Dollar Slips After Powell Embraces Tapering, Holds On Rate Hikes

Powell said there had been clear progress toward maximum employment and he believed that if the U.S. economy improved as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year.”

But Powell told the Fed’s annual Jackson Hole symposium the timing and pace of tapering should not be construed as a signal for when interest rates will begin to rise. The speech showed Powell has not adopted the hawkish stance of some Fed officials, said Gregory Anderson, global head of FX strategy at BMO Capital Markets.

“It’s pretty clear that if you were worried about the timeline, that we announce in September that we’re going to taper starting Oct. 1, that’s not there in this speech,” Anderson said.

“It’s not as bad as feared based on the most extreme of the hawks,” he added.

The dollar index, which measures the greenback’s performance against a basket of six major currencies, fell 0.39% to 92.6760.

The euro rose 0.37% to $1.1794, while the yen fell 0.24% at $109.8200.

After minutes of the Fed’s policy-setting meeting in July were released last week, the dollar advanced because most market participants anticipated tapering to begin this year.

Powell was clear to detach tapering from “the rate liftoff,” or raising interest rates, said David Petrosinelli, senior trader at Insperex in New York. “He was very clear to delineate that.”

The dollar fell as market participants sharply lowered expectations for the Fed’s long-term tightening trajectory, said Karl Schamotta, director Of global product and market strategy at Cambridge Global Payments in Toronto.

The dollar began to retreat about 15 minutes before Powell spoke, after James Bullard, president of the St. Louis Fed, reiterated his hawkish view that tapering should begin soon and end by next year’s first quarter. [nS0N2O301G}

Benchmark 10-year Treasury yields fell 3.4 basis points to trade at 1.3104%. On Thursday yields jumped to 1.375%, the highest since Aug. 12.

The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced that a lockdown against COVID-19 in Auckland is likely to remain in place for another two weeks.

The Swedish crown was flat at 8.7070 after mixed economic data.

The Canadian dollar rose 0.56% to 1.2612 versus the U.S. dollar. Brent futures, the international benchmark for crude, rose $1.63 to settle at $72.70 a barrel and gained 11.5% for the week.

Marc Chandler, managing director at BK Asset Management, said the Canadian currency generally takes its cues from oil, risk with the S&P 500 as a proxy and interest rate differentials.

“The Canadian dollar’s strength today is a reflection not so much of Canada, but what’s happening in the U.S. and the market takeaway from Powell’s speech,” Chandler said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Herbert Lash; Additional reporting by Karen Brettell and Saqib Ahmed in New York, Joice Alves in London, and Hideyuki Sano and Tomo Uetake in Tokyo; Editing by Dan Grebler, David Holmes and David Gregorio)

Exit Game: Central Banks’ Shift From Crisis Policies Gathers Momentum

South Korea’s central bank on Thursday raised its benchmark interest rate by a quarter of a percentage point to blunt rising financial stability risks posed by a surge in household debt, becoming the first major monetary authority in Asia to do so since the coronavirus broadsided the global economy 18 months ago.

Even before the rate hike in South Korea, though, central banks in Latin America and eastern and central Europe had begun lifting interest rates this year to beat back inflation that is building on the back of currency fluctuations, global supply chain bottlenecks and regional labor shortages.

And larger-economy central banks also are getting into the swing. The Bank of Canada has already cut back on its bond purchases and could proceed to raise borrowing costs in 2022, and the Reserve Bank of New Zealand (RBNZ) is expected to lift rates by the end of this year despite balking at an expected hike last week in the face of a snap COVID-19 lockdown.

For its part, the Fed is lumbering toward tapering its $120 billion in monthly asset purchases, with an announcement expected before the end of 2021, possibly as early as next month. An actual U.S. interest rate increase is likely a year or more away, however.

Fed Chair Jerome Powell is set to speak later on Friday on the economic outlook at the U.S. central bank’s annual Jackson Hole summer research conference, which is being held virtually for the second year in a row. His remarks may color expectations at the margin for when the Fed makes its move but are not likely to offer any concrete signal.

THE DIFFERENCE A YEAR MAKES

When Powell spoke at last year’s conference – unveiling a new policy framework that is just starting to be tested – fewer than half of the 22 million U.S. jobs lost to coronavirus shutdowns in the spring of 2020 had been recovered and inflation was running at half the Fed’s 2% target rate. The outlook outside the United States was no less bleak, with lockdowns still widespread.

The situation in the United States and other economies could hardly be more different a year later.

The U.S. economy has more than fully recouped all of its lost output, roughly 9 million more jobs have been regained and inflation is well above target. Elsewhere, most of the world’s economies are back squarely in growth mode, albeit unevenly so in many cases as COVID-19 outbreaks fueled by the highly contagious Delta variant trigger localized lockdowns.

In South Korea, the economy grew 5.9% on a year-over-year basis in the second quarter, the fastest pace in a decade, and young people are bingeing on debt and kindling financial stability concerns at the Bank of Korea. The export-reliant Asian nation’s key factory sector expanded in July for a 10th straight month, even as the Delta variant crimped manufacturing output for rivals like China, Vietnam and Malaysia.

Central Europe’s recovery also accelerated in the second quarter as lockdowns in the region eased. The improvement – along with an upswing in inflation – has already spurred the Czech and Hungarian central banks to raise interest rates twice this summer, the first increases across the European Union. Both are expected to deliver more tightening, and Czech officials are debating if they need to deliver more than the standard quarter-percentage point increase.

While the earliest movers have been emerging market countries where inflation is often aggravated by movements in choppy currency markets, the gears of tightening are also starting to move in top-tier economies.

The RBNZ opted not to raise rates last week because of the messaging complications that would have arisen from such a move alongside a hastily-called lockdown after the island nation reported its first local COVID-19 infection in six months. Central bank officials, however, appear determined to get a rate hike in before the year runs out.

Meanwhile, Norway’s central bank is signaling it will not veer from its plan for its first rate hike next month despite a recent rise in infections, putting it on course to be the first of the Group of 10 (G10) developed economies to raise borrowing costs.

“In the committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised in September,” Norges Bank Governor Oeystein Olsen said in a statement last week.

While the Fed and several other G10 banks now appear on course to start reducing their pandemic accommodation measures this year, tightening moves by the Fed’s two largest peers – the European Central Bank and Bank of Japan – look much further off.

Still, that doesn’t mean they don’t see some improvement in conditions even as the Delta variant spreads.

Japan was among the Asian economies to experience factory sector growth last month even as COVID-19 cases hit a record high. And a key ECB policymaker sees only a limited headwind to the euro zone’s recovery due to the variant.

“I would say we’re broadly not too far away from what we expected in June for the full year,” Philip Lane, the ECB’s chief economist, told Reuters on Wednesday. “It’s a reasonably well-balanced picture.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Balazs Korayi and Frank Siebelt in Frankfurt, Jason Hovet in Prague, Krisztina Than in Budapest, Leika Kihara in Tokyo, Praveen Menon in Wellington, and Cynthia Kim and Joori Roh in Seoul; Writing by Dan Burns; Editing by Paul Simao)

Fed Hawks Circle Before Powell Speech as They Push for Bond Taper

“We probably don’t need the asset purchases at this point,” St. Louis Federal Reserve president James Bullard said on CNBC on Thursday, repeating his call for the Fed to start trimming its $120 billion in monthly bond purchases soon and end the program by early next year.

Bullard, along with Kansas City Fed president Esther George and Dallas Fed president Robert Kaplan, also all downplayed the impact of the Delta variant in separate interviews, with George and Kaplan saying their business contacts were telling them the economic effects remained limited.

That represented an upgraded outlook from Kaplan, who last week had become more cautious about the potential harm to the economy from the highly contagious variant.

“By and large what we are hearing..is they are weathering this resurgence at least as well as previous surges, and many are telling us the impact on their business is more muted,” Kaplan told CNBC.

Both Bullard and George indicated the central bank was making steady progress toward a plan to cut the bond purchases, which are aimed at keeping interest rates low to support the economy.

Bullard said the Fed was “coalescing” around a plan, and George told Fox Business that she expected there would be more information coming after the Fed’s Sept. 21-22 meeting.

With strong inflation and expected continued job growth “there is an opportunity to begin to dial back on asset purchases,” George said, with her preference being that the process start “sooner rather than later.”

Kaplan too repeated his view that the Fed should announce a plan after its September meeting, with tapering to begin in October or “shortly thereafter” and finish about eight months later.

RISK OF HARM

Not beginning to reduce asset purchases soon risked harm to the economy, which is already grappling with growing imbalances, the policymakers said. All three cited the impact of high inflation on low- and moderate-income communities as they continue to argue that the Fed’s goal of inclusive growth means both maximum employment and price stability.

Bullard also pointed to rising home prices as a concern. “You don’t want to be too complacent,” he said. “There is some worry that we are doing more damage than helping,” by continuing to buy mortgage-backed securities that hold down borrowing costs and arguably support even higher asset values.

Their comments precede remarks by Powell on Friday that will provide an update on the economy, and likely touch on how the Fed views the competing risks of higher inflation against the possibility that a new surge of virus cases slows the U.S. economic recovery in a meaningful way.

Fed officials at their July meeting agreed it would likely be time to taper the bond purchases by later this year, and most analysts feel there is little difference to the economy if that process starts in any given month.

But the announcement of a plan will send a strong signal that the Fed feels the risks from the pandemic have receded enough to start reducing the extraordinary support rolled out in March 2020 to stave off a collapse.

It’s a bit of communications the Fed wants to get right, and some have argued that is cause for a bit more patience.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir; Editing by John Stonestreet and Andrea Ricci)

 

Dollar Jumps After Fed Official’s Taper Talk Stirs Markets

The dollar index, which measures the greenback against a basket of six major trading currencies, was about 0.06% higher just before the remarks by James Bullard, the president of the St. Louis Fed who is considered a hawk on policy.

Bullard said in comments to CNBC that he was skeptical that inflation would moderate and for that reason the Fed needed to start tapering its bond-purchasing program.

“We have to get going on taper, get the taper finished by the end of the first quarter of next year. Then we can evaluate inflation, what the situation is,” Bullard said.

The dollar index jumped to above 93, a key resistance level, before easing a bit to trade 0.15% higher at 92.958. On Wednesday, the index had dropped to 92.801 for the first time since Aug. 17.

The euro was down 0.07% at $1.1762.

Two weeks ago the dollar index rose above 93 and has been testing that level since as a support level, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC.

The market will likely discount what Bullard said, in part because he’s a non-voting member of the Fed’s policy-setting committee, but “his voice is heard in the room and you have to assume therefore it does have some impact”, he said.

“I don’t think we’re likely to reverse (the dollar’s trend higher) too quickly,” he said.

POWELL EYED

Bullard’s comments came as the Fed’s annual symposium in Jackson Hole, Wyoming opened, with the highlight expected to be Fed Chair Jerome Powell’s speech on Friday. Powell is unlikely to offer few new hints about when the Fed may start to reduce its massive asset purchases, analysts said.

Benchmark 10-year Treasury note yields were last at 1.356%, after reaching 1.375% following Bullard’s comments, the highest since Aug. 12.

The yen traded up 0.09% at $110.0900.

Currency market swings have eased ahead of Powell’s speech, with implied euro-dollar volatility at a one-week low.

Markets are assessing how the Fed will react to signs inflation could be less transitory than it had flagged and whether it will stick to its new policy framework of letting inflation run hot.

Signals of a taper starting this year had lifted the dollar index to a 9-1/2-month high of 93.734 last Friday.

Meanwhile, more central banks worldwide are exiting or contemplating exiting from ultra-easy accommodative policies. South Korea’s central bank on Thursday raised interest rates for the first time in three years.

The won gave up initial gains, however, to fall 0.6% after the hike which had been well-flagged.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; additional reporting by Kevin Buckland in Tokyo; Editing by Kirsten Donovan and Emelia Sithole-Matarise)

 

Dollar Edges Higher as Oil Slows, U.S. Yields Rise

Risk appetite in global markets improved after the U.S. Food and Drug Administration fully approved the COVID-19 vaccine developed by Pfizer and BioNTech in a move that could accelerate U.S. inoculations.

Dr. Anthony Fauci, the top U.S. infectious disease expert, said on Tuesday that the United States could get COVID-19 under control by early next year.

But the focus has turned to the Jackson Hole symposium and what Fed Chair Jerome Powell may say about tapering the U.S. central bank’s bond-buying program when he speaks on Friday.

The markets expect Powell to sound dovish and echo concerns last week by Robert Kaplan, the Dallas Fed president, who said he might reconsider the start to tapering due to the Delta variant of the coronavirus, said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

“The risk is that Powell does not really say anything too different but by virtue of not backing up Kaplan, comes across as more hawkish,” Osborne said.

The dollar picked up support as Treasury yields nudged higher, he said. The benchmark 10-year Treasury note rose 4.4 basis points to yield 1.33%.

The dollar index, which measures the U.S. currency against a basket of six major trading currencies, rose 0.028% to 92.941.

The euro gained 0.03% at $1.1757, while the yen rose 0.36% at $110.0200.

The greenback had rallied until the start of this week, with the dollar index hitting a 9-1/2-month high of 93.734 on Friday, on fears over the Delta variant’s economic impact and as the Fed signaled its tapering of monetary stimulus was likely this year.

Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group, said there’s been skittishness over growth and sector rotations, which has boosted the dollar because of its safe-haven status.

“In the short term, we’re still going to be trading in ranges, with upside bias,” Gkionakis said.

Dollar underperformance after Jackson Hole could be a buying opportunity ahead of the release of U.S. data next week, including the non-farm payrolls report for August, said Valentin Marinov, head of G10 FX research at Credit Agricole.

“Potential positive surprises from the NFP in particular could put QE (quantitative easing) taper back among the main FX market drivers and support the USD,” Marinov said.

Sterling traded 0.03% lower at $1.3723 after rising to as high as $1.37475 on Tuesday, its strongest since Nov. 19.

Australia’s dollar dropped 0.09% to $0.7265 after touching a one-week high of $0.7271 in the previous session.

The dollar gained 0.3% to 1.2624 against the Canadian dollar as commodity prices, and especially crude oil, have moderated.

Brent crude, the international benchmark, rose $0.37 at $71.42 a barrel after gaining 9% on Monday and Tuesday from last week’s close.

The Canadian currency still looks fundamentally undervalued but the case for a significant rebound after recent volatility has weakened, Osborne said. The narrowing of U.S.-Canadian spreads will make it harder for the Canadian dollar to strengthen materially for now, he said.

“Generally, we expect the U.S. dollar to grind higher in the next few weeks and months,” he said.

(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Jan Harvey, Bernadette Baum and Barbara Lewis)

Dollar Slips Further as Oil Jumps, Commodity Currencies Gain

Risk appetite in global markets strengthened after the U.S. Food and Drug Administration on Monday granted full approval to the COVID-19 vaccine developed by Pfizer and BioNTech in a move that could accelerate U.S. inoculations.

A bounce in China’s technology sector also contributed to risk-on sentiment that helped boost the Canadian, Australian and New Zealand dollars.

“The euro, Canada and Aussie currencies made new lows for the year last week, and so the dollar is consolidating and its upside momentum has stalled,” said Marc Chandler, a managing director at Bannockburn Global Forex.

The dollar index, which measures the greenback against a basket of six currencies, fell 0.091% to 92.903.

The euro was up 0.08% at $1.1752, while the yen traded down 0.01% at $109.6700.

Rising COVID-19 infections caused by the highly contagious Delta variant have fueled concerns about the recovery from the pandemic. But markets have largely overlooked that this week, with analysts citing thin liquidity as a factor driving apparent swings in risk appetite.

Market attention is focused on the Federal Reserve’s Jackson Hole conference on Friday, at which some investors expect Fed Chair Jerome Powell to hint on a possible timeline for tapering the U.S. central bank’s bond-buying monetary stimulus.

“We think investors will want to wait to hear on this subject from Jerome Powell on Friday before pushing ahead with another major round of risk-buying, dollar-selling,” ING strategists wrote in a note to clients.

COVID-19 case counts are also being watched closely, particularly in China and New Zealand. Outbreaks in China appear to be coming under control while in New Zealand, where monetary policy was put on hold last week due to measures to contain the Delta variant, the lockdown remains in effect.

The Australian dollar, viewed as a liquid proxy for risk appetite, was up 0.7% at $0.7264.

The New Zealand dollar was up 0.9% at a one-week high of $0.6954, boosted by comments from the Reserve Bank of New Zealand’s assistant governor, who said policymakers had actively considered raising rates last week.

The RBNZ left rates on hold at a record low 0.25% but flagged a tightening before the end of the year.

The Norwegian currency was up 0.9% against the euro, with the pair changing hands at 10.3796, while the Canadian dollar was up 0.4% against the U.S. dollar.

Oil prices extended a rally on Monday, driven by a bullish demand outlook after the full approval of the Pfizer-BioNTech vaccine and Mexico suffered a large production outage.

Brent crude oil futures rose 3.2% to $70.94 a barrel.

The rise in oil prices has washed out some of the excessive bearishness towards Canada, Chandler said.

The Canadian dollar hit eight-month lows last week. Out of the major trading currencies, Canada is among the most sensitive to the equity market, Chandler said.

Elsewhere, bitcoin edged back below $50,000, which was breached for the first time since May on Monday. The digital currency was down 2.2% at about $48,456.

(Reporting by Elizabeth HowcroftEditing by David Goodman and Bernadette Baum)

Dollar Slips After Last Week’s Climb as Data Eases Tapering Fears

NEW YORK (Reuters) – The U.S. dollar slid on Monday, after posting its biggest weekly rise in more than two months last week, as markets embraced a risk-on mood with weak data suggesting the Federal Reserve is unlikely to quickly remove its accommodative monetary stance.

U.S. business activity growth slowed for a third straight month in August as capacity constraints, supply shortages and the rapidly spreading Delta variant of the coronavirus weakened the economic rebound, data firm IHS Markit said.

“Today is about a little risk-on rebound. You have almost every risky asset rally here,” Edward Moya, senior market analyst at foreign exchange brokerage OANDA in New York.

The dollar index hit a nine-month high last week, climbing nearly 5% from May lows, as investors firmed up bets the Fed will start scaling back stimulus policies spurred by the pandemic ahead of Europe and Japan.

But Robert Kaplan, president of the Dallas Fed, dented those expectations on Friday when the well-known hawk said he might reconsider the need for an early start to tapering if the virus harms the economy.

Markets have concluded there’s not going to be a “taper tantrum” like in 2013, Moya said. Fears the Fed would tighten monetary policy caused interest rates to spike at the time.

“Despite the inevitable announcement of tapering at some point this year, it’s going to be very slow and it’s not going to signal any imminent rate hikes at the end of next year,” he said.

Riskier currencies, including the Norwegian crown and Aussie and Canadian dollars were among the major beneficiaries of a weaker dollar. All three currencies gained more than 1% against the U.S. currency.

The dollar index, which measures its performance against a basket of six currencies, fell 0.57% to 92.95.

The euro was up 0.44% at $1.175, while the yen traded down 0.11% at $109.680.

Some investors, such as Stephen Jen who runs hedge fund Eurizon SLJ Capital, remain long-term dollar bulls.

“Maybe I was too early in making this call, but a muscular U.S. economy that is centred on technology and one that embraces creative destruction will likely enjoy elevated trend growth in the years ahead,” Jen said.

Elsewhere, the euro popped to a three-day high after data showed euro zone business grew strongly this month, though the pace of expansion slowed on fears new coronavirus strains may bring renewed restrictions.

The Australian dollar was among the major gainers after Prime Minister Scott Morrison said Australians must start to learn to live with COVID-19 when higher vaccination targets are reached.

The New Zealand dollar edged 0.7% higher to $0.6874, still near Friday’s 9 1/2-month low of $0.6807, with the nation under lockdown to contain a Delta outbreak.

In cryptocurrencies, bitcoin topped $50,000 for the first time since mid-May, and last traded 1.16% higher at $49,875.87.

Canada’s commodities-heavy stock index inched toward record highs after oil prices rebounded from a seven-day losing streak. Brent, the international crude benchmark, jumped 5.5% to $68.76 a barrel in the biggest single-day gain since late March.

The Canadian dollar likely will gravitate back to $1.25 to the U.S. dollar and settle in that range, Moya said. (Graphic: FX positions, https://fingfx.thomsonreuters.com/gfx/mkt/mopannqyjva/FX%20positions.JPG)

(Reporting by Herbert Lash, additional reporting by Saikat Chatterjee; Editing by Bernadette Baum and Chizu Nomiyama)

U.S. Dollar Climbs to 9-Month Peak on Fed Taper View, Delta Virus

The dollar index, which measures its performance against six currencies, hit 93.434, its highest since early November last year. It was last up 0.2% at 93.273.

“The U.S. dollar is broadly stronger today against the non-haven currencies with a strong risk-off tone in markets that are roiled by the spread by the Delta variant,” Shaun Osborne, chief FX strategist at Scotiabank in Toronto, wrote in a research note.

“Preparations for the beginning of the Fed’s tapering cycle may also not be helping,” he added.

The minutes of the Fed’s July meeting showed officials largely expect to reduce their monthly bond buying later this year, but consensus on other key issues appeared elusive, including the timing of the start of the taper and whether inflation, joblessness or the coronavirus pose a bigger risk to economic recovery.

The Fed minutes, along with sustained worries about the spread of the coronavirus, pushed Wall Street stock indexes lower. European markets were down as well on Thursday, while safe-haven U.S. Treasuries gained, with benchmark 10-year yields nearly 3 basis points lower at 1.246%.

The dollar hardly reacted to data showing weekly unemployment claims showed the number of people on state jobless rolls dropped in early August to levels last seen in mid-March 2020.

The euro fell as low as $1.1665 against the dollar for the first time since Nov. 4 and was last down 0.1% at $1.1699, while sterling fell 0.7% to $1.3679.

The reduction in debt purchases is also widely considered positive for the dollar as it is expected to raise U.S. government bond yields, making it more attractive for investors to hold dollar-denominated assets.

That said, Commerzbank analyst Antje Praefcke noted that the minutes provided little insight compared to what regional Fed chairs have recently said.

“The market will presumably only receive more detailed news in September when the Fed publishes its new projections and dot plots,” she said.

“Until then, it makes more sense to keep an eye on the current developments of the pandemic and economic data,” Praefcke added.

With pandemic fears in focus and oil prices falling, commodity-exposed currencies fell sharply on Thursday.

The Norwegian crown extended its fall against the euro even as the country’s central bank kept interest rates on hold and reiterated plans to hike them in September.

It fell more than 1% to the lowest since July against the euro at 10.5405 crowns and dropped similarly against the U.S. dollar.

The Australian and New Zealand dollars each fell more than 1% to their lowest levels since November 2020 at US$0.7144 and US$0.6810, respectively.

The Kiwi dollar extended its losses, when New Zealand entered a new lockdown, delaying its central bank from becoming the first in the G10 from raising rates during the pandemic.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss in New York and Yoruk Bahceli in Amsterdam; Additional reporting by Kevin Buckland in TOKYO; Editing by Gareth Jones, Tomasz Janowski and Sonya Hepinstall)

 

Delta Delays Great Exit as RBNZ Holds Fire on Hikes

Here’s a look at where major central banks stand on the path out of pandemic-era money printing.

1/ NORWAY

Norges Bank now looks set to lead, with a hike from Norway’s record low 0% interest rate flagged for September.

In fact, the central bank plans to raise rates four times by mid-2022 as the economy recovers. It doesn’t intervene in bond markets, so the taper debate is not applicable.

2/ NEW ZEALAND

The Reserve Bank of New Zealand kept its benchmark cash rate at a record-low 0.25% on Wednesday while it waits to see where a nascent COVID-19 outbreak will lead for the economy.

It still thinks rates are rising soon, though, and published an aggressive outlook forecasting the cash rate above 0.5% by the end of this year over 2% in 2024.

3/ CANADA

The Bank of Canada announced tapering in April and in July cut its weekly net purchases of government bonds to a target of C$2 billion ($1.6 billion) from C$3 billion.

It is expected to further trim its bond-buying programme this year, setting the stage for a rate hike in late 2022. Canada’s key rate is at a record low of 0.25%.

4/ UNITED STATES

The Federal Reserve has moved its first projected rate increases to 2023 from 2024. With the economy growing robustly and the jobs market rebounding, several officials have signalled it is nearly time to start withdrawing support.

Most economists in a recent Reuters poll expected the Fed to announce a plan to taper its $120 billion monthly asset purchase scheme in September.

A resurgent Delta variant of COVID-19 remains a headwind and any signs that the recovery is at risk could prompt a re-think of the taper timeline.

5/ AUSTRALIA

The Reserve Bank of Australia surprised markets this month by sticking with a decision to start tapering bond buys in September to A$4 billion ($2.9 bln) per week from A$5 billion. The RBA considered the case for a delay but decided fiscal stimulus was “more appropriate” to deal with virus lockdowns.

But a rate rise seems a long way off. The central bank has stressed that its 0.1% cash rate will not be raised until inflation is sustainably within its 2-3% target band, a goal unlikely to be met before 2024.

6/ BRITAIN

The Bank of England this month laid out plans to wean the economy off pandemic-era stimulus, although for now it has kept its bond-buying at full speed and said an eventual reduction in support would be “modest”.

Policymakers expect inflation to hit 4% by year-end — double the BoE’s target — but they are confident the rise will be temporary.

So the BoE’s bond-buying programme remains unchanged at 895 billion pounds ($1.24 trillion) for now, with rates at just 0.1%. Economists polled by Reuters do not expect a rate rise until 2023. Markets are pricing one for the second half of 2022.

7/ SWEDEN

Swedish inflation is rising and just below the Riksbank’s 2% headline target but policymakers reckon the rise is temporary and warn against withdrawing support too quickly. Rates will stay at 0% for years, they believe.

However, with Sweden’s economy already back to pre-pandemic levels, the Riksbank has called time on bond purchases — a 700 billion crowns ($80.92 billion) asset purchase programme is scheduled to expire at end-2021.

8/ EURO ZONE

Economists expect discussions about rolling back the European Central Bank’s 1.85 trillion euro ($2.21 trillion) Pandemic Emergency Purchase Programme (PEPP), scheduled to run until at least end-March, to begin in the next quarter.

Even then, the ECB is expected to maintain hefty support via existing asset purchases — a view cemented by a recent decision to change its inflation target to 2%.

It looks likely to be one of the last major central banks to hike rates, which were last lifted in 2011.

9/ JAPAN

Japan will remain a noticeable laggard at withdrawing pandemic-era stimulus. The $4.4 trillion economy will grow at a much slower pace than expected given a resurgent COVID-19.

Economists expect the Bank of Japan to hold its short-term interest rate target at -0.1% and the 10-year bond yield target around 0% when it meets in September. And elusive inflation means rates will remain low for some time.

10/ SWITZERLAND

The Swiss National Bank also looks set to keep monetary policy ultra-loose for the foreseeable future and believes projected higher inflation is no reason to change course.

The SNB has the world’s lowest interest rate at -0.75% and it uses foreign exchange purchases as a key monetary policy tool..

One spot of bother is a resurgent franc, which has gained nearly 2.5% versus the euro since late June. Intervention to counter a strong currency would bloat an already vast SNB balance sheet, but not intervening means the export-led rebound takes a hit.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tom Westbrook in SINGAPORE and Tommy Wilkes, Saikat Chatterjee and Dhara Ranasinghe in LONDON; Compiled by Dhara Ranasinghe; Editing by Sam Holmes)

 

Dollar Rises for 2nd Day on Afghanistan, Delta Variant Woes

The overall tone in financial markets was one of caution, with shares on Wall Street in the red.

Asian shares were also rattled earlier by concerns about China’s move to crack down on internet companies as it lowers the boom on its powerful tech sector.

A much sharper decline than expected in Tuesday’s U.S. retail sales curbed gains in the dollar, but that was offset by the higher-than-forecast rise in industrial production.

“The dollar is on a roll as global risks rise,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“Part of the boost stems from a trio of uncertainties related to China …A ghanistan, and the virus continuing to multiply. Retail sales were largely dismissed as they didn’t meaningfully alter the bullish outlook for spending given the strengthening job market.”

U.S. military flights evacuating diplomats and civilians from Afghanistan restarted on Tuesday after the runway at Kabul airport was cleared of thousands desperate to flee following the Taliban’s sudden takeover.

In mid-morning New York trading, the U.S. dollar index rose 0.4% to 92.95. The euro, the biggest component in the dollar index, fell 0.4% to $1.1732.

The New Zealand dollar, meanwhile, tumbled to its lowest in three weeks on Tuesday after the country identified its first COVID-19 case since February, prompting the government to announce new short-term lockdown measures.

The currency fell sharply in early Asian trading hours, after Prime Minister Jacinda Arden said Auckland – where the case was reported – would go into lockdown for seven days, while New Zealand as a whole will have the toughest level of lockdown for three days.

It was last down 1.4% at US$0.6919, after dropping to US$0.6905, the lowest since late July.

The Australian dollar fell to a nine-month low after central bank meeting minutes were seen as dovish. It was last down nearly 1% at US$0.7264.

The minutes showed the Reserve Bank of Australia (RBA), which surprised markets by sticking to its plan to start tapering bond buying, would be prepared to take policy action, should lockdowns threaten a deeper economic setback.

The safe-haven Japanese yen was down against a firm dollar, which rose 0.2% to 109.42 yen. The Swiss franc, another safe haven, was little changed to slightly lower versus the dollar, which was last at 0.9128 franc.

The two currencies were boosted in recent days by weak U.S. and Chinese economic data which stoked worries that the spread of the Delta variant could slow the recovery from COVID-19.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss in New York and Elizabeth Howcroft in London; Editing by Emelia Sithole-Matarise and Chizu Nomiyama)

Kiwi Hit by New Virus Case; Souring Risk Sentiment Supports Yen, Swiss Franc

Safe-haven currencies such as the yen held firm against riskier currencies also on growing anxiety the spreading Delta variant of the coronavirus could disrupt, if not derail, the global economic recovery from the pandemic.

The New Zealand dollar fell 0.7% to $0.6972 after the virus-free country found a community outbreak of COVID-19 for the first time since February.

The news came just a day before the country’s central bank, the Reserve Bank of New Zealand (RBNZ), is widely expected to become the first among developed countries to raise interest rates since the pandemic as its economy booms.

While analysts still expect the RBNZ to go ahead with a 25 basis point rate hike on Wednesday, the currency’s overnight indexed swaps showed implied probabilities of a rate hike fell below 90% from more than 100% priced in before the news.

The Australian dollar lost 0.4% to $0.7308 after the minutes from the Australian central bank’s last policy meeting were perceived to be more dovish than some had anticipated.

The minutes showed the Reserve Bank of Australia (RBA), which surprised markets by sticking to its plan to start tapering bond buying, would be prepared to take policy action, should coronavirus lockdowns across the country threaten a deeper economic setback.

“The minutes seem to be in line with what Governor (Philip) Lowe has said earlier but perhaps markets reacted to headlines like the outlook is highly uncertain,” said Teppei Ino, senior currency analyst at MUFG Bank.

Risk-averse sentiment was rising also as weak economic data from the United States and China over the last few days has stoked worries the spread of Delta variant could lead to a slower global recovery.

The New York Federal Reserve’s barometer of manufacturing business activity, released on Monday, declined more than expected in August while the University of Michigan’s survey on Friday showing U.S. consumer sentiment dropped sharply in early August to its lowest level in a decade.

In China, data published on Monday showed July retail sales, industrial production and fixed asset investment were all weaker than expected as the latest COVID-19 outbreak weighed on the world’s second-biggest economy.

“Soft U.S. data could well prove transitory but at the moment more people are turning cautious and thus likely to reduce risk in their positions, rather than taking on more risks,” said Kazushige Kaida, head of FX sales at State Street Bank’s Tokyo branch.

As investors tried to reduce risk, so-called safe-haven currencies, such as the yen and the Swiss franc, gained a boost.

The yen has risen to around 109.28 yen per dollar, holding on to gains of about 1% made over the past two sessions until Monday.

Against the euro, the yen stood at 128.62 per euro, having hit a near five-month high of 128.50 yen on Monday.

The Swiss franc also held on to latest gains at 0.9133 franc per dollar. On the euro, it stood at 1.0745 franc to the euro, staying near its nine-month high of 1.0720 set earlier this month.

The U.S. dollar, which is also often seen as the ultimate safe-haven currency, held firm against many other rivals, including the euro and most other currencies.

The euro eased slightly to $1.1785, losing steam after hitting a one-week high of $1.18045 on Friday.

In cryptocurrencies, bitcoin traded at $46,449, not far from Saturday’s three-month high of $48,190. Ether stood at $3,195.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Hideyuki Sano. Editing by Gerry Doyle and Lincoln Feast.)

 

Dollar Edges Up, Hits Highest Level in More than 4 Months Against Euro

The U.S. dollar index, which measures the greenback against a basket of currencies, rose for a third straight session and hit its highest level in about three weeks. It was last up 0.1% on the day.

In cryptocurrencies, bitcoin was down 1.7% at $45,530.05, having hit a three-month high of $46,759 overnight. Ether was down 0.9% at $3,139.15.

The dollar has risen recently with U.S. bond yields as the prospect of reduced Fed stimulus weakened bond prices.

“The dollar is well bid, and it’s been well bid since the middle of last week,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“A combination of hawkish comments from several Federal Reserve officials and the second monthly increase of more than 900,000 jobs has reaffirmed what the market has suspected, and that is for a tapering decision to be made shortly.”

U.S. job openings hit a record high in June while hiring also increased, the Labor Department said in a monthly survey on Monday.

On Friday, the department’s non-farm payrolls report showed jobs increased by 943,000 in July, above the 870,000 forecast by economists in a Reuters poll.

Atlanta Federal Reserve Bank President Raphael Bostic said on Monday the U.S. economy is improving faster than expected, with the time when the Fed could start slowing its bond purchases nearing quickly.

Investors will be looking for signals from the Fed at the annual Jackson Hole conference of central bankers this month. They also await further economic data. U.S. consumer price data is due on Wednesday.

The euro is near a key level against the dollar at $1.17, and the next key level lower for the currency would be $1.16, which is “where we were when the early election results were coming in last November,” Chandler said, referring to the U.S. presidential election.

Against the dollar, the euro was last down 0.1% at $1.1720.

Against the Japanese yen, the dollar rose 0.2% to 110.575 yen.

The dollar was also up 0.2% versus the Swiss franc, extending recent gains.

Investors continue to be worried about growth in China and the fast-spreading Delta variant of the coronavirus.

Germany’s ZEW survey found investor sentiment deteriorated for a third month in a row in August, due to fears that rising COVID-19 infections could hold back the recovery in Europe’s largest economy.

“The Delta variant (spread) is on the rise in the U.S., and some states are at record levels. It’s a global phenomenon, and countries that looked to have done well in handling it, like in East Asia, are now bombarded by it. Sydney’s in lockdown,” Chandler said.

Against the U.S. dollar, the Aussie dollar was last up 0.3%.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Elizabeth Howcroft in London; Editing by Subhranshu Sahu and Matthew Lewis)

U.S. Dollar Index (DX) Futures Technical Analysis – 92.495 Support, 93.430 Next Major Upside Target

The safe-haven U.S. Dollar is trading higher against a basket of major currencies on Monday as investors grew nervous about a raging coronavirus variant that could threaten the outlook for a global economic recovery. The greenback jumped even as the benchmark U.S. 10-year Treasury yield dropped to a more than five-month low of 1.176%.

At 18:56 GMT, September U.S. Dollar Index futures are trading 92.840, up 0.153 or +0.17%.

After an initial thrust to the upside into a three-month high, the greenback pared some of its gains as the Yen and Swiss Franc, two index components, advanced with the decline in risk appetite.

The Delta variant of COVID-19 is now the dominant strain worldwide, accompanied by a surge of deaths around the United States almost entirely among unvaccinated people, U.S. officials said on Friday.

Daily September U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out the last main top at 92.840. A trade through 92.075 will change the main trend to up.

The minor trend is also up. A trade through 92.275 will change the minor trend to down. This will shift momentum to the downside.

The index is also trading on the strong side of a pair of long-term retracement zones at 92.495, 91.950, 91.850 and 91.490, making them support. The short-term pivot at 92.280 is also support.

Daily Swing Chart Technical Forecast

The direction of the September U.S. Dollar Index into the close on Monday is likely to be determined by trader reaction to 92.690.

Bullish Scenario

A sustained move over 92.690 will indicate the presence of buyers. If this move continues to generate enough upside momentum then look for a possible retest of the intraday high at 93.050. This is a potential trigger point for an acceleration into the March 31 main top at 93.430.

Bearish Scenario

A sustained move under 92.690 will signal the presence of sellers. If this move creates enough downside momentum then look for a possible break into 92.495.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Declines as Fed’s Powell Maintains Dovish Message

His comments came as a report showed U.S. producer prices rose more than expected, posting their biggest annual increase in more than 10-1/2 years. A day earlier, data showed June U.S. inflation hit its highest in more than 13 years.

The strong inflation has lifted the greenback to just shy of its three-month high, as focus sharpened on when central banks around the world will begin withdrawing pandemic-era stimulus.

That focus intensified on Wednesday after the Reserve Bank of New Zealand said it was ending bond purchases, raising expectations it could raise interest rates as soon as August. The Bank of Canada said it would cut its weekly bond purchases to C$2 billion ($1.6 billion) from C$3 billion.

But Powell, at the beginning of his two-day testimony to Congress, said the Fed is firm in its belief that current price increases are tied to the economic reopening and are transitory.

“Powell maintained the dovish message, kind of pushing back against any concerns that he would change his tune, or the more patient approach that he’s been talking about, after the above expectation inflation release,” said Marvin Loh, senior global markets strategist at State Street.

“They are still on this path to slowly taper asset purchases before they even start to consider rate hikes, so we’re still a couple of years away from that tightening based on everything that we’ve heard today,” he said.

The dollar index was down 0.43% at 92.404, after rising as high as 92.832 – just below the 92.844 hit last week for the first time since April 5.

The greenback slipped 0.45% against the euro to $1.183, after touching its highest since April 5.

“The dip for the euro back below 1.18 yesterday was probably a little bit overdone and so this recovery today, I think, would have happened even without Powell’s comments,” said John Doyle, vice president of dealing and trading at Tempus Inc.

The dollar rose almost 3% last month after the Fed’s hawkish pivot forced markets to reassess when tapering and rate hikes might start. It firmed 0.6% on Tuesday after the inflation data.

The kiwi soared against the greenback after New Zealand’s central bank announced it would cut short a NZ$100 billion ($70 billion) bond-buying program. It added to the gains after Powell’s comments, standing 1.29% higher.

Analysts have brought forward calls for a rate rise to as early as August, which would put New Zealand at the forefront of countries to raise interest rates.

The divergence in monetary policy outlooks pushed the Australian dollar 0.74% lower against its New Zealand counterpart to NZ$1.0636, the lowest since early June.

The Canadian dollar slid 0.04% to $1.25065, after the Bank of Canada said it would keep interest rates unchanged until economic slack is absorbed, which is expected to happen in the second half of 2022.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Saikat Chatterjee; Editing by David Clarke, Steve Orlofsky and Richard Chang)

 

Dollar Edges Lower as Risk Appetite Returns

Some recent soft U.S. data, along with a surge in COVID-19 cases in many parts of the world, has fueled concerns that the global economic recovery was running out of steam, leading to an eight-day streak of declines for the 10-year Treasury yield that ended on Friday.

“This week was all about the bond market and the collapse in treasury yields,” said Edward Moya, senior market analyst for the Americas at OANDA. “Some of that move was probably overdone.”

The rise in yields supported riskier assets and currencies, with global stock markets rising and the commodity-linked Australian and New Zealand dollars catching a bid.

The Aussie rose 0.79% to $0.74905, after earlier touching a fresh low for the year at $0.7410, and the kiwi added 0.81% to $0.7002, having plunged more than 1% in the previous session.

The euro extended gains on top of a 0.45% jump on Thursday, rising 0.27% to $1.1876.

The dollar index slid 0.252% to 92.131.

The greenback’s decline was likely due in part to profit-taking ahead of key U.S. inflation data for June due next week, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

“Dollar bulls are just pulling some chips off the table,” he said.

The yen, perceived as a safe-haven currency, declined as risk appetite began to recover.

“Yesterday’s decline in dollar-yen is reversing together with risk appetite in equities suggesting no wider spillover effects across markets for now – the same move is seen in the U.S. 10-year yield bouncing back above 1.3%,” said Steen Jakobsen, chief investment officer at Saxo Bank.

The yen eased 0.39% to 110.185, giving back some of its gains against the greenback from Thursday, when it had its biggest daily rise since November.

The Canadian dollar strengthened 0.61% against the U.S. dollar to $1.2453 as oil prices rose and data showed Canada added more jobs than expected in June as public health restrictions were eased in several regions of the country.

Elsewhere, the People’s Bank of China said it would cut the reserve requirement ratio (RRR) – the percentage of deposits lenders must hold on to – for all banks by 50 basis points, effective from July 15, helping spur the move back into riskier assets.

“We’re probably going to see some further momentum from this RRR cut and I think we’ll probably see some follow-through once Asia opens on Sunday,” said OANDA’s Moya.

Looking forward, U.S. retail sales numbers for June are also due next week, along with U.S. bank earnings.

Adding to the busy week ahead, U.S. Federal Reserve Chair Jerome Powell is scheduled to appear before Congress, and rate decisions by central banks in Japan, Canada and New Zealand are on tap.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by John McCrank; Editing by Andrew Heavens and Alex Richardson)

 

Dollar Falls From Three-Month High as Traders Unwind Risk

The greenback was weaker against the euro, the Japanese yen and the Swiss franc, which are generally low-interest rate, stable markets that traders short, using the proceeds to buy riskier assets, said Marvin Loh, senior global markets strategist at State Street.

But with bond yields rising and equity markets tanking, riskier positions in currency markets were sold off, benefiting the euro, as well as the yen and the franc, which are also considered safe-haven currencies.

“When you have this kind of unwind going on, you’ve got strength in those currencies,” said Loh.

The euro held on to earlier gains after the European Central Bank set a new inflation target and claimed a role in fighting climate change after a strategy review, with the single currency last up 0.39% against the dollar, at 1.18365.

The dollar was 0.71% weaker against the yen at 109.825, with the yen having earlier touched 109.535, its strongest since June 11, while the Swiss franc touched 0.9134 versus the greenback, its firmest since June 17.

The dollar index, which measures the greenback against six rivals, was down 0.297% at 92.493 from Wednesday, when it reached 92.844 for the first time since April 5.

The global spread of COVID variants has added to fears that there could be some disappointment in terms of economic growth in the coming months, said Mazen Issa, senior FX strategist at TD Securities.

“While we are cautious in interpreting price action at a time of the year when liquidity is not as plentiful, we think markets are contemplating a potential growth scare as the Delta variant spreads and infections rise,” he said.

Riskier currencies, like the Australian and New Zealand dollars, tumbled, with the Aussie down 0.78% at $0.7426, touching its weakest level since mid-December, and the Kiwi dropping 1.08% to $0.6943.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labor market recovery from the COVID-19 pandemic continues to be choppy.

“It’s an indication that if these numbers continue not to be anything stellar, or that we’re not moving towards full employment, that leaves the Fed room to just take it easy and not necessarily think about a tapering timeline,” Juan Perez, senior currency trader at Tempus Inc, said of the data.

Minutes of the U.S. Federal Reserve’s June policy meeting released on Wednesday showed that while the economic recovery “was generally seen as not having yet been met,” Fed officials agreed they should be poised to act if inflation or other risks materialized.

A Reuters poll expects the Fed to announce a strategy in August or September for tapering its asset purchases. While most predict the first cut to its bond-buying program will begin early next year, about a third of respondents forecast it will happen in the final quarter of this year.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by John McCrank; additional reporting by Saikat Chatterjee; Editing by Kirsten Donovan, Lisa Shumaker and Sonya Hepinstall)

Vol Picks Up Heading Into Summer

Yields collapsing

The real action is taking place in the bond market where recent moves have been pretty extraordinary even by the standards of the recent past. The benchmark US 10-year treasury note yielded 1.25% on Thursday morning, plunging 20 basis points in three days. This “flattening” of the yield curve, where short term rates fall faster than interest rates further out, has dominated bond markets since the US payrolls numbers last Friday. 

The reflation tale has lost momentum in double-quick time with position adjustments being pared back at the worst of times – that is, when macro expectations are being reined in and when market liquidity is drying up ahead of the summer.  Essentially, we are seeing a recalibration of inflation expectations in the wake of the supposed Fed’s hawkish pivot at its June meeting. 

Risky currencies hammered

With concerns over the major increase in infection cases in the Delta variant, this general environment is helping safe haven JPY and CHF while the mighty dollar is taking a breather, having recently made fresh three-month highs.  The yen is on track to post one of its biggest daily increases this year as investors dump risky positions in currency markets. 

The rollback in the reflation trade is bad news for commodity-dollar currencies with AUD hitting levels last seen in early December. The Australian dollar is widely viewed as a proxy for risk appetite and has also not been helped by RBA Governor Lowe reiterating that inflation may only rise when the unemployment rate falls further and holds in the low 4% area, an outcome not expected until 2024. Of course, this comes after the bank took its first step towards QE tapering by announcing a smaller, third round of bond buying. 

OPEC+ disarray

Added to this summer cocktail for commodity currencies is an oil market which has dropped over 7% in the last few days, since the OPEC+ meeting failed to agree on production output levels for the next few months. With the rapid rising virus count in numerous countries around the world, an extended period without a deal could spur an increased amount of noncompliance. The early summer months are certainly alive with action in both financial markets and in several sporting arenas.

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U.S Dollar Bulls Take Charge on Impressive U.S Private Payrolls Report

The greenback rebounded strongly at America’s trading session, heading for its biggest monthly jump since November 2016 by an impressive U.S private payrolls report and a hawkish shift by the U.S. Federal Reserve’s rates outlook at a meeting held early in June.

DXY bulls are also increasingly gathering momentum amid growing concerns over the spread of the Delta virus variant.

The greenback has already posted gains of about 3% in June against a basket of major currencies that include the Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona, and Swiss franc partly in the wake of a hawkish U.S Federal Reserve Bank

All eyes are now on Friday’s U.S. Nonfarm Payrolls report for an affirmation of a shift in America’s monetary policy.

Recent macros show U.S. private payrolls surged by more than expected this month by 692,000 jobs.

Though DXY bulls gains got capped around the 92.433 index points on the account that U.S private farm payrolls for the month of May was earlier revised lower to reveal 886,000 jobs added instead of the previously reported 978,000.

Still, some market pundits had earlier predicted private payrolls would rise by 600,000 jobs, further giving DXY bulls enough gas to break temporarily above 92.4 index points.

Consequently, present chart patterns show the greenback continues to consolidate its post-FOMC gains, with the rampaging COVID-19 mutants providing some safe-haven support.

DXY bulls are also riding the price wagon high after recent fundamentals showed U.S. consumer confidence increased this month to its highest level since the pandemic started over a year ago. Such narrative lifted market sentiments on the safe haven currency positively amid expectations for stronger economic growth in the mid-term.

Though some technical indicators pre-empt currency markets might be quite choppy in the coming days amid this month and quarter-end rebalancing flows.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Hovers Below Two-Month Highs Ahead of U.S. Payrolls Report

The dollar index, which tracks the greenback against a basket of six major currencies, added 0.1% to 91.966 in Asia, slowly closing the gap to the high of 92.408 reached on June 18 after the Federal Open Market Committee shocked markets by predicting two interest rate hikes by end-2023.

The Fed commentary since then has put the focus on the data to determine when a tapering of asset purchases and higher rates would be appropriate, with Chair Jerome Powell saying a weak ago that policymakers would not act on just the “fear” of inflation, and will encourage a “broad and inclusive” job market recovery.

The U.S. Labor Department is expected to report a gain of 690,000 jobs in June, compared with 559,000 in May, and an unemployment rate of 5.7% versus 5.8% in the previous month, according to a Reuters poll of economists.

Investors are also looking at U.S. consumer confidence data on Tuesday and the Institute for Supply Management’s manufacturing index on Thursday for clues as to where interest rates are headed.

“Is it indeed that the dollar has bottomed and can only get stronger from here, or is it just a short-term positioning adustment? We’ve been arguing it’s more a function of the latter,” Paul Mackel, HSBC’s global head of foreign-exchange research, said in a conference call with journalists.

With countries reopening from the coronavirus pandemic, the dollar should weaken toward the end of this year, he said.

“That’s typically what happens when you have this synchronized global growth backdrop.”

The dollar weakened 0.06% to 110.545 yen, staying below a nearly 13-month high of 111.110 reached last week.

Both the dollar and yen benefited from some safe-haven demand as the more contagious Delta COVID-19 strain spread in Asia and elsewhere, stoking fears of further lockdowns.

The euro declined 0.07% to $1.19145, edging back toward the 2-1/2-month low of $1.8470 touched on June 18.

“The market had been positioned long of the single currency on optimism regarding the vaccine catch-up trade in the region (but) forecasts that the Delta variant of COVID could spread through Europe (in) the summer months could now be undermining confidence in this trade,” Rabobank strategist Jane Foley wrote in a report, cutting a one-month euro forecast to $1.19 from $1.20.

“Assuming the U.S. data remains broadly supportive, we expect the USD to grind moderately higher vs. the EUR though the course of the year.”

Elsewhere, sterling slipped back toward a two-month low, weakening 0.06% to $1.38695.

The Australian dollar, seen as a liquid proxy for risk appetite, fell 0.09% to $0.75580 after sliding 0.31% at the start of the week amid concerns over renewed COVID-19 lockdowns across parts of the country.

The kiwi dollar dropped 0.19% to $0.70280, adding to its 0.40% slide on Monday. Previously it enjoyed a five-day winning run after rebounding from the lowest level since November.

“We expect the RBNZ to start tightening monetary policy more than one year before the FOMC, which is a tailwind for the NZD,” CBA analyst Kim Mundy wrote in a client note.

“The RBNZ is the most hawkish central bank under our coverage.”

========================================================

Currency bid prices at 0532 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1918 $1.1923 -0.04% -2.46% +1.1930 +1.1908

 

Dollar/Yen

110.5300 110.5500 +0.03% +7.06% +110.6300 +110.4700

 

Euro/Yen

131.72 131.90 -0.14% +3.78% +131.9400 +131.5900

 

Dollar/Swiss

0.9198 0.9200 +0.04% +4.02% +0.9207 +0.9196

 

Sterling/Dollar

1.3874 1.3880 -0.06% +1.53% +1.3882 +1.3859

 

Dollar/Canadian

1.2336 1.2342 -0.02% -3.09% +1.2348 +1.2333

 

Aussie/Dollar

0.7560 0.7565 -0.07% -1.72% +0.7570 +0.7550

 

NZ

Dollar/Dollar 0.7032 0.7042 -0.19% -2.12% +0.7051 +0.7023

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Himani Sarkar)

Cash Loses Its Shine in Pandemic but Still King in Switzerland

By John Revill

Around 43% of one-off payments in supermarkets and restaurants are made with cash, the most popular payment instrument, the survey said.

But cash has lost some of its appeal, with the figure dropping from the 70% level in the last SNB survey in 2017.

“In terms of the number of payments made, cash continues to be the payment instrument most frequently used by the Swiss population,” SNB Vice Chairman Fritz Zurbruegg said.

“Compared with 2017… its usage share has dropped significantly. The coronavirus pandemic has given additional impetus to this shift from cash to non-cash payment methods.”

Now a third of payments are made via debit cards, up from 22% four years ago, while credit cards are also becoming increasingly popular. Both are benefiting from the rising use of contactless payments.

Mobile payment apps like Twint and Paypal now make up 5% of transactions in Switzerland, up from almost none in 2017.

“Non-cash payment methods have…come to be considered, at least in part, as easier to use than cash,” said the study, which was carried out between August and November 2020.

Increased online shopping has boosted the popularity of cards and apps during the pandemic, as has the tendency to buy more at supermarkets during lockdowns.

While Swiss may be gradually falling out of love with using cash, the number of banknotes in circulation is on the rise. This suggests cash is increasingly being used as a store of value, the SNB said.

The report estimated individuals have stashed away cash reserves of around 10 billion francs or 12% of the notes in circulation.

Some 70% of the population keeps cash at home or in a safety deposit box, with most (77%) holding up to 1,000 francs to deal with unforeseen expenses or as a long-term store of value.

The SNB said negative Swiss interest rates were not a factor because most people had not been directly affected by them.

(Reporting by John Revill, editing by John Miller)