Dollar resumes rally, yuan weakens past key level

LONDON/SINGAPORE, Sept 16 (Reuters) – The dollar rallied again on Friday, as US Treasury yields rose ahead of a potentially huge Federal Reserve interest rate hike next week, while China’s yuan weakened past the psychologically important threshold of 7 per dollar.

The dollar, measured against a basket of currencies, is headed for a more than 1% rise this week, as investors flocked to the safety of the greenback. The yuan is the latest currency to hit a multi-year low by the dollar’s relentless rise.

The euro was last down 0.5% at USD 0.9945, while sterling fell to a new 37-year low of USD 1.1351, 1% lower on the session.

The dollar index rose 0.5% to 110.26, not far from its two-decade high of 110.79 reached earlier this month.

“With the Fed set to hike by possibly another 175 bps before year-end, we would expect financial conditions to remain unfavourable for assets generally and it clearly points to the U.S. dollar being the primary beneficiary,” said Derek Halpenny, head of research, global markets, MUFG.

The towering dollar pushed the offshore yuan past the critical threshold of 7 per dollar for the first time in more than two years overnight, with the yuan hitting a trough of 7.037.

The onshore unit similarly broke the key level soon after markets opened on Friday.

Data showed China’s economy was surprisingly resilient in August, with factory output and retail sales both growing more than expected. But a deepening property slump weighed on the outlook.

“Growth, policy divergence between the US and China could continue to support the USDCNH in the next few months, even if some pullback is seen intermittently,” said analysts at Maybank, who noted some “upside surprises” in the Chinese data release.

Traders will now shift their focus to a slew of monetary policy meetings by the Federal Reserve, the Bank of Japan (BOJ), and the Bank of England next week, with the Fed in centre stage.

US Treasury yields rose after data released overnight showed US retail sales unexpectedly rebounded in August, while a separate report from the Labor Department showed initial claims for state unemployment benefits fell 5,000.

Fed funds futures point to a 75% chance of a 75-basis-point rate hike at next week’s meeting and a 25% chance of a 100-bps increase.

This could spell further pain for the battered Japanese yen, which has been a victim of the surging greenback and growing interest rate differentials.

But three sources familiar with the thinking of the BOJ said the central bank has no intention of raising interest rates or tweaking its dovish policy guidance to prop up the yen.

The dollar was marginally lower against the yen at 143.43, but remained on track for a fifth straight weekly gain.

(Reporting by Tommy Reggiori Wilkes in London and Rae Wee in Singapore; Editing by Subhranshu Sahu)

Pound falls to 37-year low as poor retail sales lift economic woes

LONDON, Sept 16 (Reuters) – The pound on Friday tumbled to a fresh 37-year low on the U. dollar, and a 17-month trough on the euro, after weaker-than-expected figures of retail sales added to worries about the health of Britain’s economy.

The pound fell more than 1% against the dollar to 1.1351, its lowest since 1985, its fall accelerating once it passed through the then 37-year low hit last week.

The euro rose to as high as 87.66 pence, its highest level since Feb 2021, and was last up 0.39% at 97.52 pence.

Retail sales volumes dropped 1.6% in monthly terms in August, the Office for National Statistics said on Friday – the biggest fall since December 2021 and worse than all forecasts in a Reuters poll of economists that had pointed to a 0.5% fall.

But this was just the latest bad news for the British currency.

“The grinding backdrop of everything that’s going on is weighing on sterling, with the UK running these massive external deficits and the risks around the new prime minister’s policies adding to that,” said John Hardy, head of FX strategy at Saxobank.

Britain’s new leader, Liz Truss, last week announced a cap on soaring consumer energy bills for two years to cushion the economic shock of war in Ukraine with measures likely to cost the country upwards of 100 billion pounds (USD 115 billion).

British finance minister Kwasi Kwarteng is due to make a fiscal statement this month to explain how this will be funded, and also is expected to say how he will deliver the tax cuts promised by Truss during her campaign for leadership of the Conservative Party.

“In addition, markets are “risk-off” following Fedex’s withdrawing its forecast, and US equities dropping below a key support level. In a risk-off environment, sterling is like a worse euro,” said Foley.

FedEx Corp on Thursday withdrew the financial forecast issued just three months ago, sending its shares plunging and weighing on markets more broadly.

(Editing by Sherry Jacob-Phillips)

Philippines sees wider 2022, 2023 c/a deficits on global risks

MANILA, Sept 16 (Reuters) – The Philippine central bank on Friday revised higher its 2022 and 2023 projections for the country’s current account deficits, citing intensifying risks of a global growth slowdown as inflation and interest rates climb.

The Bangko Sentral ng Pilipinas (BSP) now expects the current account balance this year to register a deficit of USD 20.6 billion, or 5.0% of gross domestic product, compared with its previous forecast of USD 19.1 billion, or 4.6% of GDP.

For 2023, the deficit is seen at USD 20.1 billion, equivalent to 4.5% of GDP. That compares with a previous projection of USD 20.5 billion, equivalent to 4.4% of GDP.

This year’s balance of payments (BOP) is forecast to show a deficit of $8.4 billion, or 2% of GDP, bigger than the previous estimate of USD 6.3 billion, or 1.5% of GDP.

Next year’s BOP is expected to register a deficit of USD 2.5 billion, or 0.6% of GDP, versus a previous forecast of a USD 2.6 billion deficit, also equivalent to 0.6% of GDP.

“These risks of further downward revision in global growth prospects…are expected to broadly weaken global demand conditions, and hence, the country’s external sector,” the BSP said in a statement.

The BSP lowered its year-end forecasts for gross international reserves to USD 99 billion this year, from USD 105 billion previously, and to USD 100 billion for 2023, from USD 106 billion.

However, it said the country’s “solid” macroeconomic fundamentals could offset external headwinds, citing strong recovery momentum in the first half driven by the easing of COVID-19 restrictions and expanded vaccination coverage.

Additional support could be expected from inflows such as remittances by Filipinos overseas and business process outsourcing revenues, it said.

The BSP expects remittances to grow 4% this year and next.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Ed Davies)

What could India’s inclusion into major global bond indexes mean

Sept 16 (Reuters) – The possibility of India being included in global bond indexes this year has led to increased buying in a set of local securities.

A decision on whether to include the south Asian country into the J.P.Morgan Government Bond Index-Emerging Markets (GBI-EM) could come as early as this month when the operators meet to review the composition of the index.

Morgan Stanley and Goldman Sachs expect India to be included in the index by 2023, with a 10% weightage, if an initial announcement is made this year.

Meanwhile, Barclays said India could also possibly be added to the Bloomberg Global Aggregate bond index.

WHAT PROMPTED TALKS OF INCLUSION?

The Indian government began considering listing its securities for an inclusion in global bond indexes as far back as 2013. However, restrictions on foreign investments in Indian debt meant that the country had to roll out a number of steps before its securities could be eligible.

In April 2020, the Reserve Bank of India introduced a clutch of securities that were exempt from any restrictions under a “fully accessible route” for foreign investors. This was seen as a middle path that helps balance India’s concerns of “hot money” outflows while opening up part of its securities fully for foreign investors.

WHAT HURDLES REMAIN?

A key hurdle in the index entry is the ability to clear and settle Indian debt on an international platform like Euroclear.

This would require removing or lowering capital gains tax compared to what domestic investors would pay.

An easier workaround would be to settle the debt locally, which Reuters reported may be a preferred way for the government. nL1N3080KX

WHICH SECURITIES ARE EXPECTED TO BE LISTED?

The securities under the “fully accessible route” are likely to be the ones chosen for inclusion to the index. All new issues of government securities of 5-year, 10-year and 30-year tenors starting 2020-21 fall under this.

Foreign investors have already started buying bonds in this category since last month, data showed.

HOW MUCH INFLOWS CAN WE EXPECT?

Passive inflows of around $30 billion are expected from India’s inclusion, but they would be staggered over 10 months from the month of joining as the 10% allocation itself would be phased, according to Morgan Stanley.

Barclays expects inflows of another $8 billion to $20 billion if India is added to the Bloomberg Global Aggregate bond index.

WHAT DOES THIS MEAN FOR INDIAN MARKETS?

India’s fiscal deficit shot up during the COVID-19 crisis and the government aims to lower it to 6.4% of GDP in this fiscal year ending March 2023 from 6.9% last year.

Financing the budget means that the government will borrow a record 14.31 trillion Indian rupees ($180.06 billion) this financial year.

While inflows via a global bond index entry will be small in comparison, they will add another source of demand for Indian securities.

Additionally, India’s monthly trade deficit coming near record levels has made it imminent to seek new avenues of dollar inflows and this move is a “good and safe way of tapping into global capital,” said Madhavi Arora, lead economist at Emkay Global.

IS THERE A DOWNSIDE?

A bond index entry will also expose the Indian debt markets to greater volatility linked to passive flows which allocate capital based on the weightage assigned by the index provider.

The volatility could become a “headache” for the RBI, said Madan Sabnavis, chief economist at Bank of Baroda.

Any changes in sentiment or broader events like sell-offs or interest rate hikes by the Federal Reserve will turn Indian debt markets more vulnerable as foreign investors start withdrawing their money, Sabnavis said.

($1 = 79.4740 Indian rupees)

(Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil)

‘It’s a car with broken brakes’: investors see unrelenting yen descent

TOKYO/SINGAPORE, Sept 16 (Reuters) – Japan’s threats of currency intervention might slow but not stop the yen from hurtling towards three-decade lows before the year end, market analysts and fund managers say.

The yen has already lost more than 20% of its value this year to reach a 24-year trough at 144.99 per dollar last week, including a more than 7% tumble over the past month alone.

While it found brief respite after the Bank of Japan purportedly made rare checks on market levels this week, which is seen as a precursor to possible direct intervention, most banks and analysts expect the slide will continue.

They say the yen could soon hit a 32-year low of 150 per dollar or beyond as the Bank of Japan (BOJ) stays isolated in its uber-dovish policy stance while its global peers hike rates aggressively to battle inflation.

The BOJ’s next policy update comes on Thursday, when it is mostly expected to press on with its yield curve control policies that pin the short-term rate at -0.1% and the 10-year yield around zero via massive bond-purchases.

Heightening the contrast with other developed markets, the decision will come a day after the U.S. Federal Reserve’s latest rate-setting announcement, with traders fully pricing another 75 basis-point hike that will take rates there above 3%.

Such a dynamic is destined to keep the yen falling, and the fact that it is “super-undervalued” already on many metrics means nothing until the BOJ shifts policy, said Tohru Sasaki, head of Japan markets research at J.P. Morgan Securities in Tokyo.

“We’re riding in a car down a slope with broken brakes… unless we fix the brakes, it will just keep going down,” Sasaki said. “There is no reason to think the yen will stop at 145 or 150 as long as all the fundamental factors remain the same.”

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, agrees that a dovish BOJ will imply a persistently weak yen. “Once the dollar crosses the 145 yen line, the next target should be 150”, he said.

The BOJ is the last remaining dove among the Group of 10 central banks. New Zealand’s Reserve Bank was one of the first out of the gate nearly a year ago and even holdouts like the Swiss National Bank have tightened policy.

To be sure, Japan’s economic situation is different. Prices are rising, but mainly due to energy costs and exacerbated by the weak currency. Wage growth remains tepid, and consumer inflation just above the BOJ’s 2% target contrasts with 8.3% in the United States and around 10% in Britain.

BARK VS BITE ON INTERVENTION

The hurdle for the BOJ to actually buy yen to strengthen it is high, with analysts expecting Japan will not find any backing for that cause from U.S. authorities or other major central banks.

Shinichiro Kadota, senior FX strategist at Barclays, says the United States will be loath to join any intervention, given it needs a strong dollar to tame inflation at home.

Barclays, though, sees the yen gradually recovering toward 130 next year as U.S. inflation peaks and the Fed slows the pace of tightening. But it all depends on the Fed, with the BOJ’s policy stasis rendering it just a passenger.

“The Fed is driving, and the BOJ is in the back seat,” Kadota said.

Japan’s biggest bank, Nomura, agrees that the Fed is the focus for dollar-yen traders.

“The yen only stops falling when the Fed stops hiking rates in my view,” said Naka Matsuzawa, Nomura’s chief Japan macro strategist, who sees 150 as the yen’s next target.

“The BOJ won’t even consider normalising policy before knowing where the Fed stops, and whether the global economy can avoid a recession.”

(Reporting by Kevin Buckland and Rae Wee; Editing by Vidya Ranganathan and Kim Coghill)

Oil ticks up, but on track for weekly loss on recession fears

SINGAPORE, Sept 16 (Reuters) – Oil prices edged higher on Friday but were on track for a weekly decline amid fears of sharp interest rate hikes that would slam global growth and hit fuel demand.

Brent crude futures were up 56 cents, or 0.6%, to USD 91.40 a barrel as at 0610 GMT, but were down 1.5% for the week so far.

US West Texas Intermediate (WTI) crude futures gained 42 cents, or 0.5%, to USD 85.52 a barrel, but were down 1.4% on a weekly basis.

“Today’s morning rebound for oil prices can only be described as a short-term correction, as the Fed will raise interest rates by 75bp or 100bp next week,” said Leon Li, an analyst at CMC Markets.

“Although the probability of a 100 bp rate hike is relatively small, it would bring uncertainty to market sentiment. So there is still a risk that oil prices could drop lower next week.”

Both benchmarks are headed for a third consecutive weekly loss, hurt partly by a strong US dollar, which makes oil more expensive for buyers using other currencies. The dollar index .DXY ticked down on Friday but held near last week’s high above 110.

Investors are bracing for a US rate hike next week after data showed underlying inflation broadening out, and amid growing concerns of a global recession.

The market was also rattled by the International Energy Agency’s outlook for almost zero growth in oil demand in the fourth quarter due to a weaker demand outlook for China.

“Oil fundamentals are still mostly bearish as China’s demand outlook remains a big question mark and as the inflation fighting Fed seems poised to weaken the US economy,” OANDA analyst Edward Moya said in a note.

Analysts said sentiment suffered from comments by the US Department of Energy that it was unlikely to seek to refill the Strategic Petroleum Reserve until after fiscal 2023.

On the supply side, the market has found some support on dwindling expectations of a return of Iranian crude, as Western officials played down prospects of reviving a nuclear accord with Tehran.

Commonwealth Bank analyst Vivek Dhar said that supported the bank’s view that oil markets will tighten by the end of the year and Brent will return to USD 100 a barrel in the fourth quarter.

Oil prices may also be supported in the fourth quarter as OPEC+ members are likely to discuss production cuts at its October meeting, and as Europe would face an energy crisis amid uncertainty on oil and gas supply from Russia, added CMC’s Li.

(Reporting by Sonali Paul in Melbourne and Emily Chow in Singapore; editing by Richard Pullin and Raju Gopalakrishnan)

Oil prices up after Basra spill, but log weekly decline

NEW YORK, Sept 16 (Reuters) – Oil prices rose slightly on Friday as a spill at Iraq’s Basra terminal appeared likely to constrain crude supply, but remained down on the week on fears that hefty interest rate increases will curb global economic growth and demand for fuel.

Brent crude futures settled at $91.35 a barrel, up 51 cents, while U.S. West Texas Intermediate (WTI) crude futures settled at $85.11 a barrel, up 1 cent.

Both benchmarks were down by nearly 2% on the week, hurt partly by the U.S. dollar’s strong run, which makes oil more expensive for buyers using other currencies. The dollar index was largely flat on the day but up for its fourth week in five weeks.

In the third quarter so far, both Brent and WTI are down about 20% for the biggest quarterly percentage declines since the start of the COVID-19 pandemic in 2020.

Oil exports from Iraq’s Basra oil terminal are being gradually resumed after they were halted last night due to a spillage, which has been contained, Basra Oil Company said.

The spill at the port, which has four loading platforms and can export up to 1.8 mln barrels per day, drove up prices on the prospect of lower global crude supply.

“That definitely threw a scare into the market because the initial report was that those barrels were going to be out of the market for some time,” said John Kilduff, partner at Again Capital LLC in New York.

Investors are bracing for a large increase to U.S. interest rates, which could lead to a recession and reduce fuel demand. The Federal Reserve is widely expected to raise its benchmark overnight interest rate by 75 basis points at a Sept. 20-21 policy meeting.

“The increasing likelihood of global recession, as underscored by the recent renewed downturn in equities could continue to provide a limiter of upside (oil) price possibilities into next month and possibly beyond,” Jim Ritterbusch of Ritterbusch and Associates said in a note.

The market also was rattled by the International Energy Agency’s outlook for almost zero growth in oil demand in the fourth quarter owing to a weaker demand outlook in China.

“Both the IMF and World Bank warned that the global economy could tip into recession next year. This spells bad news for the demand side of the oil coin and comes a day after the IEA forecast (on) oil demand,” said PVM analyst Stephen Brennock.

“Recession fears coupled with higher U.S. interest rate expectations made for a potent bearish cocktail.”

Other analysts said sentiment suffered from comments by the U.S. Department of Energy that it was unlikely to seek to refill the Strategic Petroleum Reserve until after the 2023 financial year.

On the supply side, the market has found some support on dwindling expectations of a return of Iranian crude as Western officials play down prospects of reviving a nuclear accord with Tehran.

Oil prices could also be supported in the fourth quarter if OPEC+ members cut production, which will be discussed at the group’s October meeting. Europe faces an energy crisis driven by uncertainty on oil and gas supply from Russia.

U.S. crude supply appeared headed for an increase, as energy firms this week added oil and natural gas rigs for the first time in three weeks as relatively high crude prices encouraged some firms to drill more, mainly in the Permian Basin, according to energy services firm Baker Hughes Co.

(Additional reporting by Shadia Nasralla in London, Gertrude Chavez in New York, Sonali Paul in Melbourne and Emily Chow in Singapore; Editing by David Goodman, Louise Heavens, Paul Simao, David Gregorio and Diane Craft)

Gold hits over two-year low as Fed rate-hike fears mount

Sept 16 (Reuters) – Gold prices languished on Friday near the lowest level in more than two years, and were set for their worst week in two months, as prospects of aggressive rate hikes by the US Federal Reserve lifted bond yields and took the shine off bullion.

Spot gold fell 0.1% to USD 1,661.97 per ounce, as of 0724 GMT, after hitting its lowest since April 2020 at USD 1,658.30. Prices were down 3.2% for the week so far.

US gold futures fell 0.4% to USD 1,670.50.

“Currently, gold seems to be in an attempt to stabilise, coming after the heavy sell-off overnight,” said Yeap Jun Rong, a market strategist at IG.

“The bearish momentum could continue to drive a drift lower in prices until the FOMC (Federal Open Market Committee) meeting next week, where a hawkish Fed is the likely outcome.”

Benchmark 10-year US Treasury yields hovered near their highest level since June, while the dollar =USD was heading for a weekly rise against its rivals.

Markets are pricing in a 75-basis-point rate hike by the US central bank at its Sept. 20-21 policy meeting after consumer prices unexpectedly rose in August.

Data on Thursday showed that US retail sales unexpectedly rose in August as lower gasoline prices supported spending, while US jobless claims fell last week.

“A 75-bp hike is fully baked in, so what everyone wants to know is whether the Fed will retain an aggressive rate of tightening as we head into 2023. Gold is likely to suffer with a hawkish hike,” said Matt Simpson, a senior market analyst at City Index.

Gold is highly sensitive to rising US interest rates, as they increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

Meanwhile, India on Thursday slashed the base import prices of gold.

Spot silver fell 0.9% at USD 18.98 per ounce. Platinum fell 1.7% to USD 889.19 while palladium USD was down 1.7% at USD 2,099.54.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Uttaresh.V, Subhranshu Sahu and Sherry Jacob-Phillips)

US recap: EUR/USD anchored near parity as Fed moves into view

Sept 15 (Reuters) – The dollar index slipped a touch on Thursday, heading toward the US close down 0.08% after retail sales and jobless claims raised few doubts that the Fed continue delivering rate hikes aimed at tempering growth.

Focus is squarely on next week’s Fed meeting, with futures indicating a 75bp hike fully priced in with chances of a 100bp move a touch lower at 20%, down from near 30% after Tuesday’s CPI data.

EUR/USD remains anchored by 1.00, with gains likely to moderated by expectations that the Fed will hike faster and higher than the increasingly aggressive ECB.

USD/JPY gained slightly as fears of BoJ intervention near recent highs ebbed.

Weak longs have been happy to take profits on the recent runup and reversal, but verbal intervention alone may only slow USD/JPY’s advance on 145 en route to the big prize of 150, encouraged by Fed-BoJ rates divergence.

Sterling was the weakest link among the majors, GBP/USD down 0.45% at 1.1490. Diverging US-UK rates, increased UK government spending and near-double digit inflation remain hindrances for cable before next week’s BoE meeting.

The S&P 500 was down 0.2% and the tech heavy Nasdaq 0.8% lower, as Treasury yields rose and the inverted US 2s-10s spread, a closely watched metric for the health of the US economy, at -40bp.

Higher Treasury yields weighed on precious metals, gold down 1.6% to USD 1,668 and silver down 2.2% at USD 19.26.

Cryptocurrencies fell with risk, BTC -2% at USD 19.8k, ETH -7% at USD 1,510.

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

Gold hits over 2-year low on higher Treasury yields, firm dollar

Sept 15 (Reuters) – Gold dropped to its lowest level since April 2020 on Thursday, hurt by elevated US Treasury yields and a firm dollar, as bets of another hefty rate hike by the US Federal Reserve eroded bullion’s appeal.

Spot gold was last down 1.8% at USD 1,665.23 per ounce by 2:16 p.m. ET (1816 GMT), after falling more than 2% to USD 1,659.47 earlier in the session.

US gold futures settled 1.9% lower at USD 1,677.30.

“Today, the biggest factor are yields, (which) seemed pretty strong after taking a little bit of a reprieve,” said Daniel Pavilonis, senior market strategist at RJO Futures.

“This selloff into September, October has really been just on rate adjustments, rates came off pretty hard and now they’re right back up again and pushing gold lower.”

Prices had briefly pared losses as investors took stock of data that showed US retail sales unexpectedly rose in August, while separate data showed US weekly jobless claims fell 5,000 to a seasonally adjusted 213,000 last week.

Markets have fully priced in an interest rate hike of at least 75 basis points at the end of the Fed’s policy meeting next week, possibly even as high as 100 basis points.

Although gold is considered a safe bet during economic uncertainty, interest rate hikes increase the opportunity cost of holding non-yielding bullion.

Meanwhile, International Monetary Fund chief Kristalina Georgieva said on Wednesday central bankers must be persistent in fighting broad-based inflation.

Spot silver shed 2.5% to USD 19.19 per ounce.

“This week’s strength in the US dollar index, along with rising US Treasury yields and some hotter US inflation data, have all combined to keep gold and silver buyers mostly standing on the sidelines,” Jim Wyckoff, senior analyst at Kitco Metals, said in a note.

Platinum fell 0.2% to USD 904.01, and palladium XPD= lost 1.4% to USD 2,133.76.

(Reporting by Kavya Guduru in Bengaluru; Editing by Devika Syamnath)

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