Dollar was firm on Monday as Sterling loses out. Photo by micheile henderson on Unsplash
The dollar was firm on Monday, while the yen hovered near its seven-week peak as regulators rein in worries over global banking system.
Dollar was firm on Monday as Sterling loses out. Photo by micheile henderson on Unsplash
Reuters: The dollar was firm on Monday, while the yen hovered near its seven-week peak as investors assessed moves made by authorities and regulators to rein in worries over the global banking system.
The dollar index, which measures the currency against six rivals, was up 0.078% at 103.060, having gained 0.5% on Friday amid banking jitters, with shares of Deutsche Bank sliding nearly 9%. Global banking stocks have been battered through the month in the wake of the sudden collapse of two U.S. lenders and the rescue of embattled Swiss bank Credit Suisse last week, with authorities stepping in to ease investors nerves. On Friday, the U.S. Financial Stability Oversight Council said the U.S. banking system was “sound and resilient” despite stress on some institutions. Investors, though, remain wary. “Pragmatic action by central banks, governments, and the private sector has thus far been insufficient to allow investors to be confident that the problem is ring-fenced,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
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Risk-wary investors sent the yen to a seven-week high of 129.65 per dollar on Friday. It was last at 130.70 on Monday. The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of banking sector turmoil even as Fed Chair Jerome Powell kept the door open on further rate rises if necessary. Markets are pricing in an 87% chance of the Fed’s standing pat on interest rates in its next meeting in May and anticipate a rate cut as early as July, according to CME FedWatch tool. “Contrary to the clear signal from Powell, the Fed funds futures are pricing in dramatic easing in the coming months,” Chandler said. “This is extremely aggressive and stretches the imagination.” Minneapolis Fed president Neel Kashkari said on Sunday the recent stress in the banking sector and the possibility of a follow-on credit crunch has brought the U.S. closer to recession.
“What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch would then slow down the economy,” Kashkari said in comments to CCBS show Face the Nation. “This is something we are monitoring very, very closely.” Meanwhile, the euro was up 0.03% to $1.0762, after falling 0.6% on Friday. Sterling was at $1.2236, up 0.06% on the day, having slid 0.5% on Friday. The Australian dollar rose 0.03% versus the greenback at $0.665. The kiwi was flat at $0.620. In cryptocurrencies, bitcoin last rose 0.92% to $27,883.00. Ethereum last rose 1.05% to $1,769.40.
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Reuters: The pound rose against the euro on Friday but fell against the dollar, which was lifted by another rout in banking stocks that sent investors fleeing into safe-haven assets. Sterling was on track to rise 0.2% this week after the Bank of England raised interest rates as expected on Thursday and data earlier in the week showed inflation remained above 10% in February. The pound was last down 0.6% at $1.2209. Against the euro, it rose 0.3% to 87.93 pence. “Looking at cable (sterling/dollar), the BoE does not appear to be much of a factor, and our view for dollar downside risks means that the key 1.2420 and 1.2500 levels can be tested quite soon,” said ING currency strategist Francesco Pesole.
European bank stocks have been at the epicentre of a sell-off in equity markets this week after the emergency rescue of Credit Suisse by UBS ignited concern about the fragility of the banking sector in light of rising rates and also raised questions about lenders’ cost of funding. The pound touched six-week highs against the dollar earlier this week after the Federal Reserve raised interest rates as expected but signaled that it may not have much more room to tighten monetary policy, particularly given the problems at a number of regional lenders. With safe-haven concerns outweighing the outlook for interest rates on Friday, the dollar had the upper hand, rising 0.6% against a basket of currencies and on track for its largest one-day gain in more than a week.
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UK data on Friday showed a surprise rise in retail sales in February, while businesses reported a second month of growth in March, suggesting the overall economy expanded in early 2023. “The March flash PMI shows the UK economy again dodging a recession. Momentum is dripping away though and the UK is definitely not out of the woods yet,” Ben Laidler, a strategist at eToro.
Reuters: South Africa’s rand was listless against a steady dollar on Friday, as investors assessed the prospects that the U.S. Federal Reserve might pause its rate-hike trajectory. At 06:20 GMT, the rand traded at 18.0825 against the dollar, near its previous close of 18.0850. The dollar index, which measures the safe-haven currency against six rivals, held ground at 102.53. The U.S. Fed on Wednesday delivered an expected interest rate hike of 25 basis points, but took a cautious stance on economic outlook due to the recent banking sector turmoil.
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Local investors will shift their focus towards the central bank’s rate decision due next week, with markets expecting a 25-basis-point hike. The government’s benchmark 2030 bond was unchanged in early deals, with the yield at 9.950%.
Reuters: Asian shares followed U.S. stock futures higher on Monday on hopes authorities were working to ring fence stress in the global banking system, even as the cost of insuring against default neared dangerous levels. Helping nerves were reports First Citizens BancShares Inc was in advanced talks to acquire Silicon Valley Bank from the Federal Deposit Insurance Corp. S&P 500 futures firmed 0.5% in early trade while Nasdaq futures added 0.4%. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%, with trading cautious. Japan’s Nikkei gained 0.1% and South Korea 0.2%. The mood remained jittery after shares in Deutsche Bank fell 8.5% on Friday and the cost of insuring its bonds against the risk of default jumped sharply, along with the credit default swaps (CDS) of many other banks. “The current level of credit default swaps for European banks is just a little lower than it was during the height of the European financial crisis in 2013,” noted Naeem Aslam Chief Investment Officer at Zaye Capital Markets. “If these CDS do not normalise, it is highly likely stock market may continue to suffer for many days.”
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Over in the United States, depositors have been fleeing smaller banks for their larger cousins or to money market funds. Flows to money market funds have risen by more than $300 billion in the past month to a record atop $5.1 trillion. Minneapolis Fed President Neel Kashkari on Sunday said officials were watching “very, very closely” to see if the banking stress led to a credit crunch that threatened to tip the economy into recession. That, in turn, meant the Fed was closer to a peak in rates, he added. Markets are well ahead of the central bank in pricing around an 80% chance rates have already peaked, while a first rate cut is seen as early as July. Fed Governor Philip Jefferson speaks later on Monday, while Fed Vice Chair for Supervision Michael Barr testifies on “Bank Oversight” before the Senate on Tuesday.
Yields on two-year Treasuries have fallen an astonishing 102 basis points so far this month to stand at 3.77%, while the entire yields curve out to 30 years is below the 4.85% effective funds rate. That dive has sometimes been a drag on the dollar, at least against the safe-haven Japanese yen where it stands at 130.85 yen, having touched a seven-week low of 129.65 last week. The euro suffered its own reversal on Friday amid the worries over Deutsche, and it was last at $1.0767 and well off last week’s $1.0930 top. The drop in yields has combined with the run from risk to burnish gold, which was trading at $1,975 an ounce after reaching a high above $2,009 last week. Oil prices were steadier early Monday, but are still nursing losses of almost 10% for the month as worries about global growth undermine commodities in general. Brent added 43 cents to $75.42 a barrel, while U.S. crude rose 47 cents to $69.73 per barrel.
Published by the Mercury Team on 27 March 2023
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