rate cuts in the near future.

Markets are currently pricing in a 46.6% chance that the US central bank will begin cutting in March, dropping from 73.4% a month ago, according to the CME Group’s FedWatch Tool, as data has been reinforcing the view that the US economy remains resilient.

Also Read: What to expect from the US Federal Reserve’s January meeting

“I suspect that the FOMC meeting will not be as dovish as current market pricing suggests,” said Matt Simpson, senior market analyst at City Index.

“If recent Fed comments are anything to go by, the Fed are unlikely to release a dove into the crowd – and that risks a bounce for the US dollar and yields.”

Tuesday’s US job opening figures will kick off a week of domestic jobs data, culminating in the January US payrolls report on Friday. The data will give further indications of the state of the world’s largest economy.

The euro was down 0.09% at $1.0822 ahead of flash GDP data for the fourth quarter in the euro zone, where expectations are for a much weaker outlook than in the US.

Sterling was unchanged at $1.2709, holding firm ahead of the Bank of England’s monetary policy meeting this week.

Elsewhere, the US currency gave up 0.06% against the yen at 147.38 per dollar.

Also Read: 5 reasons why the US Federal Reserve may leave interest rates unchanged in January

With Japanese policy normalisation looking more likely in the second quarter, when the Bank of Japan will have additional wage data, the dollar-yen rate will “be more driven by the Fed than any expectations of a policy shift by the BOJ in the short term,” said Wei Liang Chang, currency and credit strategist at DBS.

“We thus expect dollar/yen to ease more pronouncedly towards the end of Q1.”

Japan’s jobless rate fell to 2.4% in December from the previous month, government data showed on Tuesday, just under economists’ median forecast of 2.5% in a Reuters poll.

The Australian dollar climbed 0.08% versus the greenback to $0.6616, after rising to a two-week high of $0.6625.

Also Read: US stocks close at a new record high as inflation expectations hit the lowest in over 3 years

Data revealed domestic retail sales slid 2.7% in December following a 1.6% rise in November, as Black Friday bargains brought spending forward.

The kiwi was up 0.2% at $0.6144, supported by comments from the chief economist at the Reserve Bank of New Zealand that inflation was still far too high.

In cryptocurrencies, bitcoin rose 0.41% to $43,355.85, after touching its highest level since Jan. 12, at $43,777.00, earlier in the session.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Pakistan to issue new currency notes amid counterfeit concerns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Pakistan’s central bank, grappling with the challenge of counterfeit currencies, has announced plans to introduce new currency notes equipped with advanced international security features. The new notes will gradually replace the existing currency, with a focus on minimising disruption and avoiding public panic, according to the Governor of the State Bank of Pakistan Jameel Ahmed.

Ahmed revealed that the enhanced notes would incorporate distinct security numbers and designs, aligning Pakistan’s currency with modern standards.

While the primary goal is to enhance security, there are speculations among financial experts about the possibility of demonetisation of the ₹5,000 or higher denomination notes as a measure to combat the black money market. The circulation of higher denomination notes has facilitated the illegal use of black money, impacting Pakistan’s already cash-strapped economy.

Sohail Farooq of Capital Investment acknowledged the positive step taken by the central bank to ensure the integrity of Pakistan’s monetary system. However, the question of whether demonetisation will be included in the currency transition remains uncertain.

“Cash-strapped Pakistan’s economy is influenced a lot by the illegal use of black money which is easier due to the circulation of higher denomination notes. It is the right step to ensure the integrity of Pakistan’s monetary system but will this include demonetisation has to be seen,” said Farooq.

Another banker said the central bank must just ensure there is no inconvenience to the public and businesses during the implementation of the new currency.

Notably, the inflation rate in Pakistan rose for the second consecutive month in December, driven by IMF-backed energy cost hikes and a weakened currency. The Pakistani rupee depreciated by approximately 24% against the dollar in 2023.

Governor Ahmad acknowledged that inflation remains elevated, and while a decline is expected in January, substantial relief may only be seen after March. The central bank revised its average inflation forecast to 23%-25% for the fiscal year ending June, adjusting from the earlier estimate of 20%-22%. Projected economic growth stands at 2%-3%, aligning with the IMF’s estimate of 2.5%.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Dollar firm ahead of inflation data; euro down on ECB rate cut hopes

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US dollar held steady on Friday as traders weighed how surprisingly strong economic growth data would impact the Federal Reserve’s rate path and awaited a key inflation gauge later in the day for more clues.

The euro, meanwhile, was on the backfoot as traders ramped up bets of a rate cut in April after the European Central Bank’s (ECB) latest monetary policy meeting on Thursday.

In the United States, official data on the advance GDP estimate showed gross domestic product in the last quarter increased at a 3.3% annualised rate, overshooting the consensus forecast of 2% growth. It also showed inflation pressures subsiding further.

“U.S. GDP data re-affirmed soft landing hopes for the U.S. economy, but the bond market focused more on the disinflation component of the report which pushed yields lower. The dollar, however, held up,” said Charu Chanana, head of currency strategy at Saxo in Singapore.

The dollar index, which measures the greenback against a basket of major currencies, hovered around 103.53 during Asian hours after climbing about 0.2% overnight.

The benchmark U.S. 10-year Treasury yield, on the other hand, slid down to 4.11%.

“Pressure on yields and dollar could increase if December PCE (personal consumption expenditures) comes in softer than expectations today,” Chanana added.

The dollar has gained about 2% so far this year as market expectations have moderated somewhat from late last year. Markets are pricing in a 50% chance of a rate cut in March, according to the CME FedWatch tool, easing from 75.6% a month ago.

The euro was last down $1.08385 but holding above the six-week low of $1.08215 touched on Thursday.

The ECB stood pat as expected at its policy meeting the previous day, although traders have increased bets that the bank will cut interest rates from April as they perceived policymakers are growing more comfortable with the inflation outlook.

The ECB’s pushback against the pricing in of an April rate cut was “less direct and positive direction was noted on wages,” which gave a boost to expectations and “emphasises a bearish outlook for the euro,” said Chanana.

Sterling was down 0.10% on the day, trading around $1.2698. The Bank of England will announce its latest decision on interest rates next Thursday.

Elsewhere, the yen bounced around the upper 147 range against dollar, and last sat at 147.77.

Data on Friday revealed core inflation in Japan’s capital slowed to 1.6% in January from a year earlier, below the central bank’s 2% target.

“The plunge in inflation to well below 2% in Tokyo last month was broad-based, casting doubt on the Bank of Japan’s willingness to end negative interest rates,” Capital Market’s Head of Asia-Pacific Marcel Thieliant wrote in a note.

Minutes released on Friday of the BOJ’s December meeting, meanwhile, showed policymakers actively debated in December the conditions for phasing out stimulus.

The focus in coming months will be on whether wages will rise enough to underpin consumption and help Japan sustainably achieve the Bank of Japan’s 2% inflation target.

In cryptocurrencies, bitcoin was last up 0.53% at $40,112.00. (This story has been corrected to change ‘hike’ to ‘cut’ in paragraph 2)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US Dollar stages biggest rally since March as global risks pile up

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US dollar staged its biggest rally in 10 months as traders questioned the scale of Federal Reserve rate cuts priced into markets and geopolitical tensions boosted demand for the haven currency.

The Bloomberg Dollar Spot Index rose 0.8% on Tuesday, its strongest advance since March 2023, as the dollar strengthened against every one of the world’s major currencies. The gauge closed at its highest level since December 13.

The dollar’s rise is defying widespread expectations that it would continue to drift lower this year on speculation that the Fed will start easing monetary policy as soon as March, reducing the interest-rate gap that once sent investors flocking to the US.

But the outlook is being clouded by concern that traders have overestimated how much policymakers will ease. At the same time, escalating conflict in the Red Sea shipping corridor and persistent weakness in China’s economy have heightened interest in the dollar as a temporary hideout from uncertainty.

“The market has been and remains too optimistic on Fed rate cuts,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management. “If you throw in any bouts of risk aversion triggered by geopolitical risk or political uncertainty, then that will help boost the USD via its safe haven status.”

Fed Governor Christopher Waller underscored the concerns about the central bank’s path on Tuesday, when he emphasized that policymakers should be methodical and careful with the pace of easing. His comments helped to push up Treasury yields, with those on benchmark 10-year notes rising as much as 14 basis points to a high of 4.08%.

The attacks in the Red Sea shipping lanes have raised fears of further disruption to global trade and supply chains that could fan inflation pressures. Houthi militants struck a second commercial ship in the span of a day, while Shell Plc paused the transit of oil tankers through the area.

At the same time, stimulus plans considered by Chinese officials are highlighting the difficulties that the world’s second-largest economy has faced since emerging from Covid lockdowns.

“I’m not surprised that some of that optimism has waned during the beginning of the new year,” said Amanda Sundstrom, a fixed income and foreign-exchange strategist at SEB AB in Stockholm. “There’s going to be some set-backs even if we still believe that we’re heading in the right direction.”

There are some signs that the dollar’s recent strength isn’t expected to fade soon, however. While options traders are cautious when it comes to further strength in the near-term, over a one-month horizon, risk reversals show the most bullish sentiment toward the dollar in a month, largely because of expected weakness in China’s currency.

On Tuesday, the euro fell to a one month-low of $1.0863 while the yen slumped to its weakest level in almost six weeks, at around 147 to the dollar. The Australian dollar and some Scandinavian currencies — typically barometers of global risk sentiment — fell over 1%.

Supporting the bullish dollar view is a growing number of investors and analysts who say swap markets are too aggressively priced for rate cuts from major central banks this year.

Traders have consistently overestimated how hawkish the Fed would be since the end of the pandemic. And European Central Bank Governing Council member Robert Holzmann said in an interview on Monday that threats stemming from lingering inflation and geopolitical risks will prevent the European Central Bank from lowering interest rates this year.

“The tone of central bankers this morning is one of hesitancy — especially what’s coming from the ECB” as rising freight rates reignite fears of supply-chain disruptions amid woes in both Red Sea and Panama Canal, said Thierry Wizman, director of global currencies and an interest-rate strategist at Macquarie Futures. “That’s why they are sounding less dovish.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow