Sterling dipped after weaker-than-expected UK retail data. Photo via Freepik
Sterling dipped after weaker-than-expected UK retail data. Photo via Freepik
Reuters: Sterling dipped against the dollar to a session low of $1.2269 after data showed retail sales in Britain rose less than expected in August.
British retail sales were 0.4% higher than in rain-hit July, figures showed on Friday, compared to a poll of economists by Reuters that forecast a rise of 0.5%. The pound steadied after the data release and was last down 0.1% at $1.2278 by 0612 GMT. Against the euro, it was broadly flat at 86.74 pence per euro.
The pound had fallen to its lowest since March against the dollar on Thursday of $1.22305 after the Bank of England held interest rates steady, before paring its losses slightly later in the session.
Reuters: The U.S. dollar rode Treasury yields higher on Friday. Against a basket of currencies , the greenback gained 0.05% to 105.44, not far from the previous session’s six-month high of 105.74. The 10-year U.S. Treasury yield peaked at 4.5080%, its highest since 2007, while the two-year Treasury yield was last at 5.1334%, after having scaled a 17-year top of 5.2020% on Thursday. The Aussie rose 0.13% to $0.6425, though was headed for a weekly loss.
The New Zealand dollar edged 0.09% higher to $0.5937 and was eyeing a weekly gain of more than 0.5%. While the Fed kept interest rates steady this week, it signalled the possibility of another hike this year, with rates to be kept significantly tighter through 2024 than previously expected. “We like the U.S. dollar given this backdrop,” said Ray Sharma-Ong, investment director of multi-asset solutions at abrdn. “The U.S. dollar will do well, supported by the hawkishness of the Fed, the reduction in the expected number of rate cuts the Fed will deliver in 2024, U.S. growth resiliency and our expectations of slower growth in the Euro area relative to the U.S.”
The euro declined 0.07% to $1.0654, having fallen to a six-month low of $1.0617 in the previous session. Sterling was meanwhile 0.09% lower at $1.2284, having also slipped to a roughly six-month low of $1.22305 on Thursday, after the Bank of England (BoE) halted its long run of interest rate increases a day after Britain’s fast pace of price growth unexpectedly slowed. “With inflation seemingly falling but still very elevated, and with growth almost stagnant, markets were likely going to find any decision fell short of what was needed, unless the bank was decisive in its hawkish stance, delivering a hike and guaranteeing more to come,” said Daniela Hathorn, senior market analyst at Capital.com.
Reuters: South Africa’s rand took its direction from the dollar on Thursday, reacting little to an expected central bank decision to hold its main interest rate at 8.25%. At 1515 GMT, the rand traded at 18.8400 against the dollar, about 0.2% stronger than its previous close. The dollar was trading around 0.1% weaker against a basket of global currencies, after reversing course from a strong rise earlier in the day. Nearly all analysts polled by Reuters had predicted that the South African Reserve Bank (SARB) would keep its lending rate unchanged.
The SARB’s Monetary Policy Committee (MPC) has stressed that it wants to see inflation sustainably around the midpoint of its target range of 3%-6% before considering rate cuts. Inflation edged up to 4.8% year-on-year in August from 4.7% in July. The bank on Thursday slightly increased its forecast for economic growth in 2023 to 0.7%, from a previous forecast of 0.4%. “The rand’s reaction to the SARB MPC decision and policy statement was relatively muted as the decision was in line with consensus,” said Shaun Murison, senior market analyst at IG.
The rand is currently finding more short-term direction from global economic events than local ones, he said. On the stock market, the Top-40 index closed down 2.27% while the broader All-share index was 2.12% weaker. South Africa’s benchmark 2030 government bond was weaker, with the yield up 11 basis points to 10.565%.
Reuters: Stocks eyed their worst week in a month on Friday and Treasuries hit decade lows as investors hunkered down for U.S. interest rates to stay high for some time, while the yen was pinned near an 11-month trough after the Bank of Japan left short-term rates below zero. Benchmark 10-year U.S. Treasury yields hit a 16-year high of 4.508% in Tokyo. Thirty-year yields hit their highest in a dozen years. MSCI’s index of global equities was flat, with a 2.6% drop for the week so far.
MSCI’s index of Asia-Pacific shares ex-Japan touched a 10-month low before bouncing 0.5% on vows in China to support private business. It is down 2.8% this week. The Bank of Japan (BOJ), as expected, maintained super-low interest rates and left its outlook and yield control policy unchanged to signal it was in no hurry to end massive stimulus. The yen fell about 0.4% to 148.12 per dollar after the announcement but stopped short of Thursday’s 11-month low, with traders extra wary of intervention after the BOJ noted it was watching the impact of FX moves on Japan’s economy. “It just puts markets further on notice that it’s not a green light to be buying dollar/yen with impunity,” said Ray Attrill, head of FX at National Australia Bank in Singapore.
Japan’s Nikkei pared losses of as deep as 1% to trade 0.2% lower in the afternoon. European stock futures and FTSE futures also pared losses to trade about 0.2% lower in Asia. S&P 500 futures rose 0.2%. Ten-year Japanese government bond futures rallied though cash yields were little changed and near decade highs at 0.74%. BOJ Governor Kazuo Ueda is due to give a press conference at 0630 GMT and is sure to be asked whether the sliding yen might hasten a policy shift and to elaborate on recent remarks suggesting that conditions for rate hikes might arrive by year’s end. “Of course, there is no way that the BOJ will respond to weakening yen by raising interest rates or other monetary policy measures, but it will be interesting to see how much caution the BOJ takes with regard to the current financial markets,” said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corporation in Tokyo.
The BOJ decision almost rounds out the week for major market events, though British and European PMIs are due later as are speeches from U.S. Federal Reserve officials Mary Daly, Neel Kashkari, Susan Collins and Lisa Cook. The Fed held rates this week, but traders heeded its pushback on bets for swift cuts in 2024 and were sellers along the U.S. yield curve. Fed members lifted their median projection for the funds rate in 2024 by 50 basis points to 5.1% and traders shaved about 15 bps from implied futures pricing, which has rates at 4.7% at the end of next year.
Central banks in Sweden and Norway announced 25 basis-point hikes with the prospect of more to come. Yet the Bank of England, in a split decision, left rates on hold for the first time in nearly two years, sending sterling to a six-month low, while the Swiss franc fell sharply after a surprise hold on rates from the Swiss National Bank. “It’s a lot of mixed messages and stories, and often you get those around turning points,” said Craig Ebert, senior economist at BNZ in Wellington.
In foreign exchange markets, the dollar has been buoyant as markets struggle to be certain that the Fed has finished hiking. The euro traded under pressure at $1.0655 in Asia, not far from Thursday’s six-month low of $1.0617. Oil has also been in the spotlight this week as rising prices have added to worries of resurgent inflationary bursts that will keep rates elevated for longer. At $93.89 a barrel, Brent futures are up 8% this month. In emerging markets, Indian bonds and the rupee rallied after JPMorgan said it would add Indian debt to its widely tracked emerging markets index, setting the stage for billions of dollars in foreign inflows.
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Published by the Mercury Team on 22 September 2023
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