Dollar drifts as traders weigh rate path; yen fragile

SINGAPORE, June 19 (Reuters) – The US dollar was tentative on Monday as investors tried to assess the monetary policy path ahead after a raft of central bank meetings last week, while the yen was fragile in the wake of the Bank of Japan sticking to its ultra-easy policy.

The dollar index, which measures the US currency against six major rivals, rose 0.049% to 102.33, not far from a one-month low of 102 it touched on Friday. US markets are closed on Monday for a holiday.

In an action-packed week of central bank decisions, the Federal Reserve left interest rates unchanged on Wednesday but hinted that further hikes were on the way to tame inflation.

The European Central Bank raised interest rates by 25 basis points on Thursday and left the door open to more hikes, with the Bank of Japan rounding off the week by standing pat on its ultra-easy policy.

“The Fed’s hawkish hold means that the bar to a hike next month is low,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

Investors, though, expect the central bank to be done with its tightening in July.

Markets are pricing in a 72% probability of the Fed hiking by 25 basis points next month, CME FedWatch tool showed, and stopping after that.

“The market, which had been pricing in cuts this year until late May still needs to be convinced that the Fed will in fact deliver two more hikes this year,” Chandler said.

Investor focus this week will be on Fed Chair Jerome Powell’s testimony later this week to Congress.

“Congressional testimony next week gives Chair Powell a second chance to push a more hawkish message,” Citi strategists said in a note on Friday.

Fed officials have also struck a hawkish tone since the meeting.

Citi said sustained strength in the economy has raised optimism around a ‘soft landing’ where inflation falls without a recession.

“However, persistently strong core inflation keeps us in the camp of those who think the most likely way inflation returns to target is through a significant downturn in growth.”

YEN SLIDES

As widely expected, the BOJ on Friday maintained its -0.1% short-term rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy, pushing the yen broadly lower.

“The BOJ believes Japan’s surge in inflation may not last without monetary policy staying loose,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore.

“We expect the BOJ will lift or end its 10Y yield cap in 2023 as inflation firms. But officials will keep the deposit rate negative to spur growth further.”

On Monday, the yen touched a near seven-month low of 141.98 per dollar, having slid 1% on Friday. The yen also touched a fresh 15-year low against the euro of 155.32.

Meanwhile, the euro was up 0.01% to USD 1.0934, hovering near a one-month peak. Sterling was last at USD 1.2817, flat on the day.

The Australian dollar fell 0.32% to USD 0.686, while the kiwi eased 0.26% to USD 0.622.

(Reporting by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman)

World stocks gauge pauses after big run, heavy central bank week

NEW YORK/LONDON, June 16 (Reuters) – A gauge of global stock markets took a breather on Friday after a run to 14-month highs, while the US dollar headed for its biggest weekly slide since January following a heavy week of central bank meetings around the world.

The MSCI All-World index edged down 0.06% but remained near its highest level since mid-April 2022. Wall Street’s main equity indexes ended lower but tallied solid weekly gains.

Ending an intense week of central bank actions, the Bank of Japan maintained its ultra-easy monetary policy on Friday despite stronger-than-expected inflation. Earlier in the week the Federal Reserve kept rates unchanged while suggesting more hikes could come later in the year, and the European Central Bank hiked by a quarter-point.

“We have had a pretty constructive week,” said Art Hogan, chief market strategist at B Riley Wealth.

“The ECB and the UK likely are still in the process of being in the throes of tightening, where the US is certainly knocking on the door of being through with the rate hiking cycle and I think that has been driving some divergences.”

On Wall Street, the Dow Jones Industrial Average fell 108.94 points, or 0.32%, to 34,299.12, the S&P 500 lost 16.24 points, or 0.37%, to 4,409.6 and the Nasdaq Composite dropped 93.25 points, or 0.68%, to 13,689.57.

The pan-European STOXX 600 index rose 0.5%, while Japan’s Nikkei rose 0.7% for a 10th straight week of gains.

In currency markets, the dollar index, which measures the greenback against a basket of currencies, rose 0.18%, with the euro down 0.09% to USD 1.09.

Still, the dollar was set to log its biggest weekly percentage drop since mid-January.

Meanwhile, the yen fell to its lowest point against the euro in 15 years after the BOJ’s decision. The Japanese currency also weakened 1.07% versus the greenback at 141.84 per dollar, dropping to a six-month trough.

“The yen is suffering from a big negative yield gap versus other G10 currencies,” said Vassili Serebriakov, FX strategist at UBS in New York.

US Treasury yields rose, with the benchmark 10-year yield rising after two straight days of declines as comments from Fed officials indicated the central bank was not yet done with its interest rate hikes.

Fed Governor Christopher Waller said at an economics conference that core inflation “is not coming down like I thought it would,” which probably would require more tightening.

Benchmark 10-year notes were up 4 basis points to 3.77% from 3.73% late on Thursday.

Oil prices rose and posted a weekly gain, as higher Chinese demand and OPEC+ supply cuts lifted prices.

US crude settled up 1.6% at USD 71.78 per barrel and Brent settled at USD 76.61, up 1.2% on the day.

(Reporting by Lewis Krauskopf in New York and Amanda Cooper in London; Additional reporting by Ankur Banerjee in Singapore and Chuck Mikolajczak, Gertrude Chavez-Dreyfuss in New York, Sruthi Shankar and Shristi Achar A in Bengaluru; Editing by Nick Zieminski and Matthew Lewis)

S&P 500 ends lower as Microsoft recedes from record high

June 16 (Reuters) – The S&P 500 ended lower on Friday, weighed down by Microsoft and other market heavyweights as comments from two Federal Reserve officials curtailed optimism that the central bank is nearing the end of its aggressive interest rate hikes.

The Nasdaq also ended the week lower, although the index and the S&P 500 remained near 14-month highs after economic data this week pointed to cooling inflation, eclipsing concerns about further rate hikes.

After holding rates steady on Wednesday, the US central bank signaled borrowing costs could rise as much as half a percentage point by year-end. However, traders see the Fed pausing hikes or even cutting rates in December following an expected 25-basis-point rate hike in July, according to CME Group’s Fedwatch tool.

Fed policymakers on Friday attempted to cool that optimism. Fed Governor Christopher Waller warned “core inflation is not coming down like I thought it would.” Richmond Fed President Thomas Barkin said he was “comfortable” with further rate increases given that inflation was still not on the path back to 2%.

“I think the Fed will continue to jawbone the market’s enthusiasm down and say ‘No, we plan on raising two more times, but of course, we are data dependent,'” said CFRA Research Chief Investment Strategist Sam Stovall.

US consumers’ near-term inflation expectations dropped to a more than two-year low in June and the outlook over the next five years improved slightly, according to the University of Michigan’s survey that also showed sentiment perking up.

A 1.7% decline in Microsoft Corp (MSFT) and a 1.3% dip in Amazon.com Inc (AMZN) weighed on the S&P 500 and the Nasdaq. Microsoft’s stock on Thursday closed at its highest level ever.

Nvidia Corp (NVDA) edged up 0.1% after Morgan Stanley hiked its price target and named the chipmaker its top pick among US semiconductor firms.

US stock markets will be closed on Monday for the Juneteenth holiday.

S&P 500 fell 0.36% to end the session at 4,409.77 points.

The Nasdaq declined 0.68% to 13,689.57 points, while the Dow Jones Industrial Average declined 0.31% to 34,301.03 points.

Volume on US exchanges was heavy amid the simultaneous expiration of stock options, stock index futures, and index options contracts. Nearly 17 billion shares were traded, compared to an average of 11 billion shares over the previous 20 sessions.

Of the 11 S&P 500 sector indexes, eight declined, led by communication services, down 1%, followed by a 0.83% loss in information technology.

For the week, the S&P 500 rose 2.6%, the Dow added 1.2% and the Nasdaq gained 3.2%.

Fueled by recent strong gains in Nvidia and other megacaps, the Nasdaq logged its eighth consecutive week of gains, its longest streak of weekly advance since March 2019.

The benchmark S&P 500’s weekly gain was its fifth in a row.

Adobe Inc (ABDE) rose 0.9% after the Photoshop maker’s earnings forecast surpassed analysts’ estimates.

iRobot Corp (IRBT) surged 21% after Britain’s competition regulator cleared Amazon’s (AMZN) planned USD 1.7 billion acquisition of the vacuum cleaner maker.

Micron Technology (MU) fell 1.7% after warning of a bigger hit to global revenue from a Chinese ban on the sale of its memory chips to key domestic industries.

Declining stocks outnumbered rising ones within the S&P 500 by a 1.4-to-one ratio.

The S&P 500 posted 24 new highs and no new lows; the Nasdaq recorded 112 new highs and 67 new lows.

(Reporting by Sruthi Shankar and Shristi Achar A in Bengaluru and by Noel Randewich in Oakland, California; Editing by Vinay Dwivedi and Richard Chang)

US Treasury found no currency manipulation in 2022, downgrades Swiss scrutiny

WASHINGTON, June 16 (Reuters) – The US Treasury on Friday said it found that no major US trading partners had manipulated their currencies for an export advantage, adding it ended “enhanced analysis” for Switzerland after the country met only one of three manipulation criteria.

In its semi-annual currency report, the Treasury said that Switzerland remains on a “monitoring list” for close attention to foreign exchange and economic policies, along with six other trading partners: China, Taiwan, South Korea, Germany, Malaysia, Singapore.

The report covers foreign exchange activity for the four quarters that ended Dec. 31, 2022: a period of extraordinary dollar strength that prompted many countries to intervene to keep their currencies from falling in a bid to tame inflation.

Under the laws governing the report, the Treasury is only concerned with the deliberate weakening of currencies for a trade advantage.

“Most foreign exchange intervention by US trading partners last year was in the form of selling dollars, actions that served to strengthen their currencies,” US Treasury Secretary Janet Yellen said in a statement.

“However, Treasury remains vigilant to countries’ currency practices and policy settings and their consistency with strong sustainable and balanced global growth,” Yellen said.

In its previous report in November 2022, the Treasury found that Switzerland had exceeded all three thresholds for possible manipulation but refrained from branding it as a manipulator.

But in the latest report, Switzerland no longer exceeded the thresholds for persistent foreign exchange purchases and a trade surplus with the US of more than USD 15 billion, and the Treasury ended “enhanced analysis” of Switzerland’s practices.

However, a US Treasury official said that the department has concerns about Switzerland’s global current account surplus of 10.1% of GDP – far exceeding its 3% threshold. The official said the Treasury would discuss policy options with their Swiss counterparts to bring the surplus down.

The report had little impact on foreign exchange trading markets, with the dollar holding slight gains against the Swiss franc CHF= after it was released.

SINGAPORE AN OUTLIER

Most countries on the monitoring list met two of the three criteria in the past two reports, mainly high trade surpluses and high current account surpluses. But where most countries sold dollars, Treasury said Singapore was an outlier on intervention, making net foreign currency purchases of USD 73 billion in 2022, or about 15.6% of GDP – well above the 2% threshold.

Japan was dropped from the monitoring list because it only met one of the three criteria for two monitoring periods in a row. Japan, which had previously intervened to hold down the yen’s value, last October intervened in the currency market to keep the yen from falling against the dollar.

The Treasury said China was kept on the monitoring list due to its USD 400 billion trade surplus with the US and a continued lack of transparency in its foreign exchange dealings and failure to publish currency intervention data. However, the Treasury official said the department did not believe that China was intervening extensively to weaken the yuan last year.

(Reporting by David Lawder; Additional reporting by Daniel Burns; Editing by Chizu Nomiyama and Jonathan Oatis)

US yields rise after two-day drop, Fed comments

NEW YORK, June 16 (Reuters) – US Treasury yields rose on Friday, with the benchmark 10-year yield gaining ground after two straight days of declines as comments from two Federal Reserve officials pointed to more interest rate hikes this year from the central bank.

In the first comments since the Fed’s policy announcement on Wednesday, officials from the central bank took a hawkish tilt toward more rate hikes and pushed yields higher.

The Fed on Wednesday kept rates unchanged at the 5.00%-5.25% range but indicated 50 basis points (bps) of hikes may be needed by the end of the year because of a stronger-than-expected economy and slower decline in inflation.

“In the last year there have been periods where it takes investors a couple of months to really come to terms with what the Fed has said and to believe the Fed, to the extent to actually price it in, so that could be the scenario that we’re in now,” said Bill Merz, head of capital market research at US Bank Wealth Management in Minneapolis.

“Or we’re in that period where we’re probably going to get very consistent messaging from the Fed that says, ‘We probably need to hike a couple more times,’ and that will gradually erode the market’s resistance, or the data starts to change and the Fed can start to mark to market their guidance and maybe it converges the other way with market pricing,” Merz said.

The yield on 10-year Treasury notes was up 4.7 basis points at 3.775%. The yield had fallen 11.1 basis points over the prior two sessions following the Fed announcement but was still on track for a second straight week of gains.

Yields briefly pared gains after the preliminary reading of consumer sentiment from the University of Michigan came in at 63.9, above the 60.0 estimate, and a four-month high.

The yield on the 30-year Treasury bond US30YT=RR was up 1 basis point at 3.859%.

Markets are currently pricing in a 74.4% chance of a 25-basis-point rate hike at the Fed’s July meeting, up from 67% a day ago, according to CME’s FedWatch Tool.

In contrast to the Fed, the European Central Bank (ECB) raised borrowing costs to their highest level in 22 years on Thursday and left the door open to more hikes in a sign that global central banks may no longer be acting as closely in concert as they have been in recent years.

On Friday, the Bank of Japan kept intact its ultra-easy monetary policy even though inflation has been stronger than expected and signaled it would remain a dovish outlier to most other global central banks.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 95.6 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 7.9 basis points at 4.727%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.209%, after closing at 2.210% on Thursday.

The 10-year TIPS breakeven rate was last at 2.23%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)

Gold wobbles as traders juggle hawkish Fed, weaker dollar

June 16 (Reuters) – Gold prices were choppy on Friday as investors juggled a hawkish Federal Reserve outlook on interest rates, which offset support from the dollar’s overall retreat this week.

Spot gold edged up 0.1% to USD 1,958.83 per ounce by 12 p.m. EDT (1800 GMT), en route to a 0.1% weekly dip. US gold futures settled nearly unchanged at USD 1,971.20.

“This is tough for gold because you have stocks that are continuing to rise and more hawkish Fed speak,” said Edward Moya, senior market analyst at OANDA.

“It appears that the markets are confident that the Fed is almost done with tightening because everyone’s going into stocks… which is dampening demand for safe havens.” .N

US central bank officials struck a hawkish tone in their first comments since their meeting this week, as a Fed report said inflation in key parts of the service industry “remains elevated and has not shown signs of easing”.

Weighing on appeal for zero-yield bullion, traders now saw a 74% chance of a rate hike in July, according to the CME’s FedWatch tool.

The hawkish comments seemed to counter support from both the dollar and weak jobless claims data on Thursday, as gold kept swinging back and forth between positive and negative territory.

On the flip side, “weakening employment and other foreign currencies working against the US dollar right now provide some tailwinds for gold,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

The dollar index edged up, but was on course for its worst week in five months, making gold cheaper for overseas buyers.

Traders also took stock of the University of Michigan’s survey showing US consumers’ near-term inflation expectations dropped to a more than two-year low in June and the outlook over the next five years improved slightly.

Silver gained 1% to USD 24.10 per ounce, while platinum fell 0.3% to USD 982.62, both down for the week.

Palladium jumped 1.6% to USD 1,422.03, seeing its biggest weekly increase since November.

(Reporting by Deep Vakil in Bengaluru; Editing by Shailesh Kuber and Pooja Desai)

US equity funds register biggest weekly inflow in 28 months

June 16 (Reuters) – US equity funds saw their most substantial weekly net purchases since early 2021 during the seven days leading up to June 14, as concerns over a potential rate hike during the Federal Reserve’s policy meeting this week were alleviated by cooling inflation readings.

The Fed left interest rates unchanged on Wednesday in line with investors’ expectations and broke a streak of 10 consecutive rate hikes.

According to Refinitiv Lipper data, US equity funds drew a net USD 18.85 billion worth of inflows in their biggest weekly net buying since mid-February 2021.

US large-, small-, and multi-cap equity funds attracted USD 7.76 billion, USD 3.33 billion, and USD 1.93 billion worth of capital, respectively, but investors exited mid-cap funds of about USD 1.36 billion.

Among sectors, tech secured a net USD 1.73 billion, the biggest inflow since December 2021. Investors also racked up financials, consumer discretionary, and industrial sector funds of USD 581 million, USD 517 million, and USD 460 million, respectively.

Meanwhile, money market funds witnessed net withdrawals of about USD 10.09 billion after observing net purchases for seven weeks in a row.

Data showed US bond funds received a net USD 3.96 billion in inflows during the week after having a net USD 577 million worth of outflow in the previous week.

US government and short/intermediate investment-grade funds received about USD 1.22 billion each in inflows, while general domestic taxable fixed-income funds saw USD 1.1 billion worth of net buying.

Meanwhile, investors exited USD 374 million worth of inflation-protected bond funds in a ninth straight week of net selling.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Toby Chopra)

Oil gains for the week as supply cuts balance demand concerns

NEW YORK, June 16 (Reuters) – Oil rose on Friday and posted a weekly gain, as higher Chinese demand and OPEC+ supply cuts lifted prices, despite expected weakness in the global economy and the prospect for further interest rate hikes.

Brent crude gained 94 cents to settle at USD 76.61 a barrel. US West Texas Intermediate (WTI) crude rose from USD 1.16 to USD 71.78.

Brent posted a weekly gain of 2.4% and WTI rose 2.3%.

Oil has gained this week in hopes of growing Chinese demand. China’s refinery throughput rose in May to its second-highest total on record and Kuwait Petroleum Corp’s CEO expects Chinese demand to keep climbing during the second half.

Also supporting crude are the voluntary output cuts implemented in May by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, plus an additional cut by Saudi Arabia in July.

Russian Energy Minister Nikolai Shulginov said it was “realistic” to reach oil prices of around USD 80 per barrel, Russian state news agencies reported.

Shulginov also said Russian oil and gas condensate production is expected to fall by around 20 million tons (400,000 barrels per day) this year, reiterating Russia’s expectations.

In Iran, crude exports and oil output have hit new highs in 2023 despite US sanctions, according to consultants, shipping data, and a source familiar with the matter, adding to global supply when other producers are limiting output.

US oil rigs fell by four to 552 this week, their lowest since April 2022, while gas rigs fell by five to 130, their lowest since March 2022, energy services firm Baker Hughes Co BKR.O said.

Capping oil price gains was the prospect of rising interest rates, which could slow economic growth.

The Bank of England is set to raise interest rates by a quarter of a percentage point next week. The European Central Bank lifted rates to a 22-year high on Thursday and the US Federal Reserve signaled at least a half of a percentage point increase by year-end.

Investors have been closely watching interest rates and commentary from Fed members.

“We’re going to be going from Fed speaker to Fed speaker, and data point to data point,” Phil Flynn, an analyst at Price Futures Group, said of oil prices.

Money managers cut their net long US crude futures and options positions by 13,191 contracts to 73,273 in the week to June 13, the US Commodity Futures Trading Commission (CFTC) said.

(Reporting by Stephanie Kelly, additional reporting by Alex Lawler and Sudarshan Varadhan; Editing by David Goodman, Louise Heavens, David Evans, David Gregorio, and Nick Macfie)

Gold set for weekly dip on prospects of more rate hikes

June 16 (Reuters) – Gold prices eased on Friday and were headed for a slight weekly fall as traders weighed recent US economic data and hawkish signals from the Federal Reserve on further monetary tightening.

Spot gold fell 0.2% to USD 1,954.83 per ounce by 0450 GMT. US gold futures edged 0.2% lower to USD 1,967.30.

Bullion tumbled to a three-month low on Thursday before reversing course to finish higher after US economic data offered some respite from the Fed’s “hawkish pause” on rate hikes.

“Gold is struggling to move higher because the Fed’s message on inflation and interest rates still remains hawkish. So, it’s sort of removing the incentive to buy gold because there are more interest rate increases on the horizon,” said Edward Meir, a metals analyst at Marex.

While gold is considered a safe haven during economic uncertainties, higher interest rates dull the appeal for zero-yield bullion.

Traders are now pricing in a 72% chance of a 25-basis point rate hike in July after the Fed signaled in new projections that borrowing costs might still need to rise by as much as half a percentage point by year-end.

The dollar index held close to a one-month low, limiting losses in gold.

In the next two weeks, gold could trade in the USD 1,931- USD 2,000 range, with stiff resistance seen at the upper end, Meir added.

The Bank of Japan, meanwhile, maintained its ultra-easy monetary policy despite stronger-than-expected inflation, as it focused on supporting a fragile economic recovery amid a sharp slowdown in global growth.

Spot silver was flat at USD 23.8451 per ounce, platinum too was little changed at USD 985.55 per ounce. But both metals were headed for a weekly loss.

Palladium steadied at USD 1,397.90 and was set for its best week since April.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Rashmi Aich, Subhranshu Sahu and Sohini Goswami)

After the hawks, here comes the Bank of Japan dove

June 16 (Reuters) – The Bank of Japan, the most dovish major central bank in the world, announces its latest policy decision on Friday, with markets highly sensitive to signs of when and to what degree it will ditch its super-loose policy.

Asian markets should go into the decision on the front foot, after the S&P 500 and Nasdaq closed at 14-month highs on Thursday as investors bet that US interest rates are close to peaking.

The BOJ follows surprisingly aggressive interest rate increases and guidance recently from policymakers in Canada and Australia, and this week’s hawkish signals from the European Central Bank and, to a lesser extent, the US Federal Reserve.

The BOJ remains the outlier among major central banks, promising to maintain its loose policy until it is sure inflation meets the 2% target. Polls, sources, and market moves all suggest no move on rates or the yield curve control (YCC) scheme, leaving the focus on BOJ Governor Kazuo Ueda’s press conference.

While the Fed and others have tightened policy by 500 basis points or raised rates to their highest in decades, Japanese interest rates are still negative, and the central bank is buying unlimited amounts of bonds to cap yields at a certain level.

Around half of the economists in a Reuters poll expect a rollback of easing, including a tweak to YCC, in either July or September. Ueda could open the door to this on Friday, nodding to inflation currently overshooting BOJ forecasts and a potential upgrade to BOJ price projections in July, they said.

But Ueda has stressed the need to maintain an ultra-loose policy until durable wage growth accompanies rising prices. Changes to YCC may come as soon as July, but an interest rate hike is a long way off – Bank of America analysts think rates will stay on hold until summer 2024.

If Japanese assets are any indication, investors expect Ueda and his colleagues to err on the dovish side.

The yen on Thursday slid to a new low for the year through 141.00 per dollar and, most remarkably after the ECB made it clear it will raise rates further, to a 15-year low against the euro of 153.68 per euro.

Japanese authorities will be watching these developments closely and intervention to stop the rot cannot be ruled out. Perhaps 145.00 per dollar would be the trigger.

The cheapness of Japan’s currency has made its stock markets extremely attractive to foreign investors. The benchmark Nikkei 225 index rose to a fresh 33-year high of 33,767 points on Thursday before closing marginally lower.

Here are key developments that could provide more direction to markets on Friday:

– Japan monetary policy decision

– Euro zone inflation (May, final reading)

– Fed’s Bullard, Waller, and Barkin all speak

(By Jamie McGeever)

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