Economic Data Puts the EUR and the GBP in Focus ahead of FED Chair Powell Testimony

Earlier in the Day:

It was another relatively quiet start to the week on the economic calendar this morning. The Kiwi dollar was in focus in the early hours.

For the Kiwi Dollar

Consumer sentiment was in focus in the early hours.

In the 2nd quarter, the Westpac Consumer Sentiment Index rose from 105.2 to 107.1.

According to the 2nd Quarter survey,

  • The Expected Conditions Index rose from 111,2 to 112.9 with the 1-year economic outlook sub-index climbing from -1.6 to 4.4.
  • There was also an improvement in the current financial situation, with the sub-index rising from -11.7 to -5.4. This was above the average of -8.5.
  • There were declines in the good time to buy and 5-year economic outlook sub-indexes, however.
  • In the 2nd quarter, the good time to buy sub-index fell from 4.2 to 2.0. The 5-year outlook index fell from 20.1 to 17.7.

The Kiwi Dollar moved from $0.69854 to $0.69888 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.16% to $0.6977.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.01% to ¥110.26 against the U.S Dollar, while the Aussie Dollar was down by 0.16% to $0.7523.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. Flash consumer confidence figures for the Eurozone will be in focus late in the European session,

With little else for the markets to consider, expect market sensitivity to today’s numbers. Forecasts are EUR positive.

On Monday, ECB President Lagarde had talked of a speedier than expected economic recovery fueled by consumer spending. Weak numbers would test question the optimism…

At the time of writing, the EUR was down by 0.12% to $1.1905.

For the Pound

It’s also a relatively quiet day ahead on the economic calendar.

CBI Industrial Trend Orders for June are due out later today. With the BoE in action later in the week, we can expect some sensitivity to today’s numbers.

Away from the economic calendar, however, COVID-19 news will remain a key consideration near-term.

At the time of writing, the Pound was down by 0.21% to $1.3905.

Across the Pond

It’s a quiet day ahead on the economic calendar. Housing sector data is due out late in the day.

We don’t expect too much influence form the numbers, however.

FED Chair Powell is scheduled to deliver testimony late in the day. The markets will be looking for any deviation from last week’s hawkish stance.

At the time of writing, the Dollar Spot Index was up by 0.04% to 91. 369.

For the Loonie

It’s a particularly quiet day ahead on the economic data front. There are no material stats due out to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was down by 0.14% to C$1.2380 against the U.S Dollar.

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

USD/INR: Rupee Extends Losses, Slips 24 Paise

The Indian rupee depreciated by nearly 24 paise against the U.S. dollar on Monday as the strong greenback and high oil prices continued to put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.326 against the U.S. currency – the highest since April 28 – up from Friday’s close of 74.1. The rupee has lost over 180 paise so far this month and weakened more than 100 paise in the last six trading sessions.

“…We believe the depreciation may continue in the short term and the US$INR pair should move higher towards 74.50 level,” noted research analyst at ICICI Direct.

“The US dollar/rupee pair formed a strong bull candle after holding its key support of 72 over two weeks, suggesting extended weakness for Rupee towards 75 levels. We expect the rupee to broadly consolidate in a range of 72-75 in the coming weeks. Only a decisive move below 72 would indicate extended gains for Rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.35% to 91.905. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

USD remains better bid post-Fed’s hawkish tilt and on Bullard’s hawkish comments that he sees a case for rates to rise next year. Though USD strength was broad based, its magnitude was not even, with G7s more hit than AXJs,” noted an analyst at Maybank.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark equity indices ended 230.01 points or 0.44% higher at 52,574.46, while the broader NSE Nifty advanced 63.15 points or 0.4% to 15,746.50.

Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 2,680.57 crore, as per provisional data.

On the other hand, global oil benchmark Brent futures rose 1.52% to $74.66 per barrel.

Sterling Shoots Up One Cent After Falling Overnight Below $1.38

By Joice Alves

At 1120 GMT, the pound rose 0.6% versus a weakening dollar to $1.3880, after falling to $1.3786, its lowest of since April 16.

Last week the Fed signalled it would raise interest rates and end emergency bond-buying sooner than expected.

“I think what we’re seeing today is a minor retracement in high beta currencies across the board. The moves look tentative, however, as I don’t think the dust has fully settled in FX markets post-Fed,” said Simon Harvey, Senior FX Market Analyst at Monex Europe.

A more optimistic economic assessment from the Bank of England, which next meets on Thursday, could push sterling towards $1.40 quicker, he added.

Britain’s top central bank officials look set to remain divided over whether to pull the plug on their 875 billion-pound ($1.2 trillion) government bond purchase programme, after inflation hit its highest in nearly two years.

In the meantime, investors brought forward bets that the BoE would raise interest rates sooner than they thought previously, flattening the yield curve for British government bonds and mirroring a recent move in U.S. Treasuries.

Currency markets are fully pricing in a 30 basis point hike in rates by the BoE by December 2022.

Investors are also watching a dispute between Britain and the European Union over post-Brexit trade in the British province of Northern Ireland.

Versus the euro, sterling rose 0.3% to 85.68 pence, after closing on Friday its worst week against the single currency since April.

Data showed that asking prices for British homes between mid May and early June rose by 0.8% compared with a month before, the biggest rise for the time of year since 2015, property website Rightmove said.

(Reporting by Joice Alves; Editing by Giles Elgood and Alex Richardson)

Bank of England Set to Stay Split on Qe After Inflation Jump

By David Milliken

Bank of England chief economist Andy Haldane was alone in May when he voted to halt the quantitative easing (QE) bond purchases in August once they reached 825 billion pounds.

Economists expect Haldane to retain this stance when the BoE announces its latest policy decision on Thursday and are looking to see if others on the Monetary Policy Committee join him.

Haldane has ramped up his anti-inflation rhetoric ahead of what will be his final MPC meeting before leaving the BoE. In early June he described https://www.reuters.com/world/uk/bank-englands-haldane-sees-pretty-punchy-pressures-prices-2021-06-09 the policy outlook as the most dangerous since sterling dropped out of the European Exchange Rate Mechanism in 1992.

May’s consumer price inflation https://www.reuters.com/article/us-health-coronavirus-britain-economy-idCAKCN2DS0GT came in above the BoE’s and other economists’ forecasts at 2.1%, the first time it had surpassed the BoE’s 2% target since July 2019. Some economists now see inflation exceeding 3% later this year versus BoE forecasts of 2.5% for the end of 2021.

“Stronger growth, labour market and inflation data, thus far, should tilt next week’s policy statement in a slightly more hawkish direction,” Deutsche Bank economist Sanjay Raja said.

Although British inflation is below the 5% last recorded in the United States, and its post-COVID recovery is less advanced, financial markets expect the BoE to begin raising rates before the U.S. Federal Reserve – a historically rare sequence.

“The BoE is not aiming to overshoot the (inflation) target, like the Fed,” said Bank of America economist Robert Wood, who now predicts a first rate rise in Britain in May 2022.

Interest rate futures price in the BoE’s main interest rate rising to 0.25% from its current 0.1% by June 2022, a turnaround from early 2021 when the BoE was viewed as more likely to cut rates below zero.

Gertjan Vlieghe, normally one of the more dovish BoE policymakers, said https://www.reuters.com/article/us-britain-boe-vlieghe-idUSKCN2D81T0 last month he expected rates would need to rise in late 2022 if the economy grew as expected.

But most economists polled https://www.reuters.com/article/britain-economy-poll/poll-bank-of-england-to-look-through-temporary-inflation-rise-idUSL5N2NZ26L by Reuters still expect the BoE to start raising rates only in 2023.

FAST GROWTH

Britain’s economic growth in April was the fastest since July 2020 as “non-essential” shops, pubs and restaurants reopened after widespread vaccinations.

But plans for a further easing on June 21 have been delayed by four weeks due to the fast spread of a new coronavirus variant.

Economic output in April was still almost 4% below pre-pandemic levels after a near 10% slump in 2020, and 1.7 million people – 7% of employees – were relying on government furlough support at the end of May.

Uncertainty about what happens to them when furlough support stops at the end of September is a key reason why most BoE policymakers are not expected to change policy.

Also, the BoE has described energy prices and other factors pushing up prices as “transient”.

Inflation spikes in Britain after the 2008 financial crisis did not trigger 1970s-style wage-price spirals due to the weak bargaining power of many workers, and public inflation expectations have fallen.

Bank of America’s Wood also said reducing asset purchases now risked weakening their future power.

“Voting to end QE early would undermine the QE tool, since it works in part by being a credible signal that rates will be lower for longer,” he said.

($1 = 0.7215 pounds)

(Reporting by David Milliken; Editing by Pravin Char)

A Quiet Economic Calendar Leaves Monetary Policy Chatter in Focus

Earlier in the Day:

It was a relatively quiet start to the week on the economic calendar this morning. The Aussie dollar was in focus in the early hours, with the Bank of China also in action this morning.

For the Aussie Dollar

Retail sales increased by 0.1% in May versus a forecasted 0.5% increase. In April, retail sales had increased by 1.1%.

According to the ABS,

  • Food retailing rose by 1.5% to lead the way, while household goods (-1.0%) and clothing, footwear, & personal accessory retailing (-1.5%) weighed.
  • Coronavirus restrictions in Victoria led to a 1.5% fall in retail sales across the state.
  • Year-on-year, sales was up 7.4% in May 2021 compared with May 2020. In April, sales had surged by 25% year-on-year.

The Aussie Dollar moved from $0.75059 to $0.75054 upon release of the figures, with the markets also awaiting the PBoC’s loan prime rate settings. At the time of writing, the Aussie Dollar was up by 0.32% to $0.7503.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.04% to ¥110.17 against the U.S Dollar, with the Kiwi Dollar up by 0.25% to $0.6953.

The Day Ahead

For the EUR

It’s a particularly quiet day ahead on the economic data front. There are no material stats due out of the Eurozone to provide the EUR with direction.

While there are no material stats to consider, ECB President Lagarde is scheduled to speak later in the day.

Any chatter on the economic outlook and monetary policy would influence.

At the time of writing, the EUR was down by 0.03% to $1.1861.

For the Pound

It’s a quiet day ahead on the economic calendar.

There are no material stats due out of the UK to provide the Pound with direction.

With the BoE in action later in the week, COVID-19 news updates will influence. Rising cases of the Delta variant could further delay the government’s reopening plans in a month’s time. Much will depend upon progress on the vaccine front for the younger population.

At the time of writing, the Pound was up by 0.01% to $1.3812.

Across the Pond

It’s a quiet day ahead on the economic calendar. There are no material stats due out of the U.S to provide the Dollar and the broader markets with direction.

A lack of stats will leave FOMC member chatter and any news from Capitol Hill in Focus.

At the time of writing, the Dollar Spot Index was up by 0.02% to 92.248.

For the Loonie

It’s also a particularly quiet day ahead on the economic data front. There are no material stats due out to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.08% to C$1.2455 against the U.S Dollar.

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

Fed-Fuelled Dollar Rises as Bears Make for Exits

The dollar index, which tracks the greenback against six major currencies, was up 0.37% at 92.213, its highest since mid-April. That puts the index on pace for a weekly gain of nearly 2%, its best weekly jump in about 14 months.

The jolt to foreign exchanges was triggered on Wednesday by Fed forecasts showing 13 of the 18-person policy board saw rates rising in 2023, versus only six previously, with the median board member tipping two hikes in 2023.

Investors’ risk appetite took another hit after St. Louis Federal Reserve President James Bullard said on Friday that the U.S. central bank’s shift this week toward a faster tightening of monetary policy was a “natural” response to economic growth and particularly inflation moving quicker than expected as the country reopens from the coronavirus pandemic.

“I think this is a direct echo of the 2013 taper tantrum. You are seeing a perceived shift in the Fed’s reaction function driving investors into the safety of the U.S. dollar,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

With investors pricing in a sooner-than-expected tapering of extraordinary U.S. monetary stimulus, the euro and the yen have come under selling pressure over the last few trading sessions.

“Essentially, the entire world was short the dollar going into this, everyone from speculative traders to corporates to investors,” Schamotta said.

“You are seeing a wholesale unwind here,” he said.

The unwind of sizeable bearish bets against the dollar is expected to provide support for the greenback in coming days, investors said.

Goldman Sachs Asset Management’s head of currency, Arnab Nilim, who had been short the U.S. currency headed into the June Fed meeting, told Reuters he has reduced the position and expects the U.S. dollar to perform well, especially against the low-yielding currencies.

With a dovish European Central Bank seemingly far behind the Fed in the monetary policy cycle, traders will be reluctant to buy euros against dollars.

“The U.S. central bank is one step ahead and as a result USD is likely to remain well supported against the EUR,” Commerzbank strategists said in their daily note.

With equity markets hurting, the Australian dollar – seen as a proxy for risk appetite – was down 0.68% at 0.74995, its lowest since December 2020..

Sterling extended its fall against the U.S. dollar on Friday, dropping below $1.39, hurt by the Fed’s hawkish surprise and an unexpected fall in Britain’s retail sales.

The risk-off move hit crypto currencies as well, with bitcoin failing to get a lift from the news that Spanish bank BBVA would open a bitcoin trading service to all private banking clients in Switzerland. Bitcoin was down 7.0% at $35,451.09.

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

(Reporting by Julien Ponthus and Tom Westbrook; Editing by Catherine Evans, Andrea Ricci and Jonathan Oatis)

 

USD/INR: Rupee Snaps Eight-Day Losing Run

The Indian rupee snapped its eight-day losing streak on Friday, appreciating about 36 paise against the U.S. dollar, largely driven by stronger Asian currencies and lower oil prices.

The USD/INR fell to an intraday low of 73.798 against the U.S. currency from Thursday’s close of 74.162. The rupee has lost nearly 129 paise so far this month and weakened about 79 paise on a weekly basis.

“The Rupee had opened weak and weakened further through the session. Stops got triggered above 73.85, resulting in a brisk move to 74.10. Even post OTC close, USD/INR got bid up as offshore positioned for further Dollar strength,” noted analysts at IFA Global.

“Considering that recent such moves have been short-lived, we expect volatility dampening to happen quickly. We, therefore, do not see a trending move higher in USD/INR at this point. The USDINR pair is expected to trade with a neutral to bullish bias for the day.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.42% to 92.27. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023.

DXY has seen a classic short squeeze – the trigger being that 7 of 18 FOMC members felt that a first-rate hike could come in 2022. Interestingly, the response has been felt harder in FX than US Treasury markets, where the search for carry still sees strong demand at the long end of the curve. You would say that the chances of a bond tantrum are less, but that movements at the shorter end of the US yield curve are a dollar positive – especially against the low yielders,” noted analysts at ING.

“The US data calendar is light in the week ahead, but there are several Federal Reserve speakers every day. The highlight may be Fed Chair Powell’s testimony to Congress on Tuesday. Let’s see whether the Fed is prepared to adopt any new language on tapering. Were views to coalesce around tapering actually starting in September – not December – the dollar could rally further.”

The benchmark equity indices also snapped a two-day losing session, closing 21.12 points or 0.04 percent higher at 52,344.45, while the broader NSE Nifty fell 8.05 points or 0.05 percent to 15,683.35.

On the other hand, global oil benchmark Brent futures fell 0.6% to $72.61 per barrel. However, foreign institutional investors were net sellers in the capital market on Thursday as they offloaded shares worth Rs 879.73 crore, as per provisional data.

BOJ to Launch New Scheme for Fighting Climate Change, Keeps Policy Steady

The BOJ also maintained its massive monetary stimulus to support the country’s economic recovery and extended a deadline for asset-buying and loan programmes introduced last year to channel funds to pandemic-hit firms.

Japan’s central bank said it expects to launch the climate change scheme by the end of this year, and will release a preliminary outline of its plan at its next policy-setting meeting in July.

“Climate change issues could exert an extremely large impact on economic activity, prices and financial conditions from a medium- to long-term perspective,” the BOJ said in a statement.

“Supporting private sector efforts from a central bank’s standpoint will contribute to stabilising the economy in the long run,” it said.

Under the scheme, the central bank said it will provide funds to financial institutions that increase loans and investment for activities aimed at combatting climate change.

While details of the new scheme have yet to be announced, the BOJ said it will be modelled after a similar programme that offers cheap loans to financial institutions that boost lending in areas considered to be growth industries.

After the two-day meeting, the BOJ also kept its target for short-term interest rates at -0.1% and for long-term yields around 0%, as widely expected, and extended by six months the September deadline for its asset-buying and loan programmes.

Japan’s economy shrank an annualised 3.9% in the first quarter and is seen making only a modest rebound, if any, in the current quarter as anti-virus measures weigh on consumption.

Core consumer prices in May rose 0.1% from a year earlier, marking the first year-on-year increase since March 2020 but remaining far distant from the BOJ’s 2% goal.

BOJ officials have recently signalled their readiness to put more emphasis on addressing economic and financial challenges posed by climate change.

“The BOJ probably wanted to move in tandem with the government, which recently flagged steps to promote green in its policy blueprint,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“The BOJ is also jumping on the band-wagon of the rising tide among central banks towards linking monetary policy to climate change,” she said.

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

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Leussink; Editing by Kim Coghill, Jacqueline Wong and Ana Nicolaci da Costa)

 

The Bank of Japan and UK Retail Sales Put the Yen and the Pound in Focus

Earlier in the Day:

It was a quiet start to the day on the economic calendar this morning. The Japanese Yen was in focus in the early hours, with the Bank of Japan in action later this morning.

For the Japanese Yen

Inflation figures were in focus this morning.

In May, inflationary pressure returned, with the annual core rate of inflation accelerating from -0.1% to 0.1%, which was in line with forecasts.

The annual rate of inflation picked up from -0.4% to 0.1%.

The Japanese Yen moved from ¥110.273 to ¥110.307 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.08% to ¥110.30 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.01% to $0.7551, while the Kiwi Dollar was up by 0.06% to $0.7009.

The Day Ahead

For the EUR

It’s a particularly quiet day ahead on the economic data front. There are no material stats due out of the Eurozone to provide the EUR with direction.

At the time of writing, the EUR was up by 0.01% to $1.1908.

For the Pound

It’s a busier day ahead on the economic calendar.

Retail sales figures for May are due out later this morning. With the BoE in action next week, expect Pound sensitivity to today’s stats.

At the time of writing, the Pound was up by 0.09% to $1.3934.

Across the Pond

It’s a quiet day ahead on the economic calendar. There are no material stats due out of the U.S to provide the Dollar and the broader markets with direction.

A lack of stats will leave FOMC member chatter and any news from Capitol Hill in Focus.

At the time of writing, the Dollar Spot Index was flat at 91.889.

For the Loonie

It’s also a particularly quiet day ahead on the economic data front. There are no material stats due out to provide the Loonie with direction, leaving the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.11% to C$1.2345 against the U.S Dollar.

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

Dollar Surges to Two-Month High on Fed Rate-Hike Projection

On Wednesday, Fed officials projected an accelerated timetable for rate increases, began talks on how to end emergency bond-buying, and said the COVID-19 pandemic was no longer a core constraint on U.S. commerce.

A majority of 11 Fed officials penciled in at least two quarter-point rate increases for 2023, adding they would keep policy supportive for now to encourage a labor market recovery.

The dollar index, which tracks the greenback against six major currencies, was up 0.53% at 91.892, its highest since mid April. On Wednesday, the dollar surged nearly 1%, its largest daily percentage gain since March 2020.

“Coming into the Fed meeting we felt there was a risk of a more hawkish outcome which could drive some USD strength if it came to happen,” said Chuck Tomes, associate portfolio manager at Manulife Asset Management in Boston.

“Because of that, we did put some protection on in case of that happening,” he said.

Still, Tomes said he sees the dollar rangebound to weaker over the longer term.

The Fed’s new projection prompted some, including Goldman Sachs and Deutsche Bank, to abandon calls to short the dollar.

“We continue to forecast broad U.S. Dollar weakness, driven by the currency’s high valuation and a broadening global economic recovery,” analysts at Goldman Sachs wrote in a note on Wednesday.

“However, more hawkish Fed expectations and the ongoing tapering debate look likely to be a headwind to Dollar shorts over the near term,” said the analysts, closing their recommendation to go long the euro against the dollar.

The Australian dollar – seen as a proxy for risk appetite – was down 0.72% at 0.75545, its lowest since April 1..

Australia also had upbeat data, with job creation beating expectations in May and unemployment diving to pre-pandemic lows.

The dollar was 0.77% higher against the Norwegian crown after Norway’s central bank kept its key interest rate unchanged as expected, but said an increase was likely in September and steepened its trajectory of subsequent rate rises as the economy recovers from the effects of COVID-19.

The stronger dollar sent sterling below $1.40 to a fresh 5-week low.

Elsewhere, bitcoin was trading at $37,769.48, little changed on the day.

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

(Reporting by Elizabeth Howcroft; editing by John Stonestreet, Robert Birsel, Raissa Kasolowsky and David Gregorio)

 

Analysis: As Fed Wakes Sleeping Dollar, Jolted Bears May Bolster Gains

The dollar was on track for its biggest two-day percentage increase against a basket of major currencies in 15 months on Thursday and stands at its highest level since mid-April, a day after the central bank shifted its first projected rate increase into 2023 in the face of surging inflation.

Betting against the dollar has been a popular trade for months, as the Fed’s insistence that it would maintain its ultra-dovish stance despite rising inflation drove the currency to a near 3-year low earlier this year.

The slightly hawkish shift in Wednesday’s statement appears to be changing that calculus: the prospect of a sooner-than-expected rise in U.S. rates boosts the dollar’s attractiveness to yield-seeking investors over currencies such as the euro and yen. Both Goldman Sachs and Deutsche Bank, for instance, after the Fed meeting recommended investors cut their bets on the euro rising against the buck.

“I think FX markets have finally awoken to the idea of earlier normalization from the Fed,” said Simon Harvey, senior FX market analyst at Monex Europe.

Large bets against the U.S. currency may accelerate the recent move if the threat of more gains pushes investors to reverse their bearish positions. Net bets against the dollar in futures markets stood at nearly $18 billion last week, a three-month high, according to data from the CFTC.

“In the coming weeks and months, the short-dollar thesis that has been so dominant and popular for much of the past year will be severely tested,” said Stephen Jen, portfolio manager at hedge fund Eurizon SLJ.

Momtchil Pojarliev, head of currencies at BNP Asset Management in New York, bought the dollar against the Japanese yen after the Fed meeting.

“The Fed has been patient, but we all know the Fed is going (to turn hawkish) at some point,” he said. “I didn’t think that it was going to be now.”

Because of the dollar’s central position in the global financial system, its fluctuations tend to ripple through a wide range of assets.

A stronger dollar tends to weigh on the balance sheets of U.S. multinationals, making it less favorable for them to change foreign earnings back into their home currency.

A rising greenback could also help tame a blistering rally in commodity prices that has helped boost inflation this year, as many raw materials are priced in dollars and become less affordable to foreign investors when the buck appreciates.

“With our view of rising rates, risky assets and equities will have difficulties,” said Kaspar Hense, a portfolio manager at Bluebay Asset Management, which oversees $60 billion. Hense went short the euro after Wednesday’s Fed meeting.

Some market participants, however, are maintaining their bearish views on the dollar, noting that the Fed’s easy money policies, which include the purchase of $120 billion a month in Treasuries, remain in effect. Other central banks are likely to follow the Fed’s lead in slowly normalizing monetary policy, potentially narrowing the gap in rates between the U.S. and other economies.

Goldman Sachs believes a global recovery will weaken the dollar over the longer term, while a report published by Societe Generale on Thursday showed a year-end price target of $1.27 for the euro, from $1.19 on Thursday.

“Clearly there has been technical, fundamental damage to the bearish dollar story, but I would like to see how the dust settles before determining if the dollar bear story is behind us,” said Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management.

“Now a lot of it is going to hinge on… what do other G10 and emerging market central banks do in response.”

Upadhyaya reduced his short dollar position heading into the Fed meeting but believes the currency will eventually head lower. Harvey, of Monex Europe, wants to see whether the next few weeks’ data will bolster the case for a stronger-than- expected recovery.

Others, however, think there could be room for more dollar gains.

Shorting the dollar “has been a popular trade for both discretionary and systematic managers,” said David Gorton, chief investment officer at hedge fund DG Partners. The “hawkish surprise from the Fed has perhaps exposed just how extended some of those short positions were.”

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

(Reporting by Saqib Iqbal Ahmed in New York and Saikat Chatterjee in London; Additional reporting by Maiya Keidan and Gertrude Chavez-Dreyfuss; Editing by Ira Iosebashvili and Dan Grebler)

 

USD/INR: Rupee Drops Most in Over Six Weeks, Breaches 74-Mark

The Indian rupee declined to its lowest in over six weeks on Thursday, depreciating by 97 paise against the U.S. dollar for the eighth straight day as the strong greenback and high oil prices put pressure on the battered Asian currency.

The USD/INR rose to an intraday high of 74.239 – hit its weakest since May 3 – against the U.S. currency from Wednesday’s close of 73.27. The rupee has lost nearly 178 paise so far this month and weakened 100 paise in the four trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.62% to 91.696. That was largely driven by the Fed’s dot plot released on Wednesday, which suggested an expectation of two rate hikes in 2023. The U.S. benchmark 10-year Treasury yield jumped 7.5 basis points.

Other than the FOMC monetary policy statement, retail sales and industrial production data would be critical for investors and a better-than-expected release could support the mighty greenback.

The benchmark equity indices also ended lower for the second consecutive day, closing down 178.65 points or 0.34% lower at 52,323.33, while the broader NSE Nifty fell 76.15 points or 0.48% to 15,691.40.

On the other hand, global oil benchmark Brent futures fell 0.78% to $73.83 per barrel. Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth Rs 870.29 crore, as per provisional data.

“Sentiments remained frail as the recent recovery in the U.S., the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike,” noted Manish Pargi, currency analyst at Angel Broking.

“Bets on the shift in the monetary stance by the U.S. Central Bank gave strengthen to the U.S. currency. Strong demand for the dollar by importers and banks amid soaring crude oil prices undermined the domestic currency.”

Investors Trim Long Positions on Asian Currencies, Yuan Bets Halved

The 13 responses came in before the Federal Reserve’s policy meeting late on Wednesday where it stunned by signalling it might raise interest rates as early as 2023, a faster pace than initially assumed.

Emerging markets in the past have not fared well with the prospect of U.S. interest rate hikes, and with the Fed opening the door to an accelerated timetable to wean off pandemic-driven monetary stimulus, it could suck funds out of riskier assets and force Asia’s central banks to tighten quicker.

For now, investors remain largely bullish on emerging currencies in Asia, with long bets on the Taiwan dollar and Indonesian rupiah slightly raised from two weeks ago.

The central banks of both countries meet later on Thursday and are expected to leave policy rates unchanged at record lows, but may offer more commentary on their own timetable and economic outlook in light of the Fed’s hawkish shift.

Taiwan’s dollar has appreciated sharply since late March as the economy booms on the work-from-home trend fuelling global demand for tech.

Bank Indonesia’s governor has promised to keep rates low and liquidity in abundance until there is inflationary pressure, but also warned that local bond markets – susceptible to foreign flows – may be impacted by U.S. policy shifts.

Long bets on the rupiah were at their highest since February.

The Fed’s hawkish messaging sent the U.S. dollar to its highest level in around two months and resulted in declines across Asia’s currency space on Thursday, including a more than 0.5% drop by the rupiah.

Emerging markets “will face material headwinds over the next several months” and “will likely sell off in absolute terms and will underperform their DM (developed market) peers,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research.

Broadly, long bets on China’s yuan were lowered after they hit a six-month high in the last poll. It follows the central bank stepping in to warn against speculative bets on the currency after its recent rally.

ING, in a note, said the yuan’s rise will slow from now on.

Bullish bets on the Singapore dollar, South Korean won and Philippine peso were all trimmed.

For the Indian rupee, a strong performer in May, long bets were also lowered.

The “significant hit to economic confidence in the second wave suggests the recovery is going to be delayed,” analysts at ING said, adding that it will cap any significant upside in the rupee.

The Asian currency positioning poll is focused on what market participants believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Shailesh Kuber)

 

BOJ May Start Debate on Retreat From Stimulus in 2023

Such a move would put the BOJ in line with other central banks gradually eyeing an exit from crisis-mode policies. The U.S. Federal Reserve unnerved investors on Wednesday with indications it could begin raising rates in 2023.

Discussions on abandoning negative rates would only emerge if Japan’s economy returns to post-pandemic levels and inflation perks up near 1%, said Maeda, who as BOJ executive director oversaw its policy drafting until May 2020.

And if the central bank raises rates, it will only move the short-term rate target to around 0.0%-0.5% in what will be a modest reversal of crisis-mode policies rather than the start of a full-fledged rate-hike cycle.

“If the BOJ is lucky, debate (on raising rates) could begin from around 2023,” Maeda told Reuters in an interview.

“But this won’t be policy normalisation. It will merely be a shift away from an extraordinary stimulus towards a more sustainable monetary easing,” he said.

Any such moves would coincide with the end of Governor Haruhiko Kuroda’s term at the bank in April 2023, and would push it further from his policies aimed at propping up inflation with huge stimulus that kicked off with a “bazooka” asset-buying programme in 2013.

After Kuroda’s bazooka failed to fire up inflation to his 2% target, the BOJ shifted to yield curve control (YCC) in 2016 under which it sets a -0.1% target for short-term rates and caps 10-year bond yields around 0%.

Facing criticism for hurting bank profits with negative rates, the BOJ was forced in March to conduct a review of its policy tools to deal with the accumulating side-effects of prolonged easing.

Maeda, currently head of think tank Chibagin Research Institute, said the March review, which created a scheme to compensate banks for the hit from years of ultra-low rates, had helped extend the lifespan of YCC.

“With the review, the BOJ probably laid the groundwork for a post-Kuroda monetary policy,” he said. “YCC has been made sustainable for another three to five years.”

(Reporting by Leika Kihara; Additional reporting by Takahiko Wadao; Editing by Chang-Ran Kim and Richard Pullin)

 

Economic Data Puts the EUR and the Greenback in the Spotlight

Earlier in the Day:

It was a busier start to the day on the economic calendar this morning. The Kiwi Dollar and the Aussie Dollar were in action this morning.

For the Kiwi Dollar

GDP numbers were in focus in the early hours.

In the 1st quarter, the economy grew by 1.6%, quarter-on-quarter, coming in ahead of a forecasted 0.5% expansion. In the 4th quarter of last year, the economy had contracted by 1.0%.

According to NZ Stats, the services industry, which accounts for two thirds of the economy, delivered the largest contribution.

The Kiwi Dollar moved from $0.70551 to $0.70753 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.61% to $0.7094.

For the Aussie Dollar

Employment figures were in focus.

In May, employment increased by 115.2k in May, reversing a 30.6k decline from April. Economists had forecast a more modest 30.0k rise.

Full employment increased by 97.5k following a 33.8k rise in April.

As a result of the pickup in hiring, the unemployment rate fell from 5.5% to 5.1%. Economists had forecast for the unemployment rate to hold steady at 5.5%.

According to the ABS,

  • The number of unemployed fell by 53k to 701k.
  • While the unemployment rate fell to 5.1%, the participation rate increased 0.3 percentage points to 66.2%. This was close to a historical high of 66.3% seen back in March 2021.

The Aussie Dollar moved from $0.76269 to $0.76290 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.32% to $0.7634.

Elsewhere

Through the early hours, the Japanese Yen was up by 0.05% to ¥110.65 against the U.S Dollar.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. Finalized inflation figures for the Eurozone are due out later today.

Stats in line with prelim numbers should deliver EUR support though the upside will likely be limited. The ECB continues to see inflation as transitory, removing near-term influence on monetary policy.

At the time of writing, the EUR was up by 0.03% to $1.9999.

For the Pound

It’s a particularly quiet day ahead on the economic calendar.

There are no material stats to provide the Pound with direction.

Updates on government plans to ease remaining restrictions will remain a key driver.

At the time of writing, the Pound was up by 0.04% to $1.3993.

Across the Pond

It’s a relatively busy day ahead on the economic calendar. Key stats include Philly FED Manufacturing numbers and the weekly jobless claim figures.

Barring particularly dire manufacturing numbers expect the weekly initial jobless claims to have the greatest impact on the Dollar.

Away from the economic calendar, FOMC member chatter and news from Capitol Hill will also need monitoring.

At the time of writing, the Dollar Spot Index was up by 0.29% to 91.396.

For the Loonie

It’s a relatively quiet day ahead on the economic data front. Foreign securities purchases for April are due out later today.

We don’t expect the numbers to influence, however, leaving the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was down by 0.01% to C$1.2278 against the U.S Dollar.

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

Dollar Jumps After Fed Pulls Interest Rate Hikes Into 2023

The dollar index, which tracks the greenback against six major currencies, was up 0.63% at 91.103, its highest since May 6.

A majority of 11 Fed officials penciled in at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The projections showed the outlook for inflation jumping this year, though the price increases were still described as “transitory.” Overall economic growth is expected to hit 7%.

“The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

Against the Japanese yen, the dollar rose 0.39% to 110.49 yen, its highest since April 6.

The dollar, which slumped through much of 2020, staged a rebound earlier this year, but that relief rally appeared to run out of steam through May as investors remained convinced that the Fed will keep interest rates lower for longer as it seeks to support the economy.

While the Fed’s new language does not mean a change in policy is imminent it does provide more support for the greenback, analysts said.

“I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.

Risk-sensitive currencies logged a sharp reversal following the Fed announcement, with the New Zealand dollar down 0.98% at $0.7049 and the Australian dollar – which is seen as a proxy for risk appetite – up 0.95% at $0.7612.

Sterling, which had strengthened against the dollar on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2% target in May, gave up those gains to trade down 0.49%.

Meanwhile, bitcoin’s recent rally appeared to run out of steam, as the world’s largest cryptocurrency fell 4.34% to $38,430.03.

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

(Reporting by Saqib Iqbal Ahmed in New York and Elizabeth Howcroft in London; Editing by Alison Williams, Will Dunham and Alex Richardson)

USD/INR: Rupee Falls for Seventh Straight Session Ahead of Fed Decision

The Indian rupee dipped against the U.S. dollar for the seventh straight day on Wednesday ahead of the conclusion to the Federal Reserve’s monetary policy decision.

The USD/INR rose to an intraday high of 73.3890 – hit its weakest since May 14 – against the U.S. currency from Tuesday’s close of 73.35. The rupee has lost 88 paise so far this month and weakened 60 paise in the seven trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.02% to 90.515. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year in May– the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

“Sentiments remained frail as the recent recovery in the US, the world’s largest economy, and upbeat inflation data raised hopes over a slightly hawkish approach and potential interest rate hike. Bets on shift in the monetary stance by the US Central Bank gave strengthen to the US currency. Strong demand for the dollar by importers and banks amid soaring Crude Oil prices undermined the domestic currency,” noted Manish Pargi, currency analyst at Angel Broking.

The benchmark BSE Sensex index ended down 271.07 points or 0.51% lower at 52,501.98, while the broader NSE Nifty fell 101.70 points or 0.64% to 15,767.55.

On the other hand, global oil benchmark Brent futures rose 0.27% to $74.19 per barrel. However, foreign institutional investors were net buyers in the capital market on Tuesday as they offloaded shares worth Rs 633.69 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise about 1% to INR 74.00 against the U.S. dollar rate over the coming year.

Economic Data from China and the UK to Distract the Markets Ahead of the FED

Earlier in the Day:

It was a busier start to the day on the economic calendar this morning. The Kiwi Dollar and the Japanese Yen were in action this morning, with economic data from China in focus later this morning.

For the Kiwi Dollar

Current account figures were out in the early hours.

In the 1st quarter, the current account deficit widened from NZ$2.70bn to NZ$2.90bn, quarter-on-quarter. Economists had forecast a narrowing to NZ$2.23bn.

Year-on-year, the current account deficit widened from NZ$2.55bn to NZ$7.24bn. Economists had forecast a widening to NZ$6.68bn.

The Kiwi Dollar moved from $0.71205 to $0.71215 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.13% to $0.7130.

For the Japanese Yen

Trade data and core machinery orders were in focus this morning.

In April, core machinery orders increased by 0.6%, month-on-month, following a 3.7% rise in March. Economists had forecast a 2.7% rise.

Year-on-year, core machinery orders were up by 6.5% versus a forecasted 8.0% increase. In March, core machinery orders had been down by 2.0% year-on-year.

More significantly, however, Japan’s trade balance slumped from a ¥253.1bn surplus to a ¥187.1bn deficit in May. Economists had forecast a deficit of ¥91.2bn. Exports rose by 49.6%, year-on-year, versus a forecasted 51.3% rise. In April, exports had been up by 38.0%.

According to figures released by the  Ministry of Finance,

  • Exports to China jumped by 23.6%, with exports to Australia and NZ surging by 115.3%.
  • Exports to the U.S surged by 87.9%, with exports to Western Europe up 69.9%.
  • Year-on-year, imports increased by 27.9% in May, which was up from 12.8% in April.

The Japanese Yen moved from ¥110.088 to ¥110.093 upon release of the figures. Through the early hours, the Japanese Yen was down by 0.02% to ¥110.10 against the U.S Dollar.

Out of China

Industrial production, retail sales, fixed asset investment, and unemployment figures are due out. Expect the industrial production and retail sales figures to garner the greatest interest.

At the time of writing, the Aussie Dollar was up by 0.03% to $0.7689.

The Day Ahead

For the EUR

It’s a quiet day ahead on the economic data front. 1st quarter wage growth figures for the Eurozone are due out later today.

Barring particularly dire numbers, however, we don’t expect the numbers to have too much impact on the EUR.

The markets will be looking ahead to the FED’s monetary policy decision and projections late in the day. With the ECB doves in control for now, we could see monetary policy divergence weigh on the EUR.

At the time of writing, the EUR was down by 0.03% to $1.2122.

For the Pound

It’s a relatively quiet day ahead on the economic calendar.

Inflation figures for May are due out later this morning. With little else for the markets to consider, expect the numbers to influence.

A delay in the full reopening of the UK may have eased some pressure on the BoE. A marked pickup in inflationary pressure could fuel speculation of a near-term move, however.

At the time of writing, the Pound was down by 0.02% to $1.4081.

Across the Pond

It’s a relatively busy day ahead on the economic calendar. Key stats include building permit and housing start figures from the housing sector. Import and export price index figures are also due out.

With the FED in action later in the day, however, don’t expect the numbers to have much impact on the Greenback.

Near-term direction will be hinged on FED chatter vis-à-vis any tapering and the latest projections… How FED Chair Powell delivers any shift in stance will be key during the press conference.

At the time of writing, the Dollar Spot Index was up by 0.01% to 90.548.

For the Loonie

It’s a busy day ahead on the economic data front. Inflation figures for May are due out along with wholesale sales figures for April.

Expect the inflation figures to have the greatest influence on the Loonie.

Crude oil inventory numbers will also provide direction along with this morning’s economic data from China.

At the time of writing, the Loonie was flat at C$1.2184 against the U.S Dollar.

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

USD/INR: Rupee Extends Losses for Sixth Straight Session, Hits One-Month Low

The Indian rupee fell to a one-month low against the U.S. dollar on Tuesday, depreciating for the sixth straight day as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR to an intraday high of 73.3730 – hit its weakest since May 14 – against the U.S. currency from the Monday’s close of 73.18. The rupee has lost 86 paise so far this month and weakened 51 paise in the six trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.07% to 90.587. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index ended up 221.52 points, or 0.42% higher at 52,773.05, while the broader NSE Nifty advanced 57.40 points or 0.36% to close at 15,869.25.

On the other hand, global oil benchmark Brent futures rose 0.43% to $73.17 per barrel. However, foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 503.51 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two week. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

Indian Rupee is expected to trade with negative bias amid strong dollar, surge in crude oil prices and disappointing macroeconomic data. India CPI data showed inflation accelerated by 6.3% in May 2021 compared to 4.23% in April 2021. Inflation breached the Reserve Bank of India’s target range of 2-6% for first time in 5 months. Further, market participants fear that the second wave of covid-19 infection in India has dampened the expectation of quick economic recovery,” noted analysts at Sharekhan BNP Paribas.

“Furthermore, traders will remain cautious ahead of US FOMC meeting outcome and economic projections. However, sharp fall may be prevented as number of COVID-19 cases in India continued to decline. India reported daily new covid-19 cases below 1 lakh for 7th consecutive day. USDINR spot expected to trade in a range between 72.90 on lower side to 73.40 on higher side with an upward trend.”

Australia’s Central Bank Says ‘Premature’ to End Bond Buying Programme

Minutes of the Reserve Bank of Australia’s (RBA) June policy meeting showed members discussed tapering and even ceasing its massive quantitative easing campaign when the current A$100 billion ($77 billion) round expires in September.

This is the first time the Reserve Bank of Australia (RBA) laid out how it might revise its bond buying campaign. A final decision is due at its meeting on July 6. Whatever the RBA decides about the bond purchase programme, analysts expect it to keep the policy cash rate at a record low 0.1% for a long time to come.

“Observing that the bond purchase programme had been one of the factors underpinning the accommodative conditions necessary for the economic recovery, members thought it would be premature to consider ceasing the programme,” minutes of its June policy meeting showed.

Other options discussed included a third round of A$100 billion bond purchases for six months, scaling back the amount bought and spreading purchases over a longer period.

Moving to an approach where the pace of the purchases is reviewed more frequently based on the flow of data and economic outlook was also discussed.

The RBA did not provide any indication of preference. Economists are divided on the approach the central bank might adopt with some predicting another A$100 billion round and others forecasting a flexible programme.

“Key considerations for the decision in July would be the progress made towards the Board’s goals for employment and inflation and the likely effect of different options on overall financial conditions,” the minutes showed.

The RBA has said it would also consider the fate of its three-year yield target on July 6, currently pegged at 0.1%. Analysts strongly believe the RBA will not extend the target beyond the April 2024 bond. The central bank did not give any indication on whether it agreed with the market.

Investors will watch communications out of the RBA in the weeks ahead, starting with a speech from Governor Philip Lowe on Thursday. Assistant Governor Luci Ellis speaks at a conference on June 23 followed by a panel participation by Lowe on June 30.

“If the Board wants to push back on market pricing and speculation in the run up to July 6…there will be ample opportunity to do so in the coming weeks,” said RBC economist Su-Lin Ong.

The Australian dollar was a touch softer at $0.7711 as the minutes were seen as dovish.

SUBDUED WAGE GROWTH

In explaining the need for easy monetary policy, the RBA has said wage growth will need to be “sustainably above 3%” to help achieve its inflation target of 2% to 3%.

Core inflation was currently at an all-time low of 1.2%. Wage growth is running at just 1.5%, compared with 2% in Europe and nearly 3% for the United States.

The RBA expects wage pressures to remain subdued until 2024, at the earliest, despite strong growth in employment. Leading indicators of labour demand, such as job vacancies, point to further solid increases in employment in coming months.

Still, firms facing labour shortages were offering non-wage incentives to attract and retain staff such as one-off bonuses and more flexible working arrangements, the RBA said citing its liaison programme with businesses.

Some firms were also opting to ration output because of labour shortages rather than pay higher wages to attract new workers.

The minutes highlight “the RBA’s ongoing dovish views around inflation and wages, which suggest the RBA is in no hurry to follow the RBNZ and BoC flagging higher rates in 2022,” said NAB economist Taylor Nugent referring to the New Zealand and Canadian central banks.

($1 = 1.2968 Australian dollars)

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

(Reporting by Swati Pandey and Wayne Cole; Editing by Simon Cameron-Moore)