South Africa’s rand hits all-time low versus the US Dollar. Photo by Pixabay:
South Africa’s rand hits all-time low versus the US Dollar. Photo by Pixabay:
Reuters: South Africa’s Rand hit a new all-time low against the dollar on Friday, extending steep losses from the previous day. On Thursday the U.S. ambassador said he was confident that a Russian ship had picked up weapons in South Africa last year.
The U.S. assertion came at a time when investor sentiment towards South Africa had already badly soured over the worst power cuts on record that show no sign of abating. The South African government is opening an independent inquiry led by a retired judge into the allegation of an arms shipment to Russia, President Cyril Ramaphosa’s office said on Thursday.
By 0710 GMT on Friday the rand was about 1% weaker than its previous close at 19.3900 to the U.S. dollar, taking losses since the start of the week to more than 5%. JPMorgan in a research note on Friday said it now forecast a 0.2% decline in South Africa’s 2023 gross domestic product versus a previous forecast for 0.3% growth, citing expectations for deeper power cuts.
Reuters: The U.S. dollar rose to a five-week high against major peers on Monday as the safe-haven currency benefited from inflation worries at home and growth concerns globally, extending gains after its biggest weekly increase since September. The Turkish lira sank to a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand’s opposition routed military-allied parties also in weekend polls. The greenback was buoyed by a rise in Treasury yields after a survey of U.S. consumers’ long-term inflation expectations jumped to the highest since 2011, putting a possible Federal Reserve rate hike next month back in play. Traders currently put those odds at 13%, from close to zero prior to the University of Michigan’s poll. However, there are still as many as three quarter-point cuts priced into the market by year-end. “Too many FOMC rate cuts are priced for the near term in our view,” Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote in an client note. “We acknowledge there are tentative signs the U.S. labour market is cooling and underlying inflation is easing, which imply a high bar to rate hikes,” he added. “But the still-high inflation and tight labour market also imply a high bar to rate cuts in the near term too.”
China, meanwhile, is at the centre of renewed worries about a global recession after a spate of disappointing economic data including imports and inflation pointed to tepid domestic demand. More evidence could come from Tuesday’s retail sales report. The Chinese yuan dipped to a fresh two-month low of 6.9740 per dollar in offshore trading on Monday before coming back slightly to 6.9694. The People’s Bank of China kept its seven-day reverse repo rate unchanged at 2%. The dollar index, which measures the currency against six major peers, reached 102.75 for the first time since April 10 in early Asian trading before then easing slightly to 102.63. It rallied 1.4% last week. The U.S. dollar is oversold and the dollar index should move toward CBA’s end-June target of 104 this week, Capurso said. The 10-year Treasury yield was little changed in Tokyo, hovering around 3.47%. That kept pressure on the yen, which tends to move inversely to U.S. long-term yields. The Japanese currency dipped at low as 136.03 per dollar before last trading flat at 135.80.
The euro ticked up 0.11% to $1.08605 after dipping to a fresh five-week low of $1.08445 earlier in the session. The dollar was last up 0.31% at 19.64 Turkish lira after earlier jumping to 19.70 for the first time since March 10. Turkey headed for a runoff vote after President Tayyip Erdogan outperformed projections, holding a sizable lead over his rival but falling short of an outright majority. The U.S. currency sank 0.65% to 33.76 baht in onshore Thai trading, and earlier dipped as much as 0.92%. Thailand’s opposition parties secured a stunning election win on Sunday, but it was far from certain whether they will form the next government, with parliamentary rules written by the military junta.
Reuters: The pound steadied on Friday after data showed the UK economy avoided recession in the first quarter, recovering from its biggest one-day drop since mid-April the previous day. Sterling was last up 0.1% against the dollar at $1.252. It fell nearly 1% on Thursday after the Bank of England raised interest rates and said it would stay the course. But with consumer inflation running at 10.1%, investors had long prepared for a more aggressive stance from the BoE, whose move gave no new incentive to actively buy the pound, but also few to sell it. “The Bank of England’s 25-basis point rate hike did not have any major implications for sterling. The drop in cable yesterday was almost entirely due to the dollar rally and was in line with the move in other dollar crosses,” ING strategist Francesco Pesole said.
He said there was a case for more sterling weakness ahead, but this would most likely materialise in the euro/sterling rate, which on Friday was down 0.14% at 87.12 pence, as expectations for where UK and euro zone rates converge. “For now, however, there aren’t many convincing reasons to call for sterling underperformance against its main peers in the near term,” he said. The BoE upgraded its economic growth forecasts and said Britain would avoid a recession. Data on Friday showed growth expanded by 0.1% in the first quarter, but contracted in March, which analysts said showed the fragility of the recovery. Not only does the UK have the highest rate of inflation of any developed economy, it also has the slowest rate of growth among the Group of Seven richest nations.
However, Berenberg senior economist Kallum Pickering said in a research note on Friday that Britain’s political situation is “starting to look normal again” after several years of upheaval. “The UK is one of the few major economies that does not have either: a populist in power; or one waiting in the wings to challenge the next election,” Pickering said. “After being among the most populist-ridden Western economies in recent years, the UK now compares favourably with peers – most notably the U.S.,” he said.
Reuters: Asian stocks were cautiously higher on Monday as investors braced for the release of China’s industrial and retail data, while awaiting a host of U.S. Federal Reserve officials to speak to vindicate market pricing of rate cuts this year. The guarded optimism is set to extend to Europe when markets open, with pan-region Euro Stoxx 50 futures up 0.2%. Both S&P 500 futures and Nasdaq futures were mostly flat. In emerging markets, the Turkish lira touched a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand’s opposition routed military-allied parties also in weekend polls. On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan reversed earlier losses to be up 0.5%, driven by a late rebound in Chinese and Hong Kong shares after a steep sell-off the week before. Hong Kong’s Hang Seng index charged 1.2% higher while China’s blue chips rose 0.6%. Japan’s Nikkei advanced 0.7%, building on the optimism from last week during the earnings season.
China’s central bank on Monday held rates on medium-term policy loans steady, although expectations are building that monetary policy easing may be inevitable in coming months to support an economic recovery. Hong Kong Exchanges & Clearing Ltd on Monday added a new Connect scheme linking markets in the financial hub with the mainland by expanding into onshore interest rate derivatives to help offshore investors in Chinese bonds hedge their exposure. China is due to report monthly industrial production, retail sales and fixed asset investment data on Tuesday. “A big year-on-year improvement shouldn’t surprise given it is measured against a stagnant economy that was in lockdown,” said Chris Weston, head of research at Pepperstone. “However, with China’s data throwing up a few concerns of late – we’ve seen poor import, PPI, and loan data – China’s growth is very much at the heart of market moves,” said Weston.
Also this week, a host of Federal Reserve officials are speaking, with Chair Jerome Powell set for Friday, and could generate plenty of headlines to move the dial further. Traders currently put the odds of the Fed holding rates steady at 17.7%, up from 8.5% a week ago, after a report on Friday showed U.S. long-term inflation expectations jumped to the highest since 2011, boosting the dollar and Treasury yields. However, bets are still on as many as three quarter-point cuts by year-end, after CPI and PPI data supported the case of Fed pausing, given slowing inflation. Fed Governor Michelle Bowman said on Friday that the U.S. central bank probably will need to raise interest rates further if inflation stays high. “While we think the directional bias is right, i.e. a cut is the next move rather than a hike, it now may take softening in global growth or sharply weaker growth in order to even meet current market pricing, or fuel further dovish repricing,” said John Briggs, global head of economics at NatWest Markets. Growth concerns, couple with U.S. debt ceiling worries and lingering banking fears, have buoyed the safe-haven dollar as it hovered around five-week highs against major peers on Monday, extending its best weekly rise since September. It was last at 102.64, after surging 1.4% last week.
U.S. President Joe Biden expects to meet with Congressional leaders on Tuesday for talks to raise the nation’s debt limit and avoid a catastrophic default, saying that the talks are moving along. Concerns about U.S. Congress not raising the debt ceiling on time have created large distortions in the short-end of the yield curve as investors avoid bills that come due when the Treasury is at risk of running out of funds, and pour into alternative issues. The yield on benchmark 10-year notes was little changed at 3.4775%, after rising 6 basis points on Friday, and two-year yields were steady at 4.004%, having also jumped 10 basis points in the previous session. Oil prices declined for the fourth straight session. U.S. crude futures fell 0.6% to $69.61 per barrel, while Brent crude futures were down 0.6% to $73.68 per barrel. Gold prices were 0.4% higher at $2,018.19 per ounce.
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