Dollar pauses for breath as Fed leaves market pondering over rates path

TOKYO, July 15 (Reuters) – The dollar hovered below a near two-decade high in Asian trading on Friday, having slipped overnight after two Federal Reserve policymakers said they favored a smaller rate rise than the 100 basis-points that investors were betting on.

The dollar index, which measures the currency versus six counterparts, edged 0.07% higher to 108.65, after reaching and then falling back from the highest since September 2002 at 109.29 on Thursday.

Traders had ramped up bets that the Fed would go for a super-sized tightening at their July 26-27 meeting after data on Wednesday showed consumer price inflation racing at the fastest pace in four decades.

But those bets were pared after Fed Governor Christopher Waller and St. Louis Fed President James Bullard both said they favored another 75 basis-point hike for this month, in spite of the inflation figures.

Fed funds futures currently indicate a 31% chance of a 100 basis-point increase, down from around 70% before the comments.

Even with the pullback, the dollar index is on track for a third winning week, up 1.58% from last Friday on both bets for an increasingly aggressive Fed and as worries about a resulting recession fueled demand for the currency as a safe haven.

“Momentum remains with the US dollar,” said Sean Callow, a currency strategist at Westpac, predicting scope for the dollar index to top 111 in coming weeks.

“The FOMC will have to remain hawkish both at the July meeting and beyond, solidifying US dollar yield support.”

Against the yen, the dollar eased 0.09% on Friday to 138.81 but was up 2% for the week and touched 139.38 overnight for the first time since September 1998 as US Treasury yields widened the gap to their Japanese counterparts.

The Bank of Japan has been steadfast in its commitment to ultra-easy policy to support the economy, and is widely seen keeping stimulus settings steady at a meeting next week.

The euro was flat at USD 1.0019, after bouncing back from below parity on Thursday for a second day.

The single currency dipped as low as USD 0.9952 after Italian Prime Minister Mario Draghi offered to resign, but that was rejected by the country’s president.

The euro zone is struggling with a worsening energy crisis as Russia shut down a gas pipeline for regular week-long maintenance, leaving markets jittery about whether it will come back online, with Russia saying it will depend on demand and sanctions.

Despite the uncertainty, the European Central Bank is likely to stick the quarter-point rate increase it has flagged for next week, but the outlook trails well behind the Fed, supporting the dollar’s strength versus the euro.

Meanwhile, sterling edged 0.12% higher to USD 1.1840, after slumping to a 28-month low of USD 1.1761 overnight. It is down 1.57% since last Friday, heading for its worst week since early May as political turmoil casts a shadow over the currency.

The risk-sensitive Australian dollar added 0.1% to USD 0.6755, shrugging off data showing a sharper-than-expected decline in economic growth in key trading partner China.

The Aussie dropped to a two-year low of USD 0.66825 on Thursday, and is headed for 1.43% weekly loss.

(Reporting by Kevin Buckland; Editing by Simon Cameron-Moore)

Stocks stumble, dollar steadfast as growth outlook darkens

SINGAPORE, July 15 (Reuters) – Asian stocks hit a two-year low on Friday and were heading for a weekly loss, while the dollar was set for its third week of gains as a fresh slew of rate hikes around the world deepened worry about the outlook for global economic growth.

Although wagers on a 100 basis point hike from the US Federal Reserve later this month eased off a little overnight as Fed officials hosed down that possibility, bond markets remain priced for steep hikes to slam the brakes on output.

Adding to those broad global growth concerns, China released second quarter economic data on Friday showing growth was slower than expected and the property sector had severe funding stresses, with retail sales being the only bright spot as major cities were locked down to contain COVID-19.

MSCI’s index of Asia-Pacific shares outside Japan fell 0.5% in early trade to a two-year low, dragged down by concerns about China’s property market where homeowner threats to cease mortgage payments have spooked markets.

China’s main share index was marginally higher, while a Hong Kong-listed index of mainland stocks fell more than 2%.

Japan’s Nikkei .N225 edged 0.1% lower. The US dollar stood near two-decade highs on the euro and yen, having forced the euro below USD 1 for the first time since 2002 this week.

Overnight, Wall Street indexes fell after weaker-than-expected earnings from JPMorgan Chase & Co and Morgan Stanley fanned fears of a sharp economic downturn.

The S&P 500 finished 0.3% lower but futures were up 0.35% in Asia after Fed Governor Christopher Waller and St. Louis Fed President James Bullard poured some cold water on talk of a 100 bp rate hikes later in July.

“Markets may have gotten ahead of themselves,” Waller said at a summit in Idaho. Bullard also told Japan’s Nikkei newspaper that a 75 bp hike “has a lot of virtue to it.”

Futures 0#FF: imply about a 30% chance of a 100 bp hike and see the benchmark US interest rate reaching about 3.6% by March next year before being cut back to 3% by late 2023.

HIKES

This week the Bank of Canada surprised markets with a 100 bp hike, central banks in South Korea and New Zealand announced 50 bp hikes and in Singapore and the Philippines authorities tightened policy out-of-cycle to tamp down on inflation.

US retail sales data will also be closely watched data point on Friday.

Weakness will further worry investors who think this week’s white-hot inflation figure and subsequent Thursday data showing a strong rise in producer prices point to an unleashing of steep rate rises on a softening economy.

Short-end US Treasuries held steady overnight, but the two-year yield, at 3.1217%, is about 17 basis points higher than the benchmark 10-year yield, an unusual inversion of the yield curve that often points to recession.

“That inversion, I think, has quite a long way to go because we haven’t really properly priced in that recession yet,” said ING economist Rob Carnell, who also warned equities were at risk as fast-rising producer costs point to margin squeezes.

In currency markets the US dollar is king. The euro fell as low as USD 0.9952 overnight and has slid 1.5% for the week. It last steadied at USD 1.0030. The yen is hurtling toward 140 per dollar, and last bought 138.85.

“Not only has the greenback been supported by an almost continual ratcheting higher of Fed hawkishness over the past year, but the USD is picking up support from safe-haven flows.

This reflects concerns that China will struggle to meet its growth targets this year at a time when the market is concerned about recession risks for Europe and the US.”

Brent crude futures held at USD 99.42 a barrel and gold sat at USD 1,711 an ounce, just above a one-year low made overnight.

(Reporting by Tom Westbrook; Editing by Edwina Gibbs)

Gold set for 5th weekly fall on dollar rally, rate hike fears

July 15 (Reuters) – Gold prices steadied on Friday, with bullion on course for a fifth straight weekly decline as a relentless surge in the dollar and fears of aggressive US interest rate hikes weighed on demand.

FUNDAMENTALS

* Spot gold inched up 0.1% to USD 1,711.26 per ounce by 0116 GMT. US gold futures firmed 0.1% to USD 1,708.00.

* Gold prices are down 1.8% this week.

* The dollar was perched near 20-year highs, suppressing demand for greenback-priced bullion among buyers holding other currencies. A strong dollar sent gold down more than 2% in the previous session.

* However, the benchmark US 10-year Treasury yield edged lower, slightly buoying zero-yield gold.

* Two of the Fed’s most hawkish policymakers on Thursday said they favored another 75-basis-point interest rate increase at the US central bank’s policy meeting this month, not the bigger rate hike traders had raced to price in after a report Wednesday showed inflation was accelerating.

* Higher interest rates raise the opportunity cost of holding non-yielding bullion.

* SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.28% to 1,016.89 tonnes on Thursday, from 1,019.79 tonnes on Wednesday.

* Spot silver was flat at USD 18.38 per ounce, but has fallen about 4.8% in what could be its seventh straight weekly loss.

* Platinum was little changed at USD 843.33. It has dropped about 6% this week, potentially its worst in at least three months.

* Palladium firmed 0.4% to USD 1,903.67. It has lost about 12.8% this week, the most since November.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Amy Caren Daniel)

Oil prices climb amid questions over scale of US rate hike

July 15 (Reuters) – Oil prices rose in early Asian trading on Friday amid uncertainty around how aggressive the U.S. Federal Reserve will be in hiking interest rates to combat rampant inflation.

Brent crude futures for September delivery rose 80 cents, or 0.8%, to $99.90 a barrel by 0007 GMT, while WTI crude rose 69 cents, or 0.7%, to $96.47 a barrel.

The Fed’s most hawkish policymakers on Thursday said they favoured another 75-basis-point interest rate increase at the U.S. central bank’s policy meeting this month, not the bigger rate raise that traders had raced to price in after a report Wednesday showed inflation was accelerating.

The Fed rate hike is expected to follow a similar move by the Bank of Canada, which surprised the market on Wednesday with a 100-basis-point increase.

The rate hike uncertainty, along with weak economic data, caused both benchmark contracts to drop at one stage on Thursday to below the Feb. 23 close, the day before Russia invaded Ukraine in what Moscow calls “a special military operation”. Still, both Brent and WTI had clawed back nearly all losses by the end of the trading session.

U.S. President Joe Biden will on Friday fly to Saudi Arabia, where he will attend a summit of Gulf allies and call for them to pump more oil.

However, spare capacity at members of the Organization of the Petroleum Exporting Countries is running low, with most producers pumping at maximum capacity, and it is unclear how much extra Saudi Arabia can bring into the market quickly.

(Reporting by Laura Sanicola; Editing by Kenneth Maxwell)

Gold sheds over 2% on rampant dollar as big Fed rate hike looms

July 14 (Reuters) – Gold slumped more than 2% to a near one-year low on Thursday as the dollar extended its sharp rally, while expectations grew for a steep interest rate hike from the Federal Reserve.

Spot gold fell 1.5% to USD 1,710.02 per ounce by 2:02 p.m. ET (1802 GMT), after falling over 2% earlier in the session. US gold futures settled down 1.7% to USD 1,705.8.

The dollar soared to a 20-year high, emerging as a preferred save haven amid growing economic risks of late, at gold’s expense.

“The stronger dollar is pushing gold lower. After the consumer inflation data, traders have increased their expectations from a 75 bps rate hike to a 100 bps rate hike,” hurting gold, said Philip Streible, chief market strategist at Blue Line Futures in Chicago.

“Gold will unlikely see any upside unless inflation deteriorates enough to stop interest rate hikes or if other central banks start to be as aggressive as Fed, and that can weaken dollar,” Streible added.

Although it is considered an inflation hedge, gold’s appeal tends to dim amid elevated interest rates since bullion yields no interest.

Building the case for a steep rate hike to tame inflation, data on Wednesday showed US annual consumer prices surged, resulting in the largest annual increase in inflation in 40-1/2 years.

Meanwhile, the Fed’s Christopher Waller said “markets may have gotten ahead of themselves” in pricing in a 100 bps rate hike for July.

US weekly jobless claims rose for the second straight week, suggesting some cooling in the labor market. nL1N2YU24P

In the physical markets, second biggest bullion consumer India’s plain gold jewellery exports to the UAE jumped in May.

Spot silver dipped 4.2% to USD 18.38 per ounce, platinum was down 1.5% at USD 842.37, while palladium fell nearly 3% to USD 1,915.63.

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru; Editing by Jonathan Oatis and Shailesh Kuber)

Dollar climbs further pinning euro, yen at multi-decade lows

LONDON, July 14 (Reuters) – The dollar resumed its relentless rise on Thursday, charting new 24-year highs against the yen and pinning the euro close to parity, as investors bet on the Federal Reserve ratcheting up interest rates to combat soaring inflation.

Global economic turmoil has put a rocket under the safe haven dollar, pushing the dollar index that tracks the greenback against six counterparts up more than 13% this year. It was last up a fifth of a percent on the day at 108.500.

The dollar strengthened more than 1% against the yen, pushing it above 139 yen per dollar for the first time since 1998. It was last up 1.3% at 139.18 yen per dollar.

The euro was hovering just above parity with the dollar – a day after breaking below the key level for the first time in almost two decades. The single currency fell as much as 0.5% on the day and was last down 0.3% at USD 1.00310.

Another hot set of US inflation data on Wednesday and an aggressive 100 basis point rate hike by the Bank of Canada on the same day has stoked bets on swifter policy tightening by the Fed, currency analysts said.

“The price action reflects building fears that the Fed will strangle the life out of the US recovery by responding more aggressively to dampen upside inflation risks,” analysts at MUFG said in a note.

Traders have ramped up bets that the US central bank could raise rates by 100 basis points when it meets on July 26-27. A hike of at least 75 basis points is seen as almost certain.

Sterling slipped 0.3% to USD 1.18580, as concerns about prospects for the British economy dominated despite data on Wednesday showing output unexpectedly grew in May.

(Reporting by Iain Withers, Additional reporting by Kevin Buckland in Tokyo; Editing by Alex Richardson)

Stocks fall, dollar gains as US inflation prompts 100 bps hike bets

LONDON, July 14 (Reuters) – European shares dropped in early trading on Thursday and the safe-haven dollar was up after the latest red-hot US inflation reading increased investor caution about Federal Reserve rate hikes.

Wednesday’s data showed US consumer prices jumped 9.1% year-on-year in June, up from May’s 8.6% rise.

The data was seen as firming the case for the Federal Reserve to raise rates aggressively. Policymakers might consider a 100 basis point increase at the July meeting, Atlanta Federal Reserve Bank President Raphael Bostic said.

By early European trading, money markets were pricing in a 54% chance of a full percentage point hike at the July meeting and a 46% chance of a 75 basis point rise.

Asian shares were stuck at two-year lows and European indexes opened in the red. At 0735 GMT, Europe’s STOXX 600 and London’s FTSE 100 were both down 0.2% on the day.

“The Fed probably needs to temper people’s expectations in terms of what they can do,” said Eddie Cheng, head of international multi-asset investment at Allspring Global Investments.

“In the past hiking cycle, we have observed that inflation kept rising during the hiking cycle… it takes time for the monetary policy to affect inflation.”

Cheng said that riskier assets will be the “collateral damage” in the Fed’s attempts to reign in inflation.

The dollar index measuring its performance against a basket of currencies was up 0.2% at 108.43, while the dollar was up 1.1% against the yen, at its strongest since 1998.

The British pound was down 0.2% at USD 1.1865. In the first vote to choose who will succeed Boris Johnson as Conservative party leader, former finance minister Rishi Sunak won the biggest backing from Conservative lawmakers.

The euro was down 0.3% at USD 1.00325, having slipped below USD 1 on Wednesday for the first time since 2002.

The euro has been under pressure because of the European Central Bank lagging the Fed in ending its ultra-easy monetary policy of the past decade, as well as the economic risks from the euro zone’s dependence on Russian gas.

Germany’s benchmark 10-year government bond yield was up 8 basis points at 1.231%.

Italian yields rose sharply ahead of a parliamentary confidence vote which risks bringing the country’s government down.

The US 10-year yield was up around 7 basis points at 2.9817%. The 2-year, 10-year part of the Treasury yield curve is at its most inverted it has been at any point in this cycle, according to Deutsche Bank.

Yield curve inversion – which is when short-dated interest rates are higher than longer ones – is commonly seen as an indicator that markets are anticipating a recession.

Oil prices fell as traders saw a large US rate hike possibly reducing crude demand.

Overnight, the Monetary Authority of Singapore and the Bangko Sentral ng Pilipinas surprised markets by tightening monetary policy in off cycle moves.

(Reporting by Elizabeth Howcroft; Editing by Tomasz Janowski)

BSP says economy robust enough to absorb aggressive rate hike

MANILA, July 14 (Reuters) – The Philippine economy continues to be robust to absorb the 75 basis points increase in the central bank’s benchmark interest rates, given an expansion in economic activity early this year, the finance minister said on Thursday.

“The growth outlook is seen to be supported by the maintenance of loosened quarantine restrictions as well as the positive impact of structural reforms,” Benjamin Diokno said in a statement following the central bank’s surprise move.

(Reporting by Enrico Dela Cruz; Editing by Martin Petty)

Oil settles lower ahead of potential large U.S. rate hike

NEW YORK, July 14 (Reuters) – Oil prices settled lower on Thursday, but pared nearly all losses after falling more than USD 4 earlier in the session as investors focused on the prospect of a large US rate hike later this month that could stem inflation but at the same time hit oil demand.

Brent crude futures for September settled down 47 cents, or 0.5% to USD 99.10 a barrel and finished a third session in a row below USD 100.

US West Texas Intermediate crude for August delivery settled down USD 95.78 a barrel, or 0.5%, down 52 cents.

Both contracts hit lows on Thursday which were below the Feb. 23 close, the day before Russia invaded Ukraine, with Brent reaching its lowest level since Feb. 21.

The US Federal Reserve is seen ramping up its battle with 40-year high inflation with a supersized 100 basis-point rate hike this month after a grim inflation report showed price pressures accelerating. The Fed policy meeting is scheduled for July 26-27.

The Fed rate hike is expected to follow a similar move by the Bank of Canada which surprised the market on Wednesday.

“Moves by the Fed will have an outsized impact on the market as we watch them try to digest new economic data about inflation,” said John Kilduff, partner at Again Capital LLC in New York.

Oil prices have tumbled in the past two weeks on recession concerns despite a drop in crude and refined products exports from Russia amid Western sanctions and supply disruption in Libya.

Investors also flocked to the dollar, often seen as a safe- haven asset. The dollar index hit a 20-year high on Wednesday, which makes oil purchases more expensive for non-US buyers, but retreated somewhat on Thursday.

“Technical indicators are suggesting another round of fresh lows as the US dollar continues to rule in driving oil price direction,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

In Europe, signals were also bearish for demand with the European Commission cutting its economic growth forecast and raising the expected inflation rate to 7.6%.

Worries of COVID-19 curbs in multiple Chinese cities to rein in new cases of a highly infectious subvariant have also kept a lid on oil prices.

China’s daily crude oil imports in June sank to their lowest level since July 2018, as refiners anticipated lockdown measures to curb demand, customs data showed on Wednesday.

Data from the US Energy Information Administration also point to slackening demand, with product supplied slumping to 18.7 million barrels per day, the lowest since June 2021. Crude inventories rose, bolstered by another big release from strategic reserves.

US President Joe Biden will on Friday fly to Saudi Arabia, where he will attend a summit of Gulf allies and call for them to pump more oil.

However, spare capacity at the Organization of the Petroleum Exporting Countries is running low, with most of the producers pumping at maximum capacity, and it is unclear how much extra Saudi Arabia can bring into the market quickly.

(Reporting by Laura Sanicola in New York; Additional eporting by Julia Payne in London and Florence Tan in Singapore; Editing by Jason Neely, Matthew Lewis and Diane Craft)

Gold falls as firm dollar, yields compound rate-hike woes

July 14 (Reuters) – Gold prices fell 1% on Thursday, as Treasury yields and the dollar rose, with bullion’s outlook already dented by fears the US Federal Reserve could opt for a more aggressive interest rate hike this month to tackle sky-rocketing inflation.

Spot gold retreated 1% to USD 1,718.69 per ounce by 0757 GMT. US gold futures also lost 1% to USD 1,717.70.

The dollar set a fresh 20-year high, hurting demand for greenback-priced gold among buyers holding other currencies.

Benchmark US 10-year Treasury yields rose, weighing on appetite for zero-yield gold.

Data released overnight showed US annual consumer prices jumped 9.1% in June, the sharpest spike in more than four decades.

“The CPI release generated volatility but not direction,” said Ilya Spivak, a currency strategist at DailyFX, reasoning that markets now likely expected the Fed to front-load rates more, and not necessarily tighten more overall, but said gold still had a bearish outlook.

A rallying dollar sent gold prices to a near one-year low on Wednesday following the inflation report, but a retreat in the greenback helped bullion make a sharp recovery and end the session higher.

Global markets swung wildly in the previous session. On Thursday, Asian shares struggled on fears the Fed’s aggressive monetary policy could trigger a recession.

The Fed is seen ramping up its battle to curb inflationary pressures with a supersized 100-basis-point rate hike at its upcoming policy meeting on July 26-27.

Although gold is seen as an inflation hedge, higher rates hurt the appeal of bullion, which bears no interest.

“It would be silly to say that 75 basis points is dovish, but there is a risk here that the Fed does something that’s objectively big, like 75, but gold rallies because it’s not 100,” Spivak said.

Spot silver dipped 1.1% to USD 18.98 per ounce, platinum slipped 1.5% to USD 841.96, and palladium dropped 1.3% to USD 1,949.43.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Rashmi Aich and Sherry Jacob-Phillips)

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