Dollar firm as markets brace for another big Fed rate hike

TOKYO, Sept 20 (Reuters) – The dollar remained firm near a two-decade high versus major peers on Tuesday as investors braced for another aggressive rate hike by the Federal Reserve as it battles to rein in overheated inflation.

The dollar index, which measures the greenback against six counterparts, edged 0.09% higher to 109.64, stable for the moment after pulling back from as high as 110.79 earlier this month, a level not seen since June 2002.

Providing additional support, the two-year US Treasury yield, which is extremely sensitive to policy expectations, rose as high as 3.970% overnight for the first time since November 2007. The 10-year yield reached a high of 3.518%, a level not seen since April 2011.

Investors have fully priced another 75 basis point bump by the Federal Open Market Committee (FOMC) on Wednesday, and lay 19% odds for a super-sized full percentage point increase.

While still elevated, those bets have come down from around 38% on Wednesday, when they were shocked higher by a surprise acceleration in US consumer prices for August.

The dollar added 0.07% to 143.29 yen, continuing a week-long consolidation following two attempts at 145 this month that took it as high as 144.99 on Sept. 7 for the first time in 24 years. The dollar-yen currency pair tends to track the long-term yield spread between US and Japanese government bonds.

The Bank of Japan decides policy on Thursday, and is widely expected to keep its ultra-easy stimulus settings unchanged — including pinning the 10-year yield near zero — to support a fragile economic recovery.

That’s despite data on Tuesday showing core consumer inflation quickened to an eight-year high of 2.8% in August, exceeding the central bank’s 2% target for a fifth straight month.

“CPI was very strong, but the BOJ will likely keep policy unchanged, so expectations about Fed policy are more important” for currency markets, said Tohru Sasaki, a strategist at J.P. Morgan in Tokyo.

“Dollar-yen will eventually break above 145, but the speed depends on how hawkish the Fed is, and developments in interest rate differentials.”

The euro was little changed at USD 1.00235, after grinding slowly higher over the past week and strengthening its position above parity. It dropped as low as USD 0.9864 on Sept. 6 for the first time in two decades.

Sterling was slightly lower at USD 1.14245, finding its feet after a drop to a 37-year low of USD 1.13510 at the end of last week.

The Bank of England will decide policy on Thursday, and investors are split over whether a 50 or 75 basis point hike is on the way.

“With expectations split, the prospect of GBP volatility is unsurprisingly elevated,” Chris Weston, head of markets research at Pepperstone, wrote in a client note.

“Given the heavy trend lower in the GBP, one can easily assume that the speculative part of the market is already heavily short GBP. This should cushion the downside on a 50bp hike but see a pronounced move higher should we see a 75bp hike.”

Meanwhile, minutes of the Reserve Bank of Australia’s meeting this month showed that policymakers see a case for slowing the pace of hikes as rates approached more normal levels.

The Australian dollar slipped 0.11% to USD 0.67195. Its Antipodean peer, the New Zealand dollar, fell 0.24% to USD 0.59425.

Leading cryptocurrency Bitcoin eased 0.59% to USD 19,422, after swinging between a two-month low of USD 18,540 and a 3 1/2-week high of USD 22,781 over the past two weeks.

(Reporting by Kevin Buckland; Editing by Bradley Perrett and Kim Coghill)

Oil prices little changed on expectations that Fed rate hike will curb demand

SINGAPORE, Sept 20 (Reuters) – Oil prices steadied on Tuesday on concerns that further US interest rate hikes this week to tame inflation will curb economic growth and fuel demand in the world’s biggest oil consumer.

Brent crude futures for November settlement fell 7 cents, or 0.1%, to USD 91.93 a barrel by 0659 GMT.

US West Texas Intermediate crude for October delivery was at USD 85.60 a barrel, down 13 cents, or 0.2%. The October contract will expire on Tuesday and the more active November contract was at USD 85.15, down 21 cents, or 0.3%.

The dollar remained firm below a two-decade high versus major peers on Tuesday, ahead of a slew of central bank meetings around the world this week led by the US Federal Reserve, which is likely to raise interest rates by another 75 basis points to rein in inflation.

The stronger greenback makes dollar-denominated oil more expensive for buyers using other currencies and the expected rate increases have increased concerns that the tightening could trigger a global recession.

“Oil prices have been sliding in a downtrend since mid-June, and recession fears and a slowdown in growth in China are still the major bearish factors in general,” said Tina Teng, an analyst at CMC Markets.

While other major economies are tightening, China, the world’s second-largest oil user, on Tuesday left its benchmark lending rates unchanged as it tries to balance supporting its sluggish economic growth against the weakening yuan.

Fears of aggressive central bank tightening are still driving concerns for a “quickly weakening global economy” and pressuring crude prices, said Edward Moya, a senior market analyst at OANDA, in a note.

US crude oil stocks are estimated to have risen last week by around 2 million barrels in the week to Sept. 16, a preliminary Reuters poll showed on Monday.

The US Energy Department will sell up to 10 million barrels of oil from the Strategic Petroleum Reserve for delivery in November, extending the timing of a plan to sell 180 million barrels from the stockpile to tame fuel prices.

Signs that major producers are unable to meet their output quotas did give prices some support.

An internal document from the Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+, showed the group fell short of its oil production target by 3.583 million barrels per day (bpd) in August. In July, the group missed its target by 2.892 million bpd.

The impasse over a revival of the Iran nuclear deal is also continuing to keep that country’s exports from fully returning to the market.

Russia said on Monday that unresolved issues remained in the negotiations while France’s foreign minister said that it was up to Tehran to make a decision as the window to find a solution was closing.

However, they are signs that higher oil prices this year are curbing demand. US vehicle travel in July fell 3.3% from a year earlier, dropping for a second month.

(Reporting by Isabel Kua; editing by Christian Schmollinger)

Asian bonds see meagre inflows as US rate-hike bets weigh

Sept 20 (Reuters) – Foreigners were net purchasers of emerging Asia ex-China bonds for a second successive month in August, although the buying was measured on concerns over soaring inflation and expectations of a more aggressive stance from the US Federal Reserve.

Overseas investors last month purchased a net total of USD 1.05 billion worth of bonds in Indonesia, Thailand, Malaysia, South Korea, and India, according to data from regulatory and bond market associations.

Foreigners bought USD $618 million as regional bonds in July, after disposing of a total $15.45 billion between March and June.

“The sustainability of the inflows will be challenged by growing external headwinds,” Khoon Goh, head of Asia research at ANZ, said in a report last week.

“The US Federal Reserve is set to continue tightening monetary policy aggressively, sending the USD and US yields higher, which tend to be negative for flows into Asia.”

The US 10-year Treasury yield on Monday hit its highest in more than a decade and the dollar strengthened due to soaring expectations that the Fed would deliver a hefty rate hike this week to tackle inflation.

Malaysian bonds lured USD 1.25 billion as foreign inflows last month, the highest since December, while Indonesian bonds obtained about USD 600 million.

Indian bonds also received USD 483 million on reports saying J.P.Morgan was in talks with investors over a possible inclusion in its emerging markets index.

Meanwhile, South Korean bonds faced outflows of USD 1.38 billion, the biggest monthly withdrawal by foreigners since December 2019, on worries over slowing semiconductor exports.

A Barclays report said foreign holdings as a percentage of total government bonds outstanding declined across Asia in August, with the exception of Malaysia and India.

The brokerage said structural long-term allocations should partially offset still-defensive non-resident demand for Asian bonds, “but risks are for larger outflows if global rates rise further.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sherry Jacob-Phillips)

Wall Street ends choppy session higher with focus firmly on Fed

Sept 19 (Reuters) – Wall Street’s main indexes ended a seesaw session higher on Monday, as investors turned their attention to this week’s policy meeting at the Federal Reserve and how aggressively it will hike interest rates.

Even more so than the Ukraine war or corporate earnings, the actions of the US central bank are driving market sentiment as traders try to position themselves for a rising interest rate environment.

The S&P 500 and the Nasdaq rebounded from logging their worst weekly percentage drop since June on Friday, as markets fully priced in at least a 75 basis point rise in rates at the end of Fed’s Sept. 20-21 policy meeting, with Fed funds futures showing a 15% chance of a whopping 100 bps increase.

Unexpectedly hot August inflation data last week also raised bets on increased rate hikes down the road, with the terminal rate for US fed funds now at 4.46%.

“This is all about what’s going to happen on Wednesday, and what comes out of the Fed’s hands on Wednesday, so I think people are just going to wait and see until then,” said Josh Markman, partner at Bel Air Investment Advisors.

“We had a poor print when the CPI came in, so the Fed – who is behind the 8-ball – is now trying to get ahead of the curve and curb inflation, and that (awareness) is driving equity markets.”

Reflecting the caution for new bets ahead of the Fed meeting, just 9.58 million shares traded on US exchanges on Monday, the sixth lightest day for trading volume this year.

Focus will also be on new economic projections, due to be published alongside the Fed’s policy statement at 2 p.m. ET (1800 GMT) on Wednesday.

Worries of Fed tightening have dragged the S&P 500 down 18.2% this year, with a recent dire earnings report from delivery firm FedEx Corp. (FDX), an inverted US Treasury yield curve and warnings from the World Bank and the IMF about an impending global economic slowdown adding to the woes.

Goldman Sachs cut its forecast for 2023 US GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously expected.

“The Fed will continue to plough along, we’ll get 75 (bps) on Wednesday, but what comes next and whether they are going to pause or not after Wednesday, that is going to be the interesting part,” said Bel Air’s Markman.

The Dow Jones Industrial Average rose 197.26 points, or 0.64%, to 31,019.68, the S&P 500 gained 26.56 points, or 0.69%, to 3,899.89 and the Nasdaq Composite added 86.62 points, or 0.76%, to 11,535.02.

A majority of the 11 S&P 500 sectors rose. One exception was healthcare, down 0.6% as it was weighed by a fall in shares of vaccine maker Moderna Inc. (MRNA) a day after President Joe Biden said in a CBS interview that “the pandemic is over”.

Industrial stocks rebounded 1.4% after a sharp drop on Friday, while banks gained 1.9%. Tech heavyweights Apple Inc. (AAPL) and Tesla Inc. (TSLA) rose 2.5% and 1.9%, respectively, to provide the biggest boost to the S&P 500 and the Nasdaq.

Take-Two Interactive Software Inc. (TTWO) closed up 0.7%, having recovered from a slump earlier in the day caused by confirmation that a hacker had leaked the early footage of Grand Theft Auto VI, the next installment of the best-selling videogame.

Meanwhile, Knowbe4 Inc. (KNBE) jumped 28.2% to USD 22.17, its highest close since May 4, after the cybersecurity firm said that Vista Equity Partners had offered to take it private for USD 24 per share, valuing the company at USD 4.22 billion.

The S&P 500 posted one new 52-week high and 28 new lows; the Nasdaq Composite recorded 29 new highs and 378 new lows.

(Reporting by Devik Jain and Shreyashi Sanyal in Bengaluru and David French in New York; Editing by Shounak Dasgupta, Anil D’Silva and Lisa Shumaker)

Not so calm before the storm

Sept 20 (Reuters) – Investors do not appear to be waiting for the barrage of central bank meetings this week before making moves.

While holidays in Tokyo and London may have meant global trading was somewhat subdued, that did not stop rates from continuing to ascend to new peaks on Monday.

The yield on the US benchmark 10-year note hit its highest level since 2011, touching 3.518% although it then pulled back. Despite the fresh milestone for bonds, stocks managed gains, with the S&P 500 lodging a 0.7% increase and bouncing back after shedding 4.8% last week.

Euro Zone bond yields also were rising with the German 10-year yield hitting its highest since June.

Investors are girding for central bank action. The Fed’s meeting starts Tuesday, although the big news will come on Wednesday with its statement and Chair Jerome Powell’s press conference. A rate hike of 75 basis points is expected, with markets pricing in roughly one-in-five odds of a full percentage point hike.

Meanwhile in Japan, the BoJ is seen keeping its loose policy when it meets later this week, which could further pressure the weakening yen. The currency has recently slid to 24-year lows against the dollar.

Focus in Asia on Tuesday turns to China, where a decision is due on benchmark lending rates. In a Reuters poll, 75% of market participants predicted no change to either the one-year loan prime rate or the five-year.

Authorities are seen holding off monetary easing in order to avoid more depreciation pressure on the yuan. The currency ended at a fresh 26-month low on Monday and traded below the psychologically critical 7-per-dollar level.

Key developments that should provide more direction to markets on Tuesday:

China 1-yr, 5-yr loan prime rate decision

Japan CPI (August)

Taiwan Export orders (August)

US housing starts (August)

(Reporting by Lewis Krauskopf in New York)

US recap: Dollar firm but rangebound as pre-Fed positioning dominates

Sept 19 (Reuters) – The dollar index rose on Monday but faded slightly into the US close as traders adjusted positions before a widely expected 75bp Fed rate hike in two days’ time after betting on a more aggressive move retreated last week.

After trimming earlier gains of 0.45%, the dollar index remained 0.2% firmer heading into the close.

EUR/USD, the largest component in the dollar index, rose 0.31% off its NorAm low of 0.9976 and was set to end New York trading down 0.07% at 1.0007.

EUR traders are wary of the potential for a jumbo Fed hike on Wednesday, but on a relative basis the ECB is seen moving quickly to narrow the euro zone-US rate gap despite coming late to normalization.

USD/JPY slipped 0.27% to 143.35 in low-liquidity holiday trade.

Tuesday’s Japanese CPI may offer some clues about the country’s policy outlook, though recent the BoJ rhetoric about remaining accommodative should keep rates steady as core CPI is likely to remain weak.

Reuters consensus forecast sees headline August CPI at 2.7% versus 2.4% in July. Core CPI was 1.2% in July. With little in the way of BoJ hike expectations, diverging US-Japan rates are likely to keep dollar bid versus the yen.

GBP/USD saw light trading as markets were closed for the state funeral of Queen Elizabeth II.

Overnight weakness just above the 2022 low was reversed as traders reflexively lightened GBP shorts ahead of the Fed rate announcement on Wednesday and the BoE’s delayed announcement Thursday.

In the near-term, the Fed is seen continuing to hike at a faster rate than the BoE, which should continue to apply downward pressure on GBP/USD.

Higher US Treasury 2- and 10-year yields and a flatter 2s-10s spread, now -47bp, weighed on equities and risk-off trading hit cryptocurrencies.

BTC slipped 2.27% to USD 19k, while ETH continued its post-merge selloff, losing a further 0.52% to USD 1,326.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)

Gold languishes near 29-month low in run-up to Fed meeting

Sept 19 (Reuters) – Gold prices weakened on Monday, back toward a 29-month low hit on Friday, as the dollar and Treasury yields firmed on expectations the US Federal Reserve will deliver a steep interest rate hike when it meets this week.

Spot gold was down 0.3% at USD 1,670.72 an ounce by 1:48 p.m. ET (1748 GMT), holding above its lowest since April 2020 hit on Friday.

US gold futures settled 0.3% lower at USD 1,678.20.

“(Gold) is still hanging around its lows and a big part of this is anticipation of the Fed announcement on Wednesday,” said Daniel Pavilonis, senior market strategist at RJO Futures, adding that higher Treasury yields were also pressuring prices.

The Fed, at the conclusion of its two-day policy meeting on Wednesday, is expected to raise interest rates by 75 basis points to combat stubbornly-high inflation, with markets even seeing a 20% chance for a 100 bps increase.

Concerns about surging inflation have also prompted other central banks to tighten monetary policy.

Although gold is considered a hedge against inflation, higher interest rates lift the opportunity cost of holding zero-yield bullion.

The dollar held close to two-decade highs, making greenback-priced bullion more expensive for overseas buyers.

Benchmark 10-year US Treasury yields rose to their highest in over 11 years.

“What is driving the hesitation for scaling into a long-term position with gold is that investors are not convinced that even when the Fed pauses, that might not guarantee they are done hiking (interest rates),” Edward Moya, senior analyst with OANDA, said in a note.

Elsewhere, silver lost 1.2% to USD 19.32 an ounce, while platinum rose 1% to USD 915.91 and palladium gained 4.1% to USD 2,222.19.

The bullion market in London – the world’s biggest trade center for physical gold – was closed for Queen Elizabeth’s funeral which limited trade volumes on Monday.

(Reporting by Kavya Guduru in Bengaluru; Editing by Jonathan Oatis and Mark Potter)

Dollar off 20-year peak as Fed headlines big central bank week

TOKYO, Sept 19 (Reuters) – The dollar lingered near a two-decade top on major peers on Monday, ahead of a week loaded with market holidays and central bank decisions from Washington to London and Tokyo.

The dollar index, which measures the currency against six counterparts, was 0.2% stronger than Friday at 109.84, consolidating after a volatile couple of weeks that took it as high as 110.79 on Sept. 7 for the first time since mid-2002.

Investors have scrambled to price in higher US interest rates and a stronger dollar, as US consumer price rises have proved stubbornly persistent.

Currently, markets have priced in at least another 75 basis point increase for this week’s Federal Open Market Committee’s meeting, and 19% odds of a super-sized full percentage point bump.

This week is also smattered with holidays that could thin liquidity and result in sharper price moves, with Japan and Britain off on Monday, Australia on Thursday, and Japan again on Friday, among others.

“The dollar can remain elevated as the (Fed) continues to hike aggressively and on growing global recession risks,” and could hit a new cyclical peak above 110.8, Commonwealth Bank of Australia strategists wrote in a client note.

The poor economic outlook will keep the euro, sterling and pro-cyclical currencies like the Australian dollar under pressure, they said.

The dollar was firm at 143.15 yen on Monday, hovering beneath strong resistance at 145 as Japanese policymakers have toughened talk of currency intervention.

The BOJ is widely expected to stick with massive stimulus on Thursday, standing out among developed-nation central banks that are all rapidly tightening policy to tame inflation.

At the same time, a turning point may come sooner than many policy watchers expect after the BOJ recently dropped the word “temporary” for its description of consumer price rises, even though the level is much lower than places like the United States and Britain.

China’s yuan was kept to the weaker side of 7 per dollar as economic worries and the possibility of more benchmark interest rate cuts loom on Tuesday.

Sterling slipped 0.2% to USD 1.1403 GBP, just above a 37-year trough of USD 1.1351 hit on Friday.

Markets are split on whether the Bank of England will raise rates by 50 or 75 basis points on Thursday.

Monetary tightening will clash with new British finance minister Kwasi Kwarteng’s emergency mini-budget, to be delivered on Friday, that will give more details about support to help ease the country’s cost-of-living crisis.

The euro EUR=EBS fell below parity to USD 0.9995, with little for investors to cheer about as an energy crisis seems certain to tip Europe into recession in the winter.

The Aussie dollar fell 0.2% to USD 0.6710 not far from its lowest level since mid-2020 at USD 0.6670, which it hit on Friday.

The New Zealand dollar was parked below USD 0.60 and last bought USD 0.5974.

(Reporting by Kevin Buckland. Additional reporting by Tom Westbrook; Editing by Sam Holmes)

Oil prices climb on weak dollar, supply concerns

SINGAPORE, Sept 19 (Reuters) – Oil prices climbed on Monday as a weaker dollar and supply concerns ahead of the European Union embargo on Russian oil in December offset fears of a global recession that could dampen fuel demand.

Brent crude futures rose 60 cents, or 0.7%, to USD 91.95 a barrel by 0330 GMT after settling up 0.5% on Friday. US West Texas Intermediate crude was at USD 85.50 a barrel, up 39 cents, or 0.5%. The front-month contract expires on Tuesday.

Both contracts, which slid more than 1% last week on concerns that another interest rate hike by the Federal Reserves could slow global growth, were supported by a weaker dollar which came off multi-year highs. A weaker US dollar makes dollar-denominated commodities less expensive for holders of other currencies.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from US producers,” ANZ analysts said Monday.

More supply disruptions remain a risk, while easing COVID-19 restrictions in China could also provide some optimism, the analysts said.

China has started easing COVID curbs in Chengdu, a southwestern city of more than 21 million people, which has helped to soothe concerns about demand in the world’s No. 2 energy consumer. China’s gasoline and diesel exports also rebounded, easing high local inventories, after Beijing issued fresh quotas.

Despite questions about the future of the world economy, Kuwait Petroleum Corporation’s (KPC) chief executive said on Sunday its customers still demand the same volumes with no change.

The Gulf state currently produces more than 2.8 million barrels per day of oil in accordance with its OPEC quota.

Elsewhere, oil loading and exporting operations from Iraq’s Basrah oil terminal are back to their normal rates on Saturday, Basrah Oil Company said, a day after being halted due to a spillage which has now been contained.

In Nigeria, Shell’s SHEL.L 200,000 barrels per day Bonga deep water storage and offloading vessel is scheduled for maintenance in October, a spokesperson said on Sunday.

Signalling more supplies from the United States, US energy firms added oil and natural gas rigs for the first time in three weeks last week.

The oil and gas rig count, an early indicator of future output, rose four to 763 in the week to Sept. 16, its highest since August, energy services firm Baker Hughes Co BKR.N said on Friday.

(Reporting by Florence Tan and Jeslyn Lerh; Editing by Lincoln Feast & Shri Navaratnam)

China raises holdings of Treasuries in July, Japan cuts holdings

NEW YORK, Sept 16 (Reuters) – China increased its holdings of Treasuries in July for the first time in eight months, while Japan reduced its U.S. government debt load, data from the U.S. Treasury department showed on Friday.

China’s stash of Treasuries rose to $970 billion in July, from $967.8 billion in June, which was the lowest since May 2010 when it had $843.7 billion.

Japan, on the other hand, reduced its Treasury debt holdings to $1.234 trillion in July from $1.236 trillion the previous month. Japan remains the largest non-U.S. holder of Treasuries.

The fall in Japan’s holdings was more or less in line with moves in the currency market. The yen firmed in July against the greenback, ending the month at 131.6 yen per dollar, from 135.22 yen at the beginning.

The yen’s steep fall against a resurgent dollar this year has raised the prospect of Japan intervening in the market to boost the Japanese currency. Since the beginning of 2022, the yen has fallen 19.5% versus the dollar.

Overall, foreign holdings of Treasuries rose to $7.501 trillion in July, from 7.430 trillion in June.

On a transaction basis, U.S. Treasuries saw net foreign inflows of $23.12 billion in July, down from $58.9 billion the previous month. U.S. Treasuries have posted foreign inflows for a third straight month.

The inflows generally tracked price action in the Treasuries market. The benchmark 10-year Treasury yield started July at 2.904%, and ended the month at 2.642%.

In other asset classes, foreigners sold U.S. equities in July for a seventh straight month amounting to $60.32 billion, from outflows of $25.36 billion in June. July’s outflow was the largest since March.

U.S. corporate bonds posted inflows in July of $8.78 billion, slightly down from $13.99 billion in June. Foreigners were net buyers of U.S. corporate bonds for seven straight months.

The Treasury data also showed U.S. residents once again sold their holdings of long-term foreign securities, with net sales of $27.2 billion, from sales of $50.5 billion in June.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese and Jonathan Oatis)

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