Big move for dollar not a given for next three months

BENGALURU, Feb 7 (Reuters) – The dollar’s recent comeback may not be indicative of a new broad trend, with FX strategists in a Reuters poll split on the greenback’s path in the next few months, suggesting volatility will dominate currency markets in the short run.

Having fallen about 1.5% in January the dollar clawed back all those losses after an eye-popping US non-farm payrolls number on Friday raised doubts over market expectations the Federal Reserve would loosen monetary policy by end 2023.

Citing those unexpectedly strong jobs gains in January, Atlanta Federal Reserve Bank President Raphael Bostic said on Monday the central bank may need to lift borrowing costs higher than previously anticipated.

Interest rate futures pricing show markets are expecting the fed funds rate to peak just above 5.1% by July, roughly where the Fed sees it, compared with expectations of less than 5% prior to Friday’s jobs report.

That repricing is likely to keep volatility elevated in the near term. The J.P. Morgan VXY G7 Index is already above its 10-year average.

“I think the market’s going to be quite fickle and this whole process of the market’s view coming in line with the Fed’s view won’t be overnight…this is a process, and I do think we’re going to see some volatility,” said Jane Foley, head of FX strategy at Rabobank.

There was no clear majority among analysts who answered an additional question on what the greater risk was to the dollar over the coming three months.

While 12 said it was that the greenback declines at a faster speed, 11 said it would decline at a slower speed. The remaining 19 said the dollar rising was the greater risk.

“In the shorter run there’s some chance for the dollar to gain a bit…especially if the data stays relatively good and the Fed gets in at least two more hikes and there is some upside risk to the terminal rate for the Fed,” said Brian Rose, senior economist at UBS Global Wealth Management.

However, the consensus view in the Feb. 2-7 poll of 66 forex strategists predicted the dollar to weaken over the next 12 months.

The euro up 1.5% against the dollar last month, its best start to the year since 2018, has since given up all of those gains.

However, the common currency was forecast to strengthen from its current level to trade around USD 1.08, USD 1.09 and USD 1.11 in the next three, six and 12 months. That year-end prediction is around 3.5% higher from the USD 1.07 it was trading on Tuesday.

The Japanese yen down over 12% last year, its worst performance in nine years, was expected to change hands around 124/dollar in a year. If realised, that would be a gain of around 6.5% against the dollar.

Median forecasts also showed the British pound strengthening from USD 1.20 to USD 1.24 in the next 12 months.

But much still depends on the outlook for the dollar.

“We continue to expect the dollar to weaken – a number of factors sort of underpin that view. We do think the US economy is likely to continue to slow but the most recent data we got on Friday certainly push us back against that hypothesis,” said Brian Daingerfield, head of G10 currency strategy at NatWest Markets.

“We also think inflation pressure is likely to continue to moderate as we go through the year and so we’re seeing less upside risk to the fed funds rate or the path of the fed funds rate as an upside risk to the dollar.”

(Reporting by Hari Kishan; Analysis by Sarupya Ganguly; Polling by Prerana Bhat and Susobhan Sarkar; Editing by Bernadette Baum)

Emerging market funds see big inflows in January on China reopening

Feb 7 (Reuters) – Emerging market bond and equity funds received heavy inflows in January after a dry patch last year, aided by China’s reopening and softening inflation pressures worldwide.

According to Refinitiv Lipper data, which covers over 33,700 emerging market (EM) funds, EM equity funds received USD 13.2 billion, and EM bond funds obtained USD 11.36 billion in January. Both the inflows were the highest in over a year.

In 2022, EM bond funds faced a combined net outflow of USD 26.26 billion.

Analysts expect cheaper valuations, a weakening dollar, peaking Fed rates pricing, and lower US Treasury yields to bolster EM assets this year.

“Even as global growth slows, we believe EM equity valuations have room to improve in 2023, driven by lower inflation, a peaking US dollar, greater clarity around key political events, and structural shifts within the region,” Josh Rubin, portfolio manager at Thornburg Investment Management.

“Taiwan and Korea should be beneficiaries of a recovery in the semiconductor and hardware technology sectors. Brazil could be the first major EM outside of China to enter an easing cycle next year.”

According to Refinitiv data, emerging market firms are expected to post 11.9% profit growth in 2023, much higher than US firms’ growth of 8.9% and European firms’ -2.2%.

In January, the iShares Core MSCI Emerging Markets ETF and iShares JPMorgan USD Emerging Markets Bond ETF received USD 3.2 billion and USD 2.4 billion, respectively, while iShares MSCI Emerging Markets ETF and BlackRock Emerging Markets Fund obtained over USD 1 billion each.

The MSCI Emerging markets index is up about 6% this year, but the index’s forward 12-month is still trading at a 22% discount to the MSCI World index.

The JP Morgan EMBI + index, which tracks liquid, US dollar emerging market fixed, and floating-rate debt instruments issued by sovereign entities, has risen 3.34% this year after declining about 25% last year.

“We see value in EM sovereign bonds, especially in some of the larger sovereign issuers that can work with the IMF or other international lenders, or where we see upside to potential restructuring scenarios,” said UBS in a note.

Jason Pang, a fixed-income portfolio manager at J.P Morgan Asset Management, said he is bullish on Indonesian and Malaysian government bonds as their central banks look to wind down their monetary tightening due to easing inflation pressures.

However, a few questions if the rally in emerging assets is sustainable. Initial euphoria over China’s reopening has fizzled out and EM assets have seen slight declines in February.

“Given the strong start to the year, we believe the bar is high for a continued rally in EM at the pace of the past two months, given China reopening and Fed deceleration are largely known quantities at this point,” said Komson Silapachai, vice president at Sage Advisory Services.

“If markets started to price in a higher probability of recession, EM risk assets would not be immune.”

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Additional Reporting by Summer Zhen in Hong Kong; Editing by Christina Fincher)

Philippines sells USD 2.95 billion retail T-bonds at 6.125% coupon

MANILA, Feb 7 (Reuters) – Following are the results of the Philippine Bureau of the Treasury’s (BTr) auction on Tuesday of 5.5-year retail T-bonds:

* BTr awards total of PHP 162.18 billion (USD 2.95 billion) at 6.125% coupon rate

* Tenders total PHP 196.109 billion versus BTr’s offer of PHP 30 billion

* Details on the Bureau of the Treasury (BTr) website

(USD 1 = 54.90 Philippine pesos)

(Reporting by Enrico Dela Cruz)

Oil surges more than 3% as Fed’s Powell eases rate hike concerns

NEW YORK, Feb 7 (Reuters) – Oil prices climbed more than 3% on Tuesday after the head of the U.S. central bank eased market concerns over interest rate hikes, while recovering demand in China also boosted prices.

Brent crude futures were up $2.70, or 3.3%, to $83.69 a barrel, while U.S. West Texas Intermediate crude futures rose $3.03, or 4.1%, to $77.14 per barrel.

U.S. Federal Reserve Chair Jerome Powell said on Tuesday that very strong jobs data released last week simply affirmed that the central bank has some way to go on raising rates.

While declining to say whether knowing about the vigor of the data would have affected last week’s 25-basis-point rate rise, Powell told the Economic Club of Washington that the January jobs numbers show “why this will be a process that takes a significant period of time” when it comes to tightening monetary policy.

The U.S. dollar index fell after the data, raising oil prices. Interest rate hikes typically strengthen the dollar, which could make crude more expensive for non-U.S. buyers.

Forecasted stronger demand in China also lifted crude prices on Tuesday. The International Energy Agency expects half of this year’s global oil demand growth to come from China, the agency’s chief said on Sunday, adding that jet fuel demand was surging.

Saudi Arabia, the world’s top oil exporter, raised prices for its flagship crude for Asian buyers for the first time in six months amid expectations of demand recovery, especially from China.

“That seemed to send home the message that the China reopening is real, and if Saudi Arabia is not afraid to raise prices on oil then that means demand is pretty good,” said Phil Flynn, analyst at Price Futures Group.

In Turkey, operations at a 1-million-barrel-per-day (bpd) oil export terminal in Ceyhan were halted after a major earthquake hit the region. The BTC terminal, which exports Azeri crude oil to international markets, will be closed through Wednesday.

Iraqi crude oil loadings from storage in Ceyhan were ready for resumption on Tuesday, but bad weather was preventing vessels from berthing, a trade source said. Iraq’s crude oil pipeline to Turkey’s Ceyhan port was still halted, the Kurdistan Regional Government’s energy ministry said.

The shutdown of the 535,000-bpd Phase 1 part of the Johan Sverdrup oilfield in Norway’s area of the North Sea also boosted prices.

BP (BP) on Tuesday reported a record profit of $28 billion for 2022 while boosting its dividend in a sign of confidence as it sharply raised spending plans but scaled back ambitions to reduce oil and gas output by 2030.

In the United States, U.S. crude production will rise in 2023 while demand will stay flat, the U.S. Energy Information Administration (EIA) said in its Short Term Energy Outlook (STEO) on Tuesday.

(Reporting by Stephanie Kelly in New York; additional reporting by Ahmad Ghaddar in London and Sudarshan Varadhan in Singapore; Editing by Mark Potter, Louise Heavens, Sharon Singleton, Will Dunham and Paul Simao)

Dollar extends rebound as US data supports; yen slips

NEW YORK, Feb 6 (Reuters) – The dollar jumped to a four-week high against the euro on Monday, as last week’s blockbuster US jobs report raised the likelihood of the US Federal Reserve keeping on with its inflation-fighting interest rate hikes for longer.

The euro slipped 0.6% against the dollar to USD 1.0724, its lowest since Jan. 9, following a 1% drop on Friday. The euro remains not far from the 10-month high of USD 1.1034 hit last week.

“Friday’s NFP (nonfarm payroll) number solidified the likelihood of another 25 basis points hike and reduced the chances of an eventual rate cut at the end of the year, sending equities lower and the greenback soaring,” said John Doyle, vice president of operations and trading at Monex USA.

“Overall, the dollar’s decline since late November has been impressive. However, it now looks like it was a bit overdone,” Doyle said.

On Friday, data showed US job growth accelerated sharply in January while the unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a stubbornly tight labor market, and a potential headache for Federal Reserve officials as they fight inflation.

The data came after the Fed on Wednesday raised rates by 25 basis points and said it had turned a corner in the fight against inflation, leading investors to price in a slowdown in the pace of rate hikes going forward.

On Monday, US Treasury Secretary Janet Yellen said she saw a path for avoiding a US recession, with inflation coming down significantly and the economy remaining strong, given the strength of the US labor market.

The Turkish lira, under pressure from geopolitical risks and surprise inflation readings out of the country, briefly slipped to a record low of 18.85, in early trade, as a major earthquake hit the region.

Sterling slipped 0.2% on the day at USD 1.20245, a fresh one-month low, as traders look to British growth data and remarks from Bank of England policymakers about the pace of interest rate hikes for clues to the outlook for the British currency.

The yen fell more than 1% against the US dollar after the Nikkei newspaper reported, citing anonymous government and ruling party sources, that Bank of Japan Deputy Governor Masayoshi Amamiya was being sounded out to be the next governor.

In a news conference on Monday, Deputy Chief Cabinet Secretary Yoshihiko Isozaki said there was no truth to the Nikkei report.

Amamiya is considered the “most dovish among the contenders, which is thrashing hopes that BOJ policy normalization could progress under the new chief,” Saxo strategists said.

Meanwhile, bitcoin was little changed on the day at USD 23,015 remaining close to the more than five-month high of USD 24,258 touched last week.

(Reporting by Saqib Iqbal Ahmed, Additional reporting by Joice Alves in London and Ankur Banerjee in Singapore; Editing by Jacqueline Wong, Tomasz Janowski and Andrea Ricci)

Yields hit four-week highs, Fed expected to hike above 5%

NEW YORK, Feb 6 (Reuters) – Benchmark 10-year US Treasury yields hit four-week highs on Monday after a blowout employment number raised expectations that the Federal Reserve’s interest rate hikes will not end with a hard economic landing, and that the US central bank may have more than one more rate increase left.

Employers added 517,000 jobs in January, while the unemployment rate hit 3.4%, its lowest reading for more than 53 years, the government reported on Friday.

Other data on Friday showed that US services industry activity rebounded strongly in January, with new orders recovering and prices paid by businesses for materials continuing to rise at a moderate pace.

“That was a big rebound (in ISM) that took away some of the fears of December weakness,” said Jim Vogel, a senior rate strategist at FHN Financial in Memphis, Tennessee. Meanwhile, investors are looking at the jobs report and, seeing a “nice improvement in January,” have “turned it into inflation that we’re going to see soon,” Vogel said.

Average hourly earnings increased 0.3% last month after gaining 0.4% in December. That lowered the year-on-year increase in wages to 4.4%, the smallest rise since August 2021, from 4.8% in December. But wage growth was revised upward for 2022, suggesting a more moderate pace of cooling than previously thought.

Benchmark 10-year yields rose as high as 3.644%, the highest since Jan. 6, and are up from a low of 3.333% on Thursday before the data. Two-year yields reached 4.468%, also the highest since Jan. 6.

The 10-year yields have fallen from a 15-year high of 4.338% on Oct. 21 on expectations that Fed tightening will lead to a recession this year.

The yield curve between two-year and 10-year notes inverted further to minus 82 basis points, reflecting concerns about an imminent downturn.

EXPECTATIONS REVISED

Traders ramped up bets on rate cuts in the second half of this year after Fed Chairman Jerome Powell seemed unconcerned about loosening financial conditions and cited progress in bringing down inflation after the Fed’s meeting on Wednesday, when it raised rates by another 25 basis points.

But Friday’s data led to a repricing in these expectations. Fed funds futures traders now see rates rising above 5% in May and dropping to only 4.79% by December. On Thursday, traders had expected the rate to peak at 4.88% in June, and then fall to 4.40% by December.

Powell is due to speak on Tuesday, and investors will be watching for any signs that he is adopting a more hawkish outlook after Friday’s data.

Some banks are also readjusting their Fed forecasts in light on last week’s events.

“Chair Powell did not push back against market pricing for near-term monetary policy, nor the recent easing in financial conditions. Despite Powell’s dovish tone, front-end yields finished the week higher after Friday’s surprisingly strong labor market report. Hence, we’re adding an additional 25bp hike to our forecast and now see the Fed funds target range peaking in May at 5-5.25%,” JPMorgan analysts said in a report.

The next major US economic release that may sway Fed policy will be consumer price data for January due on Feb. 14.

An analysis published Monday by the San Francisco Fed, meanwhile, found that US stocks may fall further, and bond yields rise, as the Fed continues its current round of rate hikes in coming months.

The Treasury Department will sell USD 96 billion in coupon-bearing supply this week, including USD 40 billion in three-year notes on Tuesday, USD 35 billion in 10-year notes on Wednesday and USD 21 billion in 30-year bonds on Thursday.

(Reporting by Karen Brettell; Editing by Kevin Liffey and Jonathan Oatis)

Oil rises 1% in choppy trade on China demand hopes

HOUSTON, Feb 6 (Reuters) – Oil prices edged higher in choppy trading on Monday as markets weighed a return in demand from China against supply concerns and fears of slower growth in major economies curbing consumption.

Brent futures for April delivery rose USD 1.05, or 1.3%, to USD 80.99 a barrel, after trading between USD 79.10 and USD 81.25.

West Texas Intermediate crude (WTI) gained 72 cents, or 1%, to USD 74.11 per barrel, after hitting a high of USD 74.41 and a low of USD 72.25.

Prices were buoyed by prospects for China’s recovery after the relaxation of COVID-19 restrictions.

The International Energy Agency (IEA) expects half of this year’s global oil demand growth to come from China, the agency’s chief said on Sunday, adding that jet fuel demand was surging.

Holding back gains however, Friday’s blowout US employment number raised expectations that the Federal Reserve’s rate hikes will not end with a hard economic landing, and that the US central bank may have more than one more rate increase left, which could curb economic growth and lower fuel demand.

The dollar also rose to a three-week high against the euro on Monday. A stronger dollar typically reduces demand for dollar-denominated oil from buyers paying with other currencies.

“You’ve got a strong dollar, you’re in a generally risk-off environment,” said Robert Yawger, executive director of energy futures at Mizuho.

WTI and Brent had slid 3% last Friday after the strong US jobs data.

Supply concerns continued to affect markets as operations at Turkey’s oil terminal in Ceyhan halted after a major earthquake hit the region.

The BTC terminal, which exports Azeri crude oil to international markets, will be closed on Feb. 6-8 while operators assess earthquake damage, a Turkish shipping agent said.

However, a preliminary Reuters poll showed that US crude oil stockpiles likely rose by about 2.2 million last week.

Also, price caps on Russian products took effect on Sunday, with Group of Seven nations, the European Union and Australia agreeing on limits of USD 100 a barrel on diesel and other products that trade at a premium to crude and USD 45 a barrel for products that trade at a discount, such as fuel oil.

(Reporting by Noah Browning; Additional reporting by Sonali Paul in Melbourne and Emily Chow in Singapore; Editing by Marguerita Choy, David Goodman and Kevin Liffey)

Gold up from 1-month lows but stronger dollar, yields check gains

Feb 6 (Reuters) – Gold edged higher on Monday, with investors banking on the precious metal’s safe-haven appeal as concerns about an economic slowdown linger, after a stronger dollar and higher Treasury yields nudged prices to a one-month low.

Spot gold was up 0.2% to USD 1,868.96 per ounce by 2:37 p.m. ET (1937 GMT). Earlier in the session, prices slipped to USD 1,860, their lowest since Jan. 6.

US gold futures settled 0.2% higher at USD 1,879.50.

“Traders will look at gold as a safe-haven asset and buy into it,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Concerns over a slowdown remain and is likely to keep demand for gold on a firm footing this year, analysts said.

The dollar index advanced to an almost month-high, making gold more expensive for buyers holding other currencies.

Benchmark Treasury yields also firmed, likely keeping some investors away from bullion.

Gold prices dropped more than 2% on Friday after data showed US job growth accelerated sharply last month, with focus on speeches by a host of Fed officials this week, including Chairman Jerome Powell.

The Fed last week increased interest rates by a quarter of a percentage point to 4.5%-4.75% after a year of larger hikes, and investors are now pricing in the policy rate peaking at 5.05% in June.

Gold benefits from low interest rates, which reduce the opportunity cost of holding the zero-yield asset.

Spot silver dropped 0.4% to USD 22.26 per ounce, and platinum slipped 0.2% to USD 971.70.

Palladium was down 1.2% to USD 1,604.09 per ounce, after it fell more than 4% earlier to USD 1,556.53, its lowest since mid-December 2021.

“Among platinum group metals, supply disruptions in South Africa due to a deepening energy crisis should help to stabilize prices in the short term,” ANZ wrote in a note.

(Reporting by Seher Dareen in Bengaluru; Additional reporting Arundhati Sarkar and Bharat Govind Gautam; Editing by Shounak Dasgupta, Krishna Chandra Eluri and Shailesh Kuber)

Philippines coast guard chief says boosts South China Sea presence

MANILA, Feb 6 (Reuters) – The Philippine Coast Guard has stepped up its presence in the disputed South China Sea by deploying additional vessels and conducting more sorties and overflights to protect maritime territory and the country’s fishermen, its chief said on Monday.

Beijing’s sweeping claims of sovereignty over the waterway have drawn repeated complaints from Manila, which has ramped up its rhetoric against reported Chinese construction activities and the “swarming” of Chinese vessels in the resource-rich waterway.

“We’re making sure that the presence of coast guard vessels is felt by the fishermen in the area,” Admiral Artemio Abu, Commandant of the Philippines Coast Guard (PCG), said in an interview.

Last month, PCG said it received a report that a Filipino fishing boat was forced by China’s coast guard to leave the Second Thomas Shoal, known locally as Ayungin Shoal, which lies within the country’s exclusive economic zone.

China’s embassy in Manila did not respond when asked for comment about the incident at the time. China claims the reef as its territory.

“We are strengthening our presence,” said Abu. The PCG chief was appointed by former President Rodrigo Duterte, who pursued warmer ties with Beijing, setting aside a longstanding territorial spat, in exchange for investment.

“At a moment’s notice, the coast guard vessels we will be there because they are exclusively and primarily dedicated for that purpose,” said Abu.

The 26,000-strong coast guard has 25 primary ships that can be used for deployment and patrols.

Beijing claims much of the South China Sea, where about USD 3 trillion in ship-borne trade passes annually, with the area becoming a flashpoint for Chinese and US tensions around naval operations.

President Ferdinand Marcos Jr, who succeeded Duterte, has vowed he would not lose an inch of territory to any foreign power, drawing cheers from advocates of a 2016 arbitral ruling invalidating China’s claims in the South China Sea.

Since 2002, the Philippines has filed 200 diplomatic notes and protests against China’s actions in the South China Sea.

Last month, Marcos met Chinese President Xi Jinping and the leaders reaffirmed that their countries would respect each other’s sovereignty and territorial integrity.

But Marcos last week approved a US request for expanded access to Philippine military bases, as Washington seeks to extend its security options as part of efforts to deter what it perceives as China’s aggressive policies in the region.

The Pentagon also said separately the United States and the Philippines had “agreed to restart joint maritime patrols in the South China Sea to help address these challenges.”

PCG’s Abu said the coast guard’s acquisition of more advanced vessels, including a 97-metre (318.24-ft) multi-role response vessel last year, had allowed it to increase the number and duration of trips in the South China Sea.

“We can stay there longer, farther and we can cover a bigger area now,” said Abu.

(Reporting by Karen Lema; Editing by Ed Davies)

Dollar perks up as traders await US jobs numbers

LONDON, Feb 3 (Reuters) – The dollar rose slightly on Friday, sustaining some momentum after jumping in the previous session following a raft of central bank decisions in Europe.

Trading was relatively subdued as markets waited for the latest US employment data later in the day which may shift US Federal Reserve policy.

The dollar picked up against the euro, with the latter down 0.1% to USD 1.09 in early European trading. The euro remained well above the 20-year low of USD 0.953 hit in September, however.

The Federal Open Market Committee on Wednesday raised interest rates by 25 basis points to a range of 4.5% to 4.75%, a softer approach than the previous increase of 50 bps.

The slowdown in the pace and comments from the central bank helped send the dollar tumbling as traders hoped rate hikes might soon end altogether.

It then rallied sharply on Thursday when the European Central Bank raised rates by 50 bps to 2.5%, but suggested that it could be finished after another increase in March, causing the euro to tumble.

“Essentially we have retraced everything before the (Fed)meeting,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

He said relatively weak earnings reports by tech giants Alphabet, Apple and Amazon were causing “a bit of a risk-off mood” in markets that was likely boosting the dollar on Friday.

The dollar index, which tracks the currency against major peers, was up 0.1% to 101.89.

Japan’s yen was slightly higher against the dollar, however, at 128.66 per dollar.

The big event for markets on Friday is the release of US employment – or nonfarm payroll – numbers at 8.30 a.m. ET (1330 GMT).

Analysts polled by Reuters expect the US economy to have added 185,000 jobs in January, a strong showing but down from 223,000 in December. Wages data is also due.

The pound was down 0.18% on Friday to USD 1.22, after tumbling 1.2% on Thursday when the Bank of England raised interest rates but stressed that inflation was showing signs of relenting.

The Australian dollar was 0.35% lower at USD 0.705. Meanwhile, the US dollar was up 0.35% against its Canadian counterpart at C$ 1.336.

Tan said he thinks the US dollar should remain under pressure in the coming weeks, given that the Fed is the central bank closest to pausing interest rate hikes.

“I think that the path of least resistance in the next quarter… is still for dollar weakness, unless we get a big risk-off fright,” he said.

(Reporting by Harry Robertson; Additional reporting by Rae Wee; Editing by Lincoln Feast, Simon Cameron-Moore and Emelia Sithole-Matarise)

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