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Showing posts with label Forex. Show all posts
Showing posts with label Forex. Show all posts

Sunday, August 25, 2019

For some, currency wars may not be fun or easy to win

By Howard Schneider

JACKSON HOLE, Wyo. (Reuters) - It's a maxim for private investors: Don't fight the Fed.

The lesson may apply to central banks in developing nations as well, according to new research presented on Friday that concluded using monetary policy to fight a currency war may ultimately lead to self-inflicted wounds.

For developing nations at least, when a central bank like the Fed acts and global capital flows shift, the interest rates needed to keep the local currency from changing value are likely to throw monetary policy out of line with what the local economy needs. Borrowing costs at that point become either too tight and court a slowdown, or too loose and court inflation or excessive borrowing.

"Domestic monetary policy transmission is imperfect and as a consequence, emerging markets' monetary policy actions designed to limit exchange rate volatility can be counterproductive," Sebnem Kalemli-Ozcan, a University of Maryland economics professor, wrote in a paper presented at the Fed's annual central banking conference in Jackson Hole, Wyoming.

Her research speaks to a growing concern among some economists that, in a global economy that may be both slowing and becoming more volatile as a result of U.S. trade and tariff policy, countries may be tempted to use their central banks to influence the value of their currencies and gain a trade advantage.

Though the practice may be officially frowned upon by organizations like the Group of 20 nations, U.S. President Donald Trump has accused an array of nations of engaging in it, and has said the Fed should follow suit to weaken the dollar.

That sort of breakout "currency war" is just what the world doesn't need, the International Monetary Fund cautioned on Tuesday.

"One should not put too much stock in the view that easing monetary policy can weaken a country's currency enough to bring a lasting improvement in its trade balance," IMF officials including chief economist Gita Gopinath wrote.

LOSING BATTLE

Fed interest rate hikes through last year touched off stress in a number of countries whose currencies slid in value, for example by making it more expensive for companies to keep up with loans that had to be repaid in dollars.

Kalemli-Ozcan's paper suggested any effort to use monetary policy to buffer the currency may be a losing battle. Policy moves by the Fed in particular, the study found, shift the perceived risks of investing in other countries, making local monetary policy less effective - with the changes needed to influence currency markets made all the larger as a result.

That shift in risk perceptions does not occur to the same degree in advanced economies, she found.

The lesson may not apply equally to all countries. China, for example, can use its vast store of foreign reserves to manage the value of its currency, and not have to rely as heavily on the central bank to help with interest rate moves.

In places like Kalemli-Ozcan's native Turkey, by contrast, the Fed's policy tightening last year contributed to a slide in the Turkish lira that the central bank tried to offset with local rate hikes.

That did little to fix the economy's underlying problems, and it ended in a political crisis as well when the head of the central bank was fired in July.

Original Article

Friday, August 23, 2019

Ghosts of 2002 'corralito' spur Argentines to shun banks, stash cash at home

By Walter Bianchi

BUENOS AIRES (Reuters) - It happened in 1989. It happened in 2002. Argentines who are old enough to remember do not want to go through it again.

A run on the peso since the Aug. 11 primary election, which signaled that business-friendly President Mauricio Macri likely will not get re-elected, shocked Argentines who remember being blocked from withdrawing their money in past "corralitos," a local term that means banks retain cash in "little corrals."

There has been no sign of a new corralito. But in the past week, dollar deposits fell by $1.9 billion, or 6% of the $30.5 billion in total dollar deposits, according to central bank data on Friday. The impulse for depositors to grab cash while they can stems from a history of mistrust in the banking system.

Argentina's market volatility following the primary vote sparked nightmares of the widespread panic during the corralito, when the government froze deposits of $40 billion and imposed caps on the withdrawal of cash from banks, from the end of 2001 through 2002.

Riots broke out. Irate depositors vandalized ATMs and supermarkets were looted. The 2001/02 deposits freeze punctuated an economic meltdown that tossed millions of middle-class Argentines into poverty.

GRAPHIC: Argentine deposits in dollars in private sector - https://fingfx.thomsonreuters.com/gfx/editorcharts/ARGENTINA-DEPOSITS/0H001QERX81P/eikon.png

Argentines had also lost control of their own money in 1989, when deposits were confiscated in exchange for government bonds after banks could not pay interest.

Last week, stock and bond prices plummeted and the peso weakened 18% after the landslide victory in the primary election by opposition candidate Alberto Fernandez and his running mate, former President Cristina Fernandez de Kirchner. Investors see the pair as a riskier prospect than Macri, due in part to the interventionist policies under Kirchner's government, including heavy-handed currency controls.

"I prefer to have my savings at home. It's my insurance for the next few years and I don't want any doubts," Stella, 70, told Reuters. Her last name is withheld to protect her privacy.

"We already have experience with 'corralitos,'" she said.

Because the major political parties had already chosen their candidates, the Aug. 11 primary served as a giant opinion poll on the Oct. 27 presidential election. Fernandez surpassed the 45% vote margin needed to win in the first round of voting.

Whether the election is decided in October or in a November run-off vote, the next president will take office in December.

Private savings, measured as a percentage of gross domestic product in local currency, have decreased to 12% so far this year from 14% in 2016.

Foreign currency deposits have grown, however, to 8% of GDP so far this year, compared to 4% in 2016, according to a report by First Capital Group, signaling that Argentines are ditching their pesos for dollars.

Whether outflows continue will be based on market fluctuations, which were more stable in recent days, though volatility could return as the Oct. 27 election nears.

"If the days go by and the dollar remains relatively stable, the outflow of deposits will decrease," said Christian Reos, research manager at Allaria Lesdesma.

Original Article

Le Brexit breakthrough? Europe says 'Nein', 'non', 'no'

© Reuters.  Le Brexit breakthrough? Europe says 'Nein', 'non', 'no'© Reuters. Le Brexit breakthrough? Europe says 'Nein', 'non', 'no'

By Guy Faulconbridge, Richard Lough and Andreas Rinke

LONDON/PARIS/BERLIN (Reuters) - After sterling soared and some British newspapers roared at a supposed Brexit victory for Prime Minister Boris Johnson, Europe's power brokers had a more sobering message: the basic divorce deal is not changing.

Three years after the United Kingdom voted to leave the European Union, the outcome of the tortuous Brexit crisis remains unclear, with options ranging from an acrimonious rupture on Oct. 31 to a smooth, amicable exit or even another referendum.

Enter PM Johnson, an avowed Brexiteer whose bet is that the threat of a disorderly 'no-deal' exit will convince German Chancellor Angela Merkel and French President Emmanuel Macron that the EU must grant him the divorce deal he wants.

On his first foreign trip as prime minister, the response from Germany and France was polite but firm: the Withdrawal Agreement struck last year by then-prime minister Theresa May will not be changed much. And time is ticking.

"I want to be very clear," Macron said. "In the month ahead, we will not find a new withdrawal agreement that deviates far from the original."

In Berlin, Merkel used a puzzling remark about finding an answer in "30 days" to underscore just how little time remained before the Oct. 31 Brexit deadline and how complex the Irish border riddle was.

"LE BREAKTHROUGH?"

Johnson, who allowed himself to put one of his feet on a coffee table at the Elysee Palace in a light moment with Macron, lauded Europe for "positive noises" and insisted a deal could be done, possibly in the "final furlong".

Sterling, which has gyrated to the tune of the Brexit divorce, had its biggest jump in three months on Thursday as some investors bet that even the possibility of some change to the Brexit deal meant a compromise could be reached.

The Daily Mail newspaper ran the headline "Macron makes (un petit) concession" and asked in an editorial: "Le breakthrough?" The Times said: "New hope for Boris Johnson as Emmanuel Macron says Brexit deal is possible."

But in Berlin, Paris and Brussels, there was astonishment at the interpretation that there had been a major shift in EU policy.

By 1100 GMT on Friday, investors were reassessing whether British Prime Minister Boris Johnson had made any progress. Sterling , which had jumped more than 1% against the dollar on Thursday, was down 0.3% on the day to $1.2217. [GBP/]

Johnson's key demand is that the EU remove the Irish border backstop - an insurance policy that would keep the United Kingdom in a customs union with the EU unless a better solution is found to keep open Ireland's 500-km (300-mile) land border with the British province of Northern Ireland.

PLAYING POLITICS?

As the backstop would also keep Northern Ireland aligned to the rules of the EU's single market, Johnson and the Northern Irish party that props up his government see the backstop as a threat to UK unity - and their own political survival.

Britain says there must be a better solution, though it has yet to present one.

But part of the problem is that there is suspicion in Europe that Johnson is using Brexit diplomacy to line up a potentially vote-winning confrontation with the EU ahead of a possible British election.

Merkel is keen to ensure that the EU is not seen as being unwilling to talk - but is equally keen not to reopen the Withdrawal Agreement. Rather, as has been EU policy for some time, changes would be addressed in the non-binding declaration on future ties.

Still, Berlin was impressed that Johnson had been serious and accepted publicly that if there was to be progress, London would have to come up with a way to solve the Irish border issue.

In Paris, a diplomatic source said Macron was trying to appear constructive - but had not changed his stance.

France's position, the source said, was that discussions are possible within the acceptance that the fundamental principles of the Withdrawal Agreement remain the protection of the EU single market and political stability in Ireland.

So has there been a change in the EU's position? "No," said one official. "No change."

Original Article

Thursday, August 22, 2019

Forex - Dollar Slips, Euro Pushes Higher after PMI Data

© Reuters.  © Reuters.

Investing.com - The dollar slipped lower on Thursday as expectations for further Federal Reserve rate cuts waned, while the euro gained ground after Eurozone private sector data boosted hopes that the bloc’s economy could avoid a recession.

The dollar was down 0.2% at 1.1104 euro by 03:47 AM ET (07:47 GMT) after French and German PMI data for August came in ahead of expectations. But the reports showed that Germany's manufacturing sector remained at recession levels and activity in the service sector slowed.

Against the yen, the dollar slid 0.15% to 106.44, following a 0.36% gain on Wednesday, its biggest since Aug. 13.

Wednesday’s Fed minutes that showed policymakers viewed last month's cut in interest rates as a recalibration not the start of sustained monetary easing, tempering expectations for another rate cut at the central bank’s September meeting.

Investors are now looking ahead to Fed Chairman Jerome Powell's speech at Jackson Hole on Friday for signs of just how far the U.S. central bank is prepared to lower rates.

His comments are of particular interest after an inversion in the Treasury yield curve highlighted the risk that the U.S. economy may fall into recession. While the Fed's minutes tempered some dovish expectations, markets still broadly expect further rate cuts as growth slows.

"Yields are supportive of the dollar for now, but this may not last after Powell's speech," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

"Additional rate cuts are thoroughly priced in. If Powell sounds slightly hawkish, stocks could sell off, which would hurt the dollar against safe-haven currencies like the yen."

Fed policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts.

However, this message is not likely to sit well with U.S. President Donald Trump, who has repeatedly bashed Powell for not cutting interest rates more aggressively.

The Fed and other central banks are cutting interest rates to contain a global economic slowdown caused by a prolonged trade war between the United States and China.

The British pound was a touch lower against the euro, on course for its second day of losses, as uncertainty about Britain's divorce from the European Union weighed on sterling.

Against the greenback, sterling edged up to 1.2135.

French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain's exit from the EU.

British Prime Minister Boris Johnson is due to meet Macron in Paris on Thursday. German Chancellor Angela Merkel challenged Britain to come up with alternatives to the Irish border backstop within 30 days after meeting Johnson on Wednesday.

Johnson, who won the premiership a month ago, is betting the threat of "no-deal" Brexit turmoil will convince Merkel and Macron that the EU should do a last-minute deal to remove the Irish backstop.

--Reuters contributed to this report

Original Article

Dollar holds gains after Fed minutes temper rate cut expectations

© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration



By Stanley White

TOKYO (Reuters) - The dollar held gains on Thursday after minutes from the Federal Reserve's last policy meeting hosed down some aggressive expectations the central bank would embark on a series of deep interest rate cuts.

Asian currencies are expected to trade in tight ranges on Thursday ahead of U.S. Federal Reserve Chairman Jerome Powell's speech at Jackson Hole on Friday for signs of just how far the U.S. central bank is prepared to lower rates.

His comments are of particular interest after an inversion in the Treasury yield curve highlighted the risk that the U.S. economy may fall into recession. While the Fed's minutes tempered some dovish expectations, markets still broadly expect further rate cuts as growth slows.

"Yields are supportive of the dollar for now, but this may not last after Powell's speech," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

"Additional rate cuts are thoroughly priced in. If Powell sounds slightly hawkish, stocks could sell off, which would hurt the dollar against safe-haven currencies like the yen."

At the Fed's last meeting in July, the U.S. central bank cut interest rates for the first time in a decade to 2.00-2.25%. The Fed next meets Sept. 17-18.

The dollar held steady at 107.79 yen following a 0.36% gain on Wednesday, its biggest since Aug. 13.

Against the Swiss franc , the dollar traded at 0.9822, close to a two-week high of 0.9831.

Fed policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts.

However, this message is not likely to sit well with U.S. President Donald Trump, who has repeatedly bashed Powell for not cutting interest rates more aggressively.

Benchmark 10-year Treasury yields gained after the minutes, but interest rate futures are pricing in a 100% probability of a rate cut at the Fed's September meeting, a 75% chance of an additional cut in October, and a 48% likelihood of another cut in December, the CME's FedWatch tool shows.

The Fed and other central banks are cutting interest rates to contain a global economic slowdown caused by a prolonged trade war between the United States and China.

Sterling traded a tad lower at 91.89 pence per euro (EURGBP=), on course for its second day of losses, as uncertainty about Britain's divorce from the European Union weighed on the pound.

Against the greenback, sterling was little changed at $1.2132.

French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain's exit from the EU.

British Prime Minister Boris Johnson is due to meet Macron in Paris on Thursday. German Chancellor Angela Merkel challenged Britain to come up with alternatives to the Irish border backstop within 30 days after meeting Johnson on Wednesday.


Johnson, who won the premiership a month ago, is betting the threat of "no-deal" Brexit turmoil will convince Merkel and Macron that the EU should do a last-minute deal to remove the Irish backstop.

Original Article

Wednesday, August 21, 2019

Forex - Sterling Falls as France Assumes No Deal Brexit

© Reuters.  © Reuters.



Investing.com - Sterling fell on Wednesday after reports that the French government sees a no-deal Brexit as the baseline.


Reuters reported that a top official in French President Manuel Macron’s office said no-deal is most likely after the fallout from U.K. PM Boris Johnson demanding the EU drop the Irish backstop.


Johnson demanded on Tuesday that the backstop be removed from the divorce deal. The backstop agreement is an insurance policy to keep the Irish border open after Britain leaves the European Union.


GBP/USD fell 0.4% to 1.2120 as of 10:44 AM ET (14:44 GMT). EUR/USD was flat at 1.1094.


Elsewhere, The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was flat at 98.072, as traders wait for the release of the Federal Reserve meeting minutes from July. The notes, expected at 2:00 PM ET (18:00 GMT), will give insight into whether or not the central bank will continue to ease its monetary policy after cutting rates by 25 basis points in July.


The Fed is under pressure from both investors and U.S. President Donald Trump to keep cutting rates. Earlier this week Trump said the central bank should cut rates by as much as 100 basis points, while on Wednesday he claimed the Fed was the only downside to the state of the economy.


"Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He's like a golfer who can't putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don't count on him!" Trump wrote on Twitter.


The Japanese yen, which is seen as a safe haven in times of market turmoil, fell with USD/JPY rising 0.2% to 106.40.

Original Article

Argentina new economy chief will not allow 'irrational' run on peso





By Hugh Bronstein and Hernan Nessi


BUENOS AIRES (Reuters) - Argentina will not allow a chaotic fall in the peso and will use its dollar reserves to bolster the currency against political uncertainty that has swept the country since the Aug. 11 primary election, Treasury Minister Hernan Lacunza said on Wednesday.


The peso opened 0.47% weaker at 55 to the U.S. dollar and the country's risk spread was 8 basis points tighter at 1,855 over safe-haven U.S. treasury bonds , reflecting a calming of recent market jitters.


"We will not allow an irrational run on the currency. That's why we have international reserves," Lacunza told local radio station Mitre in an early morning interview, less than 24 hours after being sworn in as treasury chief.


Later on Wednesday, Lacunza was scheduled to meet with economic advisors to center-left presidential candidate Alberto Fernandez, who crushed business-friendly incumbent Mauricio Macri in the presidential primary vote. The primary result sent the peso spiraling down 18% last week.


"Since the market pays as much attention to the future as it does to the present, in addition to what the government in charge can do, it also matters what the other candidates and their economic teams say, to generate certainty towards the future," Lacunza said, when asked about the meeting with the Fernandez team scheduled for later in the day.


Fernandez is now the clear front-runner ahead of the Oct. 27 presidential election. Macri has enacted a series of emergency economic measures, including cuts in food and personal income taxes, aimed at helping families stung by Argentina's recession and 55% inflation rate.


Nicolas Dujovne, the former treasury minister, quit on Saturday, saying he believed the country needed "significant renewal" of its economic team.


The currency stabilized on Tuesday, after the central bank poured $112 million of its reserves into dollar auctions.


Including last week's interventions, the bank had auctioned off $615 million in dollar reserves as of Tuesday afternoon, traders said.


Lacunza said Argentina would hit its target of erasing the country's primary fiscal deficit this year, under a $57 billion standby financing pact signed in 2018 with the International Monetary Fund. Macri negotiated the pact to halt a run on the peso last year.

Original Article

Forex - Dollar Hovering Near 3-Week Highs ahead of Fed Minutes

© Reuters.  © Reuters.



Investing.com - The U.S. dollar was hovering just below three-week highs in subdued trade on Wednesday as investors looked ahead to the minutes of the Federal Reserve’s July meeting later in the day for fresh clues on the monetary policy outlook.


The Fed cut rates for the first time since 2008 last month in what Chairman Jerome Powell called a “mid-cycle adjustment.” Financial markets are still expecting further rate cuts before the end of the year against a background of heightened trade tensions and slowing growth.


The minutes come ahead of the central bank's annual Jackson Hole seminar later this week, where Powell is to give an eagerly awaited speech on Friday. His comments are of particular interest after last week's inversion of the U.S. yield curve - widely regarded as a recession signal - boosted expectations the Fed would cut rates again at its September meeting.


The U.S. dollar index against a basket of six major currencies edged up 0.12% to 98.17 by 03:05 AM ET (07:05 GMT) after shedding 0.2% overnight.


The index had climbed to 98.33 on Tuesday, its highest since Aug. 1, as U.S. yields bounced from multi-year lows at the week's start on signs global policymakers were ready to step up stimulus support to stave off a steep economic downturn.


U.S. yields, however, declined overnight on the prospect of more easing by the Fed.


Takuya Kanda, general manager at Gaitame.Com Research Institute, believes U.S. President Donald Trump's "strong desire for deep rate cuts" may raise hopes among some traders of strong easing signals at Jackson Hole. But he also warned that Powell may opt to give little away in his speech as the Fed prepares for next month's meeting.


The dollar rose 0.34% to 106.58 yen reversing a part of the previous day's losses, while the euro was a touch lower at 1.1089 having put on 0.2% overnight.


The single currency dipped briefly after Italy's Prime Minister Giuseppe Conte announced his resignation on Tuesday.


"Conte's resignation won't have a strong impact on the euro in the longer run as it is only a chapter in the ever-shifting Italian politics," said Kanda at Gaitame.Com Research.


In addition to the Fed, the euro also has to contend with the possibility of the European Central Bank easing policy in September.


The Bundesbank said on Monday that the German economy may have continued to shrink over the summer as industrial production declined. That would mean the euro zone's biggest economy is now in recession following the second quarter's decline reported last week. Recession is commonly defined as two consecutive quarters of negative growth.


"Germany in recession would generate a strong buzz, and there is no doubt that economic conditions in the zone would force the ECB to take its next policy steps," said Daisuke Karakama, chief market economist at Mizuho Bank.


Sterling was down 0.24% to 1.2138, giving back some of the previous sessions gains.


The British pound rose after German Chancellor Angela Merkel said the European Union would think about practical solutions regarding the post-Brexit Irish border.


--Reuters contributed to this report

Original Article

Bankers hawk hedging as trade war hits China's yuan





By Samuel Shen and Andrew Galbraith


SHANGHAI (Reuters) - In a Shanghai room packed with small businesses ranging from furniture makers to garment exporters, Zhu Yuan, a currency expert at Bank of Communications, explains why Chinese companies need to build their defenses against currency volatility.


"Currency swings are now largely at the mercy of geopolitics and Sino-U.S. relations. The yuan's value is getting nearly impossible to predict," he told members of the city's chamber of commerce.


"Relatively volatile yuan fluctuations have exposed enterprises to big currency risks."


The yuan has fallen about 11 percent against the dollar since Washington announced its first hefty tariffs on Chinese imports 17 months ago.


The latest jolt came early this month, when authorities surprised markets by letting the yuan slide through the psychological support level of 7 to the dollar to decade lows, unsettling Chinese firms such as exporters and heavy borrowers of foreign debt.


Company executives listened with rapt attention as Zhu drew parallels with a house on sale to explain the basics of one hedging tool, a currency option. It's like putting down a deposit, he said, so that one has the right to buy the property in three months at a fixed price, no matter how prices change.


With no quick end to the trade war in sight, Chinese bankers, consultants and exchange operators are milking the opportunity to sell risk-mitigating tools that they claim will allow company bosses to sleep better at night.


"As the yuan cracks seven, uncertainty ahead will only increase," said Zhu Jianhua, a senior executive at commodities importer Shanhan Resources.


Currency volatility is relatively new for Chinese businesses. Until 2015, when Beijing adopted a more market-driven currency policy, the heavily managed yuan had been on an almost uninterrupted decade-long firming trend against the dollar.


Beijing's trade war with Washington since 2018 has spawned increased uncertainty and volatility.


At the end of 2018, only 230 China-listed companies - less than 7% of total - were engaged in hedging, as per their disclosures to the exchange. Analysts say that partly explains why earnings in China, and hence share prices, are more volatile than those in the United States.


According to an estimate by Industrial Bank Co, daily average trading in onshore yuan derivatives accounted for just 0.05% of the country's total import and export volumes in 2016. That compares with 0.9% in the United States, and 0.88% in Japan.


China Merchant Securities estimates that, if the yuan falls 3% against the dollar in 2019, China-listed airlines and other transport companies could be hit with a combined 5.6 billion yuan loss, equivalent to 4.3% of their net profit.


THE BUSINESS OF RISK


As the yuan's latest slide sparked fears the trade war could be broadening into a currency war, China's central bank urged companies to take precautions.


"We hope that companies don't expose themselves to currency risks too much," the People's Bank of China (PBOC) said in a statement on Aug. 5, hours after the yuan broke through the 7-mark.


It stressed companies should use derivatives to manage actual business risks, rather than making currency bets.


Seizing on concerns among Chinese trading firms and manufacturers, Zheshang Bank started promoting an online trading platform for yuan options. The lender ran advertisements saying yuan volatility could easily "reverse a company's fortune", "wipe out its profit", and "cause financial losses".


Liu Wencai, a former official at China's financial futures exchange and author of the book "the wisdom of risk-hedging", set up his own consultancy D-union in March to help companies manage market uncertainty.


"The trade war has boosted currency volatility, which has led to a burst in demand for risk-hedging," said Liu, who sees huge potential in a country where hedging expertise and tools are scarce.


In addition to embracing onshore hedging tools, an increasing number of Chinese firms are starting to access overseas derivative markets, which are often more liquid and less costly.


The Hong Kong Exchanges and Clearing Ltd (HKEX) (HK:0388) has seen rapid growth in the trading of futures and options involving the U.S. dollar and CNH, or offshore yuan. .


In 2018, as Sino-U.S. trade tensions intensified, HKEX's USD/CNH futures trading volume more than doubled from a year earlier to almost 1.8 million contracts, and has been rising this year. Average daily volume in June represented a 173% increase from 2017, HKEX said on its website.


The Singapore Exchange has also launched USD/CNH futures and options.


After heavy losses due to currency swings a few years ago, Golden Chemical Co, a Chinese chemical importer with annual overseas purchases of as much as $100 million, now uses both domestic and overseas derivative tools.







Jin Shengrong, its treasurer, said that since mid-2018, the company increased hedging activities, and "we therefore avoided quite substantial risks."

Original Article

Dollar nudged off three-week high, U.S. yields capped before Jackson Hole

© Reuters. U.S. dollar notes are seen in this picture illustration© Reuters. U.S. dollar notes are seen in this picture illustration



By Shinichi Saoshiro

TOKYO (Reuters) - The dollar was under pressure on Wednesday, elbowed off a three-week peak after a bounce in U.S. yields stalled ahead of a global central bankers meeting, at which the Federal Reserve is expected to give clues on further rate cuts.

Officials from major central banks will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Fed Chair Jerome Powell.

His comments are of particular interest after last week's inversion of the U.S. yield curve - widely regarded as a recession signal - boosted expectations the Fed would lower interest rates at its September policy meeting. Faced with rising risks to the U.S. economy, the central bank in July cut rates for the first time since the financial crisis.

The dollar index (DXY) against a basket of six major currencies was nearly flat at 98.232 after shedding 0.2% overnight.

The index had climbed to 98.450 on Tuesday, its highest since Aug. 1, as U.S. yields bounced from multi-year lows at the week's start on signs global policymakers were ready to step up stimulus support to stave off a steep economic downturn.

U.S. yields, however, declined overnight on the prospect of more easing by the Fed.

Takuya Kanda, general manager at Gaitame.Com Research Institute, believes U.S. President Donald Trump's "strong desire for deep rate cuts" may raise hopes among some traders of strong easing signals at Jackson Hole. But he also warned that Powell may opt to give little away in his speech as the Fed prepares for the September policy review.

Investors will also be looking for clues on the Fed's plans in minutes of its July policy meeting due later on Wednesday.

The dollar bounced 0.2% to 106.460 yen reversing a part of the previous day's losses, while the euro was steady at $1.1094 (EUR=), having put on 0.2% overnight.

The single currency dipped briefly after Italy's Prime Minister Giuseppe Conte announced his resignation on Tuesday.

"Conte's resignation won't have a strong impact on the euro in the longer run as it is only a chapter in the ever-shifting Italian politics," said Kanda at Gaitame.Com Research.

In addition to the Fed, the euro also has to contend with the possibility of the European Central Bank easing policy in September.

The Bundesbank said on Monday that the German economy may have continued to shrink over the summer as industrial production declined. That would mean the euro zone's biggest economy is now in recession following the second quarter's decline reported last week. Recession is commonly defined as two consecutive quarters of negative growth.

"Germany in recession would generate a strong buzz, and there is no doubt that economic conditions in the zone would force the ECB to take its next policy steps," said Daisuke Karakama, chief market economist at Mizuho Bank.

Sterling traded at $1.2156 , holding a bulk of the gains made on Tuesday when it advanced 0.4%.

The pound rose after German Chancellor Angela Merkel said the European Union would think about practical solutions regarding the post-Brexit Irish border.


The Australian dollar was largely flat at $0.6779 after edging up 0.2% on Tuesday.

Original Article

Forex - U.S. Dollar Flat; Euro Also Little Changed as Italy’s PM quits

© Reuters.  © Reuters.



Investing.com - The U.S. dollar was near flat on Wednesday in Asia, while the Euro was also largely unchanged as Italy’s Prime Minister quit.


The U.S. dollar index that tracks a basket of other currencies was little changed at 98.107. A gathering of central bankers at Jackson Hole, Wyoming and a speech by Federal Reserve Chairman Jerome Powell are expected to be major directional drivers for the U.S. currency.


The Fed will release minutes of its July policy meeting minutes due later in the day. In July, the central slashed rate for the first time since the financial crisis.


The euro was also near flat after Italy’s Prime Minister Giuseppe Conte said he is resigning ahead of no-confidence vote.


The latest reports suggested that it is unclear if snap elections would be called or if parliament would be asked to try and form a new government.


The safe-haven Japanese yen fell against the U.S. dollar even as stock markets traded lower amid concerns on a slowing global economy. Uncertainties surrounding the U.S.-China relations also affected market sentiment, as U.S. President Donald Trump said he had to “take China on” even if it would cause short-term impact on U.S. economy.


"Somebody had to take China on," Trump told reporters during a White House visit by Romanian President Klaus Iohannis. "This is something that had to be done. The only difference is I am doing it," he said.


"China has been ripping this country off for 25 years, for longer than that and it's about time whether it's good for our country or bad for our country short term. Long term it's imperative that somebody does this," he said.


The AUD/USD pair inched up 0.4% to 0.6778. The NZD/USD pair slipped 0.1% to 0.6407.

Original Article

Asia’s Top Currency Helps Thai iPhone Retailer Lead the World

© Reuters.  Asia’s Top Currency Helps Thai iPhone Retailer Lead the World© Reuters. Asia’s Top Currency Helps Thai iPhone Retailer Lead the World



(Bloomberg) -- While Thailand’s surging currency is squeezing exporters, the nation’s largest consumer-electronics retail chain is benefiting as the strong baht attracts customers by making iPhones and Samsung smartphones cheaper.


Com7 Pcl’s 72% total return this year through Monday on its stock ranks as the world’s best performance among electronics sellers with a market value of at least $500 million, according to data compiled by Bloomberg. Earnings growth will enjoy “strong momentum” for the rest of this year, partly helped by the baht, after a record profit in the second quarter, according to the company.


“The strong baht means lower prices for smartphones and other devices, which will bolster consumer demand,” said Poramet Tongbua, an analyst at Bualuang Securities Pcl. “That will benefit Com7’s earnings outlook, as it has the strongest brand and branch network in the country.”


Com7 operates Banana and Studio 7 stores that specialize in smartphones, PCs and other electronic devices manufactured by brands such as Apple Inc (NASDAQ:AAPL)., Samsung Electronics (KS:005930) Co. and Huawei Technologies Co. The Bangkok-based retailer has been in talks with those companies about plans to cut product prices following the baht’s gain, Chief Executive Officer Sura Kanittavikul told investors last week.


“Our earnings growth looks rosier in the second half, with cheaper prices and the onset of the year’s highest-spending period,” Sura said.


The baht has gained about 5.5% this year, the best performer among major Asian currencies tracked by Bloomberg. Com7’s net income in the April-June period jumped 36% from a year earlier to 294 million baht ($9.5 million), the highest quarterly earnings since the company listed in 2015, according to data compiled by Bloomberg.


To be sure, the baht’s strength isn’t welcomed everywhere in Thailand. Southeast Asia’s second-biggest economy grew at the slowest pace in almost five years in the second quarter as exports and tourism were buffeted by U.S.-China trade tensions and the strong local currency.

Original Article

Tuesday, August 20, 2019

Forex - Euro Recovers After Italian PM Resigns

© Reuters.  © Reuters.



Investing.com - The euro recovered from earlier lows after Italy’s Prime Minister Giuseppe Conte said he is resigning ahead of no-confidence vote, putting the future of the Italian government in jeopardy.


Uncertainty still remains, as it is unclear if snap elections will be called or if parliament will be asked to try and form a new government.


The 5 Stars Movement and the traditional center-left Democratic Party could form a majority, but must first set aside key differences.


EUR/USD rose 0.1% to 1.1089 by 10:18 AM ET (14:18 GMT).


Sterling remained volatile as the tussle between the European Union and the U.K. over the Irish backstop in the Brexit deal. The pund jumped against the dollar when German Chancellor Angela Merkel said the EU will think about practical solutions regarding the backstop, but the enthusiasm was short-lived and sterling retreated.


GBP/USD was up 0.11% to 1.2138 after reaching an earlier low of 1.2072.


On Monday U.K. Prime Minister Boris Johnson sent an open letter to EU Council President Donald Tusk saying the U.K. ultimately wants to be freed from the EU’s regulatory standards. The EU has maintained that such freedom would require border and customs checks to be introduced at the border between Ireland and Northern Ireland.


Tusk tweeted that those against the backstop haven't produced any realistic alternatives.



Meanwhile, Brexit Secretary Stephen Barclay said that U.K. officials will stop attending some EU meetings starting Sept. 1 as the country prepares to officially withdraw from the bloc on Oct. 31.


The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, slipped 0.1% to 98.137.


The Japanese yen, which is seen as a safe-haven in times of market turmoil, rose with USD/JPY falling 0.2% to 106.36.

Original Article

Lira Takes a Hit as Dollar Strength Catches Up With Turkey Bulls





(Bloomberg) -- The strength of the U.S. dollar is finally catching up with the lira.


After a rally that saw the Turkish currency buck an emerging-market rout over the past few months as the dollar gained, the lira is back to leading losses. It slumped as much as 1.5% to a one-month low of 5.7485 against the U.S. currency as of 1:10 p.m. on Tuesday.


The U.S. currency on Tuesday touched its strongest level this year against major peers, as measured by the Bloomberg Dollar Index. Traders with knowledge of the matter said foreign accounts were seen closing out their long lira positions, compounding the move.


The Turkish currency -- one of the highest-yielding anywhere in the world -- has been a favorite among offshore carry traders looking to profit as funding costs in the U.S. and Europe nosedived in anticipation of central bank stimulus. But those wagers start to look hollow if the prospect of looser policy in the developed world fails to weaken the dollar.


Falling inflation in Turkey also opened the way last month for an easing cycle, bolstering lira bulls. Societe Generale (PA:SOGN) SA this month recommended investors back the lira, targeting a rally to 4.70 per dollar. Citigroup Inc (NYSE:C). opened a long position against the euro with a target of 5.85.


Some investors are now fretting that authorities are moving ahead with more aggressive policy easing than anticipated after the central bank on Monday tweaked its reserve rules to encourage credit growth.

Original Article

Forex - Euro Tests Lows Ahead of Expected No-Confidence Vote in Italy

© Reuters.  © Reuters.



Investing.com -- The dollar was little changed in early trading in Europe Wednesday but starting to build momentum against the euro at the start of a day where politics is likely to dominate economics.


The euro was at $1.1079 by 3:30 AM ET (0730 GMT) and looking to test last week’s low of $1.1066 ahead of a big day in the Italian parliament. Prime Minister Giuseppe Conte is due to speak in the afternoon and is expected to resign ahead of a no-confidence vote that has been called by the right-wing Lega party, the junior member of the governing coalition. While both the Lega and its partner the 5 Stars Movement appear to have given up on continuing their government, it is far from clear what might follow if the no confidence vote succeeds.


Snap elections are one possibility, but it is also possible that President Sergio Mattarella will ask the parties in parliament to form a new government. Theoretically, the 5 Stars Movement and the traditional center-left Democratic Party are capable of forming a majority that could pass a budget for the coming year and perhaps take the sting out of the country’s budget dispute with the European Union. However, that would require the two parties to set aside a good deal of past animosity toward each other.


Economics are also against the euro at present, after the Deutsche Bundesbank warned in its monthly report on Monday that it expects a second straight quarter of contraction in the summer, meaning that the euro zone’s traditional engine room would be in recession for the first time in a decade.


The euro was, however, strengthening against the pound after Prime Minister Boris Johnson’s latest initiative on Brexit underlined the distance between the U.K. and EU positions on how to manage the Irish border in future. In an open letter to EU Council President Donald Tusk, Johnson again reiterated the desire for freedom to diverge from the EU’s regulatory standards in the long term, a prospect which the EU has always said will require border and customs checks to be introduced.


The pound was at 1.0927 against the euro, down 0.3% from late Monday and apparently resuming its slide, ending a short-covering rally that was triggered by hopes that lawmakers would strike a cross-party agreement to block a No-Deal Brexit.


The dollar index, which tracks the greenback against a basket of currencies, was up less than 0.1% at 98.257.


Elsewhere, EUR/CHF remained well offered as the backdrop of the global slowdown forces the unwinding of carry trades and raises demand for haven currencies. Analysts note that sight deposits in the Swiss banking system have been rising at an accelerating pace over the last four weeks, something they say strongly suggests intervention by the Swiss National Bank to slow the franc’s rise. At 1.0854 to the euro, it has risen nearly 10% in the last 16 months, most of that appreciation coming in the last four months.

Original Article

Summer calm: some traders back away from 'extreme' sterling shorts





By Olga Cotaga


LONDON (Reuters) - After shedding nearly 10% of its value since mid-March, sterling may enjoy some calm over the remaining weeks of the British summer as traders take advantage of a parliamentary recess to unwind short positions in the currency.


Fears that Britain will leave the European Union on the Oct. 31 deadline without any transitional agreements - a no-deal Brexit - have hammered the pound in recent months. Traders have heavily shorted it - selling pounds in anticipation they can buy them back later for less.


But after the pound dropped to 10-year lows against the euro this month - not counting a mini-crash in 2016 - it has stabilized somewhat, and traders are offloading some of those shorts.


"We've been short sterling/Japanese yen for three months and we are considering to reduce (the short) now," said Vasileios Gkionakis, global head of forex strategy at Lombard Odier.


"If no-deal (Brexit) increases in probability, then of course sterling would be a sell, but until then I’m becoming a bit more neutral," Gkionakis said.


The pound has gained 0.4% and 1.6% from recent lows against the dollar and euro respectively to trade just above $1.21 and at 91.5 pence per euro (EURGBP=D3). Since the initial March Brexit deadline, it has fallen 10% against the euro and dollar and lost 15% to the yen (GBPJPY=).


Gkionakis' view seems to be shared by others: net short sterling positions were at $7.22 billion on Aug. 13, down from the previous week's $7.81 billion -- the highest since April 2017 -- according to the Commodity Futures Trading Commission.


GBP positions - https://fingfx.thomsonreuters.com/gfx/mkt/12/4910/4867/GBP%20positions.jpg


Three-month risk reversals in sterling, a contract which encapsulates the Brexit deadline, paint a similar picture. Demand for sterling "puts" -- the right to sell pounds at a pre-agreed price -- remains high. But has eased in the past week, implying investors aren't so sure sterling will drop.


The calm coincides with parliament's recess until Sept. 3. But markets also want to see whether Britain's opposition parties can agree strategies for toppling Prime Minister Boris Johnson's government or whether Johnson will persuade the EU to return to the negotiating table.


Either would see the pound rally, saddling short-sellers with losses.


"We find risk-reward more attractive to consider entering structural long sterling positions as we get closer to September," said Paul Hollingsworth, senior European economist at BNP Paribas (PA:BNPP).


HARD TO SUSTAIN


Gauges compiled by banks and asset managers also imply positioning is off recent extremes. According to RBC Capital Markets, for instance, short sterling positions are still being added, but flows are smaller and bearish positioning has inched off this year's high.


RBC GBP positioning data - https://fingfx.thomsonreuters.com/gfx/mkt/12/4909/4866/RBC%20GBP%20positioning%20data.jpg


"It is hard to sustain positioning levels that are this extreme, so I'd expect sterling to appreciate a little in the weeks ahead as some of this positioning begins to wash out," said RBC quant trader Robert Turner who has "a tactical long position" in the pound.


Many reckon the calm will end once parliament returns and the Brexit deadline approaches, however.


Richard Oliver, head of cash FX trading for EMEA at HSBC, one of the leading investment banks in foreign exchange trading, said short pound positions were reduced as the currency fell toward $1.20. More recently, though, his clients have started adding shorts, he said.


Similarly, a positioning index from currency fund Millennium fell to minus 1.7 on Aug 13, from -1.4 the week before on a -5 to +5 scale.







Heavy short positioning may slow down sterling depreciation for now, but the no-deal Brexit risk means a bigger sterling adjustment may ultimately be needed, said Claire Dissaux, Millenium's head of global economics.

Original Article

Dollar near three-week peak as global stimulus talk lifts yields





By Shinichi Saoshiro


TOKYO (Reuters) - The dollar hovered near a three-week high on Tuesday, as expectations policymakers around the world would unleash fresh stimulus drove an improvement in appetite for riskier assets and lifted U.S. government bond yields.


Yields on benchmark U.S. Treasuries pulled away from three-year lows, helped in part by the prospect of Germany ditching its balanced budget rule to boost spending and on more economic support measures by China.


China's yuan was down 0.2% at 7.0661 per dollar in onshore trade against the broadly firmer greenback.


The yuan was also modestly pressured after the People's Bank of China (PBOC) set its new lending rate slightly lower. It was the first publication of the benchmark since the PBOC announced interest rate reforms over the weekend designed to lower corporate borrowing costs.


"The dollar is higher across the board, tracking the rebound in yields. The prospect of Germany embarking on stimulus was the turning point and the dollar has regained momentum since," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.


The greenback traded little changed at 106.580 yen following three straight sessions of gains, having moved away from a seven-month low near 105.000 reached last week.


Against the Swiss franc, a currency sought in times of market turmoil and political tensions along with the yen, the dollar held near a two-week high of 0.9820 franc scaled overnight.


The euro was a shade higher at $1.1086, but it still held close to a two-week trough of $1.1066 set on Friday on lingering concerns over political developments in Italy.


Italy’s opposition Democratic Party has had good, initial contacts with the ruling 5-Star Movement over the possibility of forging a coalition, a PD source with knowledge of the talks said on Monday.


The 5-Star’s current coalition partner, the far-right League, has said it will present a no-confidence motion against Prime Minister Giuseppe Conte in an attempt to trigger a snap election and cash in on its surging popularity in the polls.


"The political situation in Italy remains unstable. In addition, expectations of Germany embarking on fiscal stimulus may in turn also heighten Italian fiscal concerns," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.


The Australian dollar edged up 0.15% to $0.6776 after minutes of the Reserve Bank of Australia's (RBA) August meeting suggested the central bank wasn't in a hurry to cut rates again. While RBA is seen leaving the door open for further easing, analysts reckon the prospect of an immediate rate cut was limited.


Market focus will shift to the annual symposium of global central bankers starting on Friday at Jackson Hole, Wyoming.


Particular attention will center on Fed Chairman Jerome Powell's comments on monetary policy at a time when investors widely expect the Fed to cut rates again at its next meeting in September.







"A series of further rate cuts by the Fed has already been priced into the dollar. So the currency could gain a fresh boost if Powell does not sound as dovish as expected and clouds rate cut prospects," Ishizuki at Daiwa Securities said.

Original Article

Forex - U.S. Dollar Unchanged; Yuan Falls as PBOC Debuts New Loan Prime Rates

© Reuters.  © Reuters.



Investing.com - The U.S. dollar was unchanged on Tuesday in Asia, while the Chinese yuan fell as the country’s central bank debuted a new loan prime rates announced on the weekend.


The U.S. dollar index was largely unchanged at 98.210 by 11:20 PM ET (03:20 GMT). The index hovers around three-week highs as the 10-year U.S. Treasury yield pulled further away from a three-year trough of 1.47% marked last week, which sparked concerns of a potential recession.


Looking ahead, this week’s Jackson Hole symposium and Federal Reserve Chairman Jerome Powell’s speech will be the main focus for the dollar. Following recent recession fears, some analysts believe the Fed might cut rates by another 25 basis points at the next policy meeting in September.


The USD/CNY pair gained 0.2% to 7.0634. The Chinese yuan fell against the dollar even after the U.S. extended a license that allows tech giant Huawei to continue doing business with U.S. companies. U.S. President Donald Trump said this week that he was not ready yet to make a trade with China.


The People’s Bank of China today debuted its new loan prime rates under a new mechanism that was revealed on Saturday. The interest rate reforms help lower borrowing costs for companies and support slowing growth, which has been hit by the trade war with the U.S.


The USD/JPY pair slipped 0.1% to 106.52. The AUD/USD pair and the NZD/USD pair both climbed 0.2%.


The Reserve Bank of Australia said today that it is ready to ease further if evidence suggests a boost is needed for the economy.


“The board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy," the central bank said in a statement.


“Members would consider a further easing of monetary policy if the accumulation of additional evidence suggests this was needed to support sustainable growth.”

Original Article

Hedge Funds Throw Heft Behind 2019’s Best-Performing Currency

© Reuters.  Hedge Funds Throw Heft Behind 2019’s Best-Performing Currency© Reuters. Hedge Funds Throw Heft Behind 2019’s Best-Performing Currency



(Bloomberg) -- The yen’s dominant 2019 rally has finally caught the attention of hedge-fund managers.


Speculators haven’t been this bullish on the yen since November 2016, Commodity Futures Trading Commission data show. Before early this month, the group had been short Japan’s currency for more than a year, but they’ve gradually brightened on its prospects as U.S.-China trade tensions have fueled concern about global economic growth.


The yen has gained against all of its Group-of-10 peers this year, and given the “shaky” risk outlook, it should keep climbing, according to Citigroup Inc (NYSE:C).


“The yen by far and away is the best safe-haven currency in the G-10, despite where risk-off originates,” said Calvin Tse, the bank’s head of North American G-10 currency strategy. “In the current environment, we continue to believe that risks to the yen are heavily skewed towards strength.”


The yen has risen almost 3% against the dollar in 2019, more than any other G-10 currency. It appreciated to 105.05 per dollar last week, close to its strongest level of 2019, as the bond market sent an alarm signal on the global economy.


A Bank of Japan that is less inclined than other central banks to aggressively add stimulus in the face of slowing growth would also benefit the yen, according to Credit Suisse’s Shahab Jalinoos.


Credit Suisse (SIX:CSGN) expects the dollar-yen pair to fall to 100 over the next 12 months, from 106.60 currently. It hasn’t been that low since 2016.


“The BOJ may prove more conservative in terms of what it’s willing to do going forward than some other major central banks,” said Jalinoos, global head of foreign-exchange trading strategy. “The BOJ hasn’t rushed to get ahead of the curve in terms of messaging.”

Original Article

Trump's Trade War Is Keeping the Dollar Strong, Not the Fed





(Bloomberg) -- Donald Trump has blamed the stubbornly strong dollar on the Federal Reserve’s reluctance to slash interest rates further. But real yields suggest investors fearful of the president’s trade war are what’s keeping the greenback strong.


Consider the evidence: the U.S. currency has advanced against seven of 10 major peers this year even as the premium on inflation-adjusted Treasury yields over that of other major debt markets has narrowed since November.


Implied 10-year U.S. real yields have fallen more than a percentage point from a November high to 0.05%, driven by the Fed’s rate cut amid muted inflation expectations.


The dollar has remained bid as investors seek shelter in havens amid growing concerns the trade dispute could tip the global economy into a recession.


“It’s natural for the dollar to be strong,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities Co. in Tokyo. “Trump is waging a trade war against economies that earn a surplus from the U.S. and making the strong American economy even stronger.”


Money markets are fully pricing in a further 1% of Fed rate cuts by end-2020. But Boston Fed President Eric Rosengren, who voted to keep rates unchanged at the last review, on Monday downplayed the need for more easing, saying he’s not convinced that slowing trade and global growth will significantly dent the U.S. economy.


Investors may gain more insight on the outlook for U.S. interest rates and the fallout from the trade war when policy makers gather at the Jackson Hole symposium and the Group-of-7 meeting over the coming week.


The dollar’s outperformance has prompted Trump to attack Fed policy for eroding the U.S.’s competitive edge. The Dollar Index advanced in five of the first seven months of 2019 and rallied to the highest in more than two years in August.


The inflation-adjusted yield differential used in the chart above was constructed using 10-year inflation-linked bonds issued by the U.S., Germany, Japan, U.K., Canada and Sweden. The average was derived using the same weights as those for the Dollar Index, minus Switzerland, which was excluded as it does not issue comparable sovereign securities.

Original Article