Dollar Hits 2-Week Lows as Pandemic Fears Intensify

Dollar Hits 2-Week Lows as Pandemic Fears Intensify

By Ritu,

Capital Sands

The dollar extended losses on Thursday, falling to two-week lows against a currency basket as the first confirmed coronavirus case of unknown origin in the U.S. heightened fears of a pandemic.

The dollar fell 0.4% to 109.94 yen , extending a pullback from a 10-month high of 112.23 yen reached on Feb. 20.

The dollar was down 0.5% to 0.9716 Swiss franc, a currency that is traditionally sought as a safe haven.

The dollar fell from a three-month high versus the pound and declined versus the euro as 10-year U.S. Treasury yields hit record lows amid worries over whether the world’s largest economy was prepared for the epidemic.

Money markets are now pricing a roughly even chance of a Federal Reserve interest rate cut next month and have almost fully priced a cut by April. However, many economists question whether interest rate cuts are the most appropriate way to sustain demand in the face of the current demand shock.

The Bank of Korea, at its policy meeting earlier Thursday, left its key rate unchanged, despite South Korea being the country worst affected by the virus outside China.

New infections of the virus are now growing at a faster rate outside of China, where it originated, stoking fears that the economic impact of travel curbs, supply chain disruptions, and falling demand might be far greater than previously anticipated.

“The dollar doesn’t look so safe if we are dealing with the spread of the virus in the United States,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

The Centers for Disease Control and Prevention warned on Wednesday of the possibility of community spread after confirming a coronavirus infection in someone who had not travelled abroad or been exposed to a known carrier of the virus, a first for the country.

That brought the total number of cases in the U.S. to 15, according to the CDC, which is still a tiny fraction of the cases in China.

Dollar Calm; Retains Strength Against Main Rivals

Dollar Calm; Retains Strength Against Main Rivals

By Ritu,

Capital Sands

The U.S. dollar was largely flat in European trading Monday, with the U.S. holiday providing little incentive for traders to take risks. That said, the greenback still looks strong against its main competitors.

At 03:35 ET (0835 GMT), the Dollar Index Futures, which tracks the greenback against a basket of other currencies, was essentially flat at 97.40. USD/JPY traded flat at 110.15, EUR/USD at 1.1095, up 0.1%, and GBP/USD at 1.2979, down 0.2%.

Figures released by the Commerce Department on Friday showed U.S. housing starts in December were well above economists’ estimates for 1.38 million and were the biggest gain in 13 years.

Retail sales were also on the rise and a gauge of manufacturing activity rebounded to its highest in eight months.

The positive data reduced chances that the Federal Reserve would slash rates when it meets later this month.

The European Central Bank and the Bank of Japan are also not expected to make any changes in their first policy meetings of the year this week, but the Bank of England is widely expected to cut rates in the near future.

Forex – Yuan Pushes Higher After Data Release

Forex – Yuan Pushes Higher After Data Release

By Ritu,

Capital Sands

The Chinese yuan is flying Friday, climbing to six month highs against the U.S. dollar in the wake of the release of the country’s latest economic growth figures.

The USD/CNY pair traded at 6.8598, down 0.3%, while the US Dollar Index Futures, which tracks the greenback against a basket of other currencies, was essentially flat at 97.06.

The People’s Bank of China set the reference rate for the yuan at 6.8878 Friday, compared with 6.8807 Thursday.

Earlier Friday, China reported that its gross domestic product grew 6% in the fourth quarter, meaning economic growth slowed to 6.1% in 2019. While this is in line with expectations, it’s also the country’s weakest growth in nearly three decades. Traders zeroed in on the monthly data for industrial production, which grew at the fastest rate since April in December, while retail sales growth stayed at 8% and fixed asset investment ticked up from a multi-year low. All those indicators point to a bottoming out of the world’s second-largest economy.

That said, there had been fears that the U.S.-China trade war could result in the annual GDP figure losing its 6% handle. Additionally, the country’s industrial production rose 6.9% in December, well above economists’ estimates of 5.9% and the fastest gain since April 2019. And annual retail sales growth stayed at 8.0%, more than expected.

These figures added to the tailwinds which have been boosting the currency of late.

It was only Wednesday that the signing phase one trade agreement between the U.S. and China drew a line under 18 months of tit-for-tat tariff hikes that hurt global, and domestic growth.

The U.S. had announced the manipulator label in August, after the yuan slid above 7 to the dollar for the first time in more than a decade.

Merkel Spends Big to Kickstart Germany’s Stalled Coal Exit

Merkel Spends Big to Kickstart Germany’s Stalled Coal Exit

By Ritu,

Capital Sands

Chancellor Angela Merkel clinched a deal to kickstart Germany’s stalled coal exit, offering billions in compensation to utilities and coal regions so that closures of plants can start this year.

In talks that began Wednesday evening and lasted well into the night, the government hammered out a timeline with coal-state leaders to shut down the country’s coal-fired power generation by 2038, a plan that includes 40 billion euros  in compensation for impacted regions.

Firms will also get billions in compensation. Utility RWE AG , Germany’s biggest coal-fired power producer, will receive 2.6 billion euros in payments, according to a person familiar with the matter. Lignite operators in eastern Germany will receive 1.75 billion euros, German Finance Minister Olaf Scholz said at a press conference in Berlin.

A spokesman for RWE declined to comment on the compensation sum, adding the company would comment later Thursday. RWE’s stock gained 1.7% in early Frankfurt trading to hit its highest level since October 2014.

Merkel has faced ongoing pressure to slash carbon emissions more swiftly. Climate issues are top of voter concerns, polls show, and most approve of pulling out of coal. Germany will miss its 2020 targets under the Paris Agreement and could fall further behind if it doesn’t start closing coal-fired power plants soon.

Forex – Markets Calm; Sterling Awaits Inflation Data

Forex – Markets Calm; Sterling Awaits Inflation Data

By Ritu,

Capital Sands

A tone of caution prevails in the foreign exchange markets Wednesday, ahead of the signing of the much-awaited trade deal between U.S. and China.

the safe-haven yen was slightly firmer against the U.S. dollar, with USD/JPY trading at 109.91, down 0.1%, while the euro was marginally lower against the dollar, with EUR/USD at $1.1120, down less than 0.1%. A preliminary reading of 2019 German GDP due at 4 AM ET (0900 GMT) may have some impact on that pair.

The formal agreement is aimed at drawing a line under 18 months of tit-for-tat tariff hikes that have hurt global growth, but it will not end the trade dispute between the world’s two largest economies. This was made clear overnight when U.S. Treasury Secretary Steven Mnuchin said existing tariffs on Chinese goods would stay, pending further talks.

Elsewhere,sterling has climbed back above the $1.30 level, helped by comments from Prime Minister Boris Johnson who said late Tuesday that he considers “very likely” the U.K. will get a “comprehensive trade deal with the EU by year-end.”

Pound on Longest Losing Streak Since May on BOE Easing Talk

Pound on Longest Losing Streak Since May on BOE Easing Talk

By Ritu,

Capital Sands

The pound extended its decline to the longest run in eight months as speculation of an imminent Bank of England interest-rate cut increased.

Sterling fell as much as 0.3% against the dollar to $1.2955. Credit Agricole SA pointed out that more than half of the members of the bank’s Monetary Policy Committee are ready to support a reduction if U.K. data doesn’t improve. The next rate announcement is on Jan. 30.

Bets the BOE will lower borrowing costs this month grew after data on Monday showed the economy shrank in November, casting doubt over whether there was any growth at all in the fourth quarter. That added fuel to a sell-off spurred by policy makers which  signaled support for a cut.

The next rate setter due to speak publicly is Michael Saunders on Wednesday morning in Northern Ireland. Consumer price index data for December is also due Wednesday.

A more dovish rhetoric from Saunders, as well as potential downside surprises from the U.K. CPI could add to the headwinds for the pound.

The pound fell to $1.2970. in London, taking its retreat so far this year to 2.2%. It weakened by 0.2% to 85.86 pence per euro, setting course for its fourth day of declines. The yield on 10-year government bonds slipped a third day to 0.719%, the lowest level since Jan. 6.

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