Dollar Edges Lower; Sterling Bounces After GDP Surprise

 Investing.com - The U.S. dollar edged lower in early European trading Friday as sterling and the euro stabilized near one-week highs, helped by intervention by the Bank of England and the expectation of aggressive tightening by the European Central Bank. At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.3% to 111.903, close to the one-week low of 111.64 reached in the previous session. GBP/USD traded 0.3% higher at 1.1157, having earlier climbed above 1.12 in the Asian session, taking it very close to erasing all of the sharp losses in the aftermath of the new government's unfunded tax-cutting mini budget last week. This rebound followed the Bank of England announcing emergency bond buying, shoring up the gilt market and by association the pound. "Events in the UK … marked the first time this stagflationary macro environment risked evolving into a financial crisis," said analysts at ING, in a note. "Fortunately, the Bank of England intervened aggressively in the Gilt market and market conditions have temporarily stabilised. 

However, there will be no room for complacency this autumn as volatility returns to 2020 highs." Sterling has also been helped by data showing the U.K. economy grew 0.2% in the second quarter, a surprise improvement on the previous estimate of a fall of 0.1%, and averting a summer recession. EUR/USD edged higher to 0.9817 as French inflation showed some sign of moderation, falling 0.5% on the month in September. 

The pair had climbed as high as 0.9844 earlier in the session after strong German consumer inflation data, released on Thursday, pointed to more aggressive interest rate hikes by the ECB ahead of the release of the Eurozone CPI number later in the session. The euro remained pressured, however, by the difficult geopolitical situation, with the region suffering from an energy crisis as Russia’s war in Ukraine continues.

 The EU energy ministers are set to meet later Friday to discuss their options to punish Russia further with President Vladimir Putin set to announce the annexation of another four regions of Ukraine later in the day. The U.S. dollar has been in demand of late, climbing to 20-year highs, as Fed policymakers point to further rate hikes to curb inflation at historic highs. 

However, there was a slight crack in that resolve when San Francisco Fed President Mary Daly repeated concerns on Thursday she raised earlier this week about tightening policy too much and the implications that could have for the U.S. economy.

 USD/JPY fell slightly to 144.32, trading largely sideways below the psychologically important 145 line since Japanese officials stepped in to conduct their first yen buying intervention since 1998 last week. The risk-sensitive AUD/USD rose 0.1% to 0.6503, while USD/CNY slipped 0.5% to 7.0900 after the official Chinese PMI data showed the country’s manufacturing sector unexpectedly grew in September.

Euro rises despite French election as dollar retreats

e French election as dollar retreats

Euro rises despite French election as dollar retreats

Reuters | 

Jun 20, 2022 04:52AM ET

 View all comments (2)

Euro rises despite French election as dollar retreats

By Samuel Indyk

LONDON (Reuters) - The euro rose on Monday despite French President Emmanuel Macron losing an absolute majority in the country's parliamentary election, as the dollar retreated against its major peers after hitting a 20-year peak last week.

Macron's centrist Ensemble coalition secured the most seats in the National Assembly but fell well short of an absolute majority needed to control parliament, final results showed.

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Euro rises despite French election as dollar retreats

Euro rises despite French election as dollar retreats

Reuters | 

Jun 20, 2022 04:52AM ET

 View all comments (2)

Euro rises despite French election as dollar retreats

By Samuel Indyk

LONDON (Reuters) - The euro rose on Monday despite French President Emmanuel Macron losing an absolute majority in the country's parliamentary election, as the dollar retreated against its major peers after hitting a 20-year peak last week.

Macron's centrist Ensemble coalition secured the most seats in the National Assembly but fell well short of an absolute majority needed to control parliament, final results showed.

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Analysts and traders shrugged off the election results, with the euro rising 0.2% against the dollar to $1.05155.

"Even though a Macron presidency and majority in Parliament would be very positive for euro zone cooperation and so forth, it's more for the long term, it's not something that affects markets here and now," said Ingvild Borgen Gjerde, FX analyst at DNB Markets.

"There's two things that are very important to the euro: What sort of anti-fragmentation tool the ECB can come up with, and the outlook for monetary policy."

Last week, the European Central Bank promised to devise a new anti-fragmentation tool that should provide fresh support for the bloc's indebted southern rim.

The dollar edged 0.2% lower to 134.715 yen, after hitting 135.44 yen in Asia-Pacific trading hours, close to Wednesday's peak of 135.60, the highest since October 1998.

The dollar index, which measures the greenback against a basket of six currencies including the euro and yen, fell 0.25% to 104.44 but remained close to a two-decade high of 105.79 hit on Wednesday last week, the day the Federal Reserve raised interest rates by 75 basis points in an attempt to tame high inflation.

Fed Chair Jerome Powell will testify before the Senate and the House on Wednesday and Thursday this week.

The drift lower in the dollar is being driven mostly by thin trading with the U.S. markets observing a public holiday on Monday, said Osamu Takashima, head of G10 FX strategy at Citigroup (NYSE:C) Global Markets Japan.

The dollar lost 0.4% to 0.96525 Swiss francs, while sterling ticked up 0.1% to $1.2232.

The Australian dollar jumped 0.6% to $0.6980.

Leading cryptocurrency bitcoin remained weaker, however, falling 2% to $20,154, sliding back toward the weekend's low of $17,592.78, a level not seen since late 2020

Dollar drives higher, yen tumbles to 1998 lows

 The safe-haven dollar gained towards new two-decade highs versus major rival currencies on Monday, supported by fears of a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve.

The yen was among a host of currencies swept lower on the day, hitting its lowest level versus the dollar since 1998, as the gap between Japanese and U.S. benchmark yields widened after red hot U.S. inflation data on Friday.

A sell-off across markets saw European stocks fall for a fifth straight session, while Bitcoin tumbled 12% to 18-month lows below $24,000.

The dollar index - which tracks the greenback against six major peers - gained as much as 0.6% versus Friday's close to 104.84, close to the two-decade peak of 105.01 hit in May. It was last at 104.75.

Central banks' efforts to curtail runaway inflation will remain in focus this week.

The Federal Reserve and the Bank of England are expected to raise interest rates at their meetings and there is a chance the Swiss National Bank will do the same.

The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country's currency. The policy divergence has sent the yen down more than 15% against the dollar since early March.

Japan's top government spokesperson said on Monday Tokyo stood ready to "respond appropriately" if needed.

The yen fell as much as 0.6% on the day to 135.22 yen per dollar, its lowest since 1998. It was last broadly flat at 134.38 yen per dollar.

"Everything suggests the BoJ thinks loose policy is still the right policy to pursue. I suspect inflation will have to accelerate a lot more before the BOJ starts getting worried," said Francesca Fornasari, head of currency solutions at asset manager Insight Investment.

Currency analysts at MUFG said in a note developments overall suggested further near-term yen weakness. "But market participants will be more wary of the risk of intervention and/or a hawkish shift in BoJ policy in the week ahead," they added.

The downward pressure on the yen could encourage speculation of a return to yen weakness not seen since the Asian financial crisis in 1997, when it hit 140.00 - the last time Japan directly intervened to support the currency, the note added.

The euro, sterling and the Swiss franc all fell to around four-week lows versus the dollar on the day.

The euro slipped as much as 0.6% to $1.04520.

Sterling fell 1% to $1.21920, after data showed Britain's economy unexpectedly shrank in April.

The Swiss franc dropped as much as 0.7% to 0.99440 franc per dollar.

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 The precious metal market in the last 6 sessions is moving sideways, every 1 day of decline has 1 day of gain.  However, the MA20 price area on the daily chart is still acting as a support for the precious metal Gold and has not been broken, plus in the overall timeframe, the bullish force still dominates.  So my personal view in today's trading session is to buy first.

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Retail investors overtook foreign investors as largest buyers of Malaysian equities in May, says CGS-CIMB

 Local retailers' net buying of Malaysian equities grew 294% month-on-month (m-o-m) to RM506 million in May 2022 (from RM172 million in April), raising their net buy for the first five months of 2022 (5M22) to RM1.2 billion, said CGS-CIMB Research.

However, in a strategy note dated June 4, the research house said the figure was an 82% decline from local retail investors' 5M21 net buy of RM6.5 billion.

CGS-CIMB said foreign investors posted a 91% m-o-m fall in net buy of Malaysian equities to RM77.3 million in May from RM826 million in April 2022.

The research house said local institutional investors' net sell of Malaysian equities fell 56% m-o-m to RM499 million in May 2022.It said this brought the 5M22 net buy by foreign investors to RM7.4 billion (versus 5M21 net sell of RM3 billion).

It said this brought the 5M22 net sell by local institutional investors to RM8.6 billion (+72% year-on-year) versus 5M21 net sell of RM5 billion.

Meanwhile, nominees turned net sellers of RM43 million in May 2022 (verus net buy of RM96 million in April 2022).

In 5M22, nominees were net sellers of RM8.4 million of equities (versus 5M21 net buy of RM1.6 billion).

Foreign buying of Malaysia equities fell 91% m-o-m in May.

CGS-CIMB said foreign investors were relegated to the second largest net buyers in May.

It said their net buy fell to RM77 million (versus RM826 million in April 2022).

"This represented the fifth consecutive month of net buying by foreign investors.

"This brought the cumulative foreign net inflows for 5M22 to RM7.4 billion and lowered the cumulative net foreign outflows since 2010 to RM27.5 billion.

"This is a positive turnaround in terms of foreign interest in Malaysian equities after four consecutive years of net selling by foreign investors post-GE14 (14th general election)," it said.

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Oil prices steady on doubts OPEC+ can make up Russian deficit

 Oil prices were roughly unchanged on Friday, clinging to gains made in the previous session on doubts that producers belonging to OPEC+ can hike their crude output enough to make up for lost supply from Russia.

U.S. West Texas Intermediate (WTI) crude futures were up 1 cent at $116.88 a barrel at 0112 GMT, while Brent crude futures were up 7 cents at $117.68 a barrel.

A decision on Thursday by the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, to boost output by 648,000 barrels per day (bpd) in July and August, instead of by 432,000 bpd as previously agreed, was seen as hardly enough for a tight market.

The increases were divided proportionally across the member countries, but with Russia included in the pact and members like Angola and Nigeria already failing to meet their existing targets, analysts said the supply increase was likely to be less than the announced volume.

"The fact that Russia was left in the group suggests that production from the alliance will continue to struggle to meet even this modest increase in quota rises," ANZ Research analysts said in a note.

Russian output has already dropped by 1 million bpd since its invasion of Ukraine, which Moscow calls a "special operation", and is likely to fall even further as the European Union's ban on Russian oil kicks in, ANZ analysts said.

"To put it another way, traders think the incremental increase is too small relative to the growing downside supply risks from the EU embargo amid an expected increased demand from China," said SPI Asset Management Managing Partner Stephen Innes.

Although Brent was on track to fall for the week, WTI was on course for a 1.6% weekly gain as U.S. supply is seen as very tight, prompting talk of fuel export curbs or a windfall profits tax on oil and gas producers.

Government data on Thursday showed U.S. crude stockpiles fell much more than expected in the week to May 27 and gasoline inventories fell, defying expectations for an increase.

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Summary of Minutes of the Fed's May meeting released last night

  + Most Fed officials agree that it will be necessary to tighten 50 basis points in the next 2 meetings in June and July.

 + The Fed also signaled that it is likely to end the process of raising interest rates by the end of this year.

 => The minutes showed that the FED raised interest rates faster than the market expected, but softened and was a bit more dovish when signaling that it would likely pause raising interest rates at the end of the year...  Investors are more relaxed and optimistic.