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Adds Yellen comments, Powell confirmation updates prices

By Chuck Mikolajczak

NEW YORK, May 12 (Reuters) – The dollar climbed to a fresh 20-year high on Thursday as concerns persisted that central bank actions to drive down high inflation would crimp global economic growth, boosting the currency’s safe-haven appeal.

Data from the Labor Department showed weekly initial jobless claims rose to their highest level in three months, although the labor market remains a strength of the U.S. economy. On the inflation front, the producer price index showed a sharp deceleration in April to a 0.5% rise from the 1.6% surge the prior month, thanks in part to a sharp drop in energy products. nL2N2X419C

In the 12 months through April, the PPI increased 11.0% after accelerating 11.5% in March and above an estimated increase of 10.7%.

“PPI slightly mixed to slightly less than expected today but overall there is still a lot to worry about… if S&P sells off again that is going to be broadly supportive of dollars,” said Erik Bregar Director, FX & Precious Metals Risk Management at Silver Gold Bull Inc in Toronto.

The dollar index =USD rose 0.798% at 104.840 after touching 104.92, its highest level since Dec. 12, 2002. The euro EUR= down 1.38% to $1.0366 after falling to 1.0352, its lowest since Jan. 3, 2017.

After the Fed raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, investors have been attempting to assess how aggressive the central bank policy path will be. Expectations are completely priced in for another hike of at least 50 basis points at the central bank’s June meeting, according to CME’s FedWatch Tool.

Irish Central Bank Governor Gabriel Makhlouf joined a chorus of European Central Bank policymakers calling for the Governing Council to act to tackle inflation, though not necessarily at the same pace as the Fed. nL2N2X40YD

Risk assets have been under pressure for most of the year, with the S&P 500 .SPX on the verge of confirming it is in a bear market, commonly viewed as a decline of 20% from its record high. nL2N2X42EI

Investors have gravitated towards safe-haven assets such as the dollar as worries have mounted about the Fed’s ability to tamp down inflation without causing a recession, as well as repercussions from the war in Ukraine and rising COVID-19 cases in China sapping demand. Concern about a lingering stagflation environment of slow growth and high prices have also dented the appetite for risk.

U.S. Treasury Secretary Janet Yellen told a U.S. House of Representatives Financial Services Committee hearing the Fed can bring down inflation without causing a recession because of a strong U.S. job market and household balance sheets, low debt costs and a strong banking sector. Fed Chair Jerome Powell was also confirmed by the U.S. Senate for a second term. nL2N2X4240nS0N2UR07A

“(The Fed) have a big, big credibility problem, they have always had one but it’s worse now. The inflation genie is out of the bottle and nothing else matters now,” said Bregar.

Another safe-haven, the Japanese yen, strengthened 1.47% versus the greenback at 128.08 per dollar, while Sterling GBP= was last trading at $1.2173, down 0.63% on the day after a flurry of soft economic data in Britain. nL5N2X434P

In cryptocurrencies, Bitcoin BTC= last fell 0.54% to $28,250.01 after dropping to $25,390.26, its lowest level since December 2020.

Ethereum ETH=, ETH=BTSP last fell 6.48% to $1,903.73.

(Reporting by Chuck Mikolajczak; Editing by Andrew Heavens)

((charles.mikolajczak@tr.com; @ChuckMik;))

May 12 (Reuters) – The euro tumbled against the dollar and yen on Thursday as intensifying global risk aversion over war, inflation and diminishing economic growth prospects sent investors scrambling into the safe-haven dollar and yen.

The souring sentiment dealt a particularly harsh blow to the euro since it is exposed to Ukraine war risks nL3N2WY13J and China’s COVID-related economic disruptions nL2N2X40OH while also dealing with the ECB’s delayed entry into the fight against inflation.

EUR/JPY plunged 2.8% and EUR/USD tumbled 1.4%.

Highlighting the unwinding of carry trades and other riskier ventures, USD/JPY slumped 1.4% even as the dollar index rose nearly 1% to 19-1/2-year highs nL2N2X41IQ.

EUR/USD was approaching 2017’s 1.0340 low, the last crucial support before parity, below which the all-time low at 0.8228 might attract traders as a lengthy list of risks — including inflation, energy insecurity, economic growth and peripheral debt servicing issues — confronts policymakers.

Bund yields fell faster than Treasury yields during this week’s financial market duress, leaving EUR/USD in a precarious position as it approaches the 2017 lows nL2N2X41HW.

USD/JPY faced daily and weekly sell signals but held weekly range support at 127.53 near the 127.41 daily kijun. BOJ-corralled JGB yields abetted the risk-off slide in 2-year Treasury-JGB yields spreads, down 30bp since last week’s close, adding to USD/JPY selling.

Unwinding of spec-heavy and extremely overbought USD/JPY longs has it threatening support by 127, with 125 next nL2N2X41RT.

Sterling sank 0.6% to its lowest in two years due to the dollar’s broad advance.

Cable was spared EUR/USD’s deeper losses partly because specs were already heavily short sterling versus nearly flat EUR/USD coming into this week and the BoE’s early start to rate hikes offers some carry trade cushion versus the mere expectation for ECB rate hikes to begin in H2.

But UK economic worries being far more dire than those for the U.S. were reinforced by weaker-than-forecast UK data nL2N2X41EE.

Major sterling support is April 2020’s 1.2075 swing low by the 76.4% Fibo of the entire pandemic recovery range at 1.2082, below which is the 2020 spike low at 1.1413.

USD/CNH gained nearly a percent to its highest since September 2020, adding to the staggering 8% surge since March’s lows, as Chinese economic concerns mount and the PBOC avoids meaningful rate cuts to avert faster capital outflows.

The Australian and New Zealand dollars fell 1.5% and 1.2%, respectively, amid risk-off flows and Chinese worries. Risk-gauge AUD/JPY collapsed 2.9% to 87.42 by the 50% Fibo of the December-April rally at 87.25.

Bitcoin recovered most of its early plunge to its lowest since December 2020, while ether mounted only a partial recovery from its plunge to June 2021’s 1,700 nadir, both hobbled by stablecoin dollar peg breaches nL2N2X4098 and broader risk aversion.

May Michigan sentiment tops Friday’s data calendar, with most now focused on next Tuesday’s retail sales report.

For more click on FXBUZ

(Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.)

((Randolph.donney@thomsonreuters.com))

Adds details

WARSAW, May 12 (Reuters) – Poland’s central bank governor secured a second term on Thursday after parliament approved his appointment, meaning a figure widely seen as close to the ruling nationalists will continue to guide monetary policy despite criticism of his record.

There had been doubts over whether the ruling nationalists Law and Justice (PiS) party could command a majority for the reappointment of Adam Glapinski, and the vote will come as a boost to a government that has had to rely on the votes of a smaller party not formally part of the ruling coalition.

There were 234 votes in favour of Glapinski serving a second term, 223 against and no abstentions.

With inflation in the largest economy in the European Union’s eastern wing running at its highest level in almost a quarter of a century, Glapinski has been criticised by opposition politicians and some economists for being too slow to start tightening monetary policy.

“Supporting Glapinski means supporting high inflation, high loan instalments, supporting things that destroy the lives of Poles,” opposition lawmaker Miroslaw Suchon told the chamber.

However, Glapinski has been robust in defence of his record, dedicating significant parts of his monthly press conferences to rebutting such criticism by pointing to high inflation globally and the unpredictability of the external shocks that have rocked Poland’s economy, such as the war in Ukraine and COVID-19.

PiS lawmaker Lukasz Schreiber said the opposition’s criticisms were unfounded. “Haven’t you noticed that inflation in Holland is the highest in 20 years, in the USA (the highest) in 40 years?” he asked.

Poland started a tightening cycle in October, later than central banks in the Czech Republic and Hungary. Its main interest rate currently stands at 5.25%.

Glapinski’s links to PiS leader Jaroslaw Kaczynski go back decades, and in the 1990s they co-founded the Centre Agreement party, a predecessor of PiS.

(Reporting by Alan Charlish, Pawel Florkiewicz, Anna Koper; Editing by Hugh Lawson)

((alan.charlish@thomsonreuters.com; +48 22 104 25 27 ;))

Updates rand, adds stocks

JOHANNESBURG, May 12 (Reuters) – The South African rand stabilised on Thursday, staying resilient despite a strong dollar, weak economic data and a pickup in local COVID-19 infections.

At 1615 GMT, the rand ZAR=D3 traded at 16.1450 per dollar, around 0.1% weaker than its previous close.

That was a modest decline given the dollar climbed to a new 20-year high =USD on concerns that central bank actions to counter high inflation would crimp global economic growth. nL2N2X41MA

March mining output fell more than expected, and March manufacturing production declined 0.8% year-on-year versus predictions for a 0.9% fall. South Africa’s daily reported COVID infections on Wednesday crossed 10,000 for the first time since January. nJ8N2SY00W nJ8N2SY00Y nL5N2X377A

On the Johannesburg Stock Exchange, the All-Share index .JALSH closed 1.7% weaker, while the Top-40 index .JTOPI fell 1.85%.

Gold and platinum miners were the main drag on the bourse as bullion and other precious metals dropped, with palladium shedding more than 6%, as investors flocked to the dollar driven by bets the U.S. Federal Reserve will stick to aggressive rate hikes. GOL/

Anglo American Platinum AMSJ.J was at the bottom of the bourse, down 6.85%, while Sibanye-Stillwater SSWJ.J, Northam Platinum NPHJ.J, AngloGold Ashanti ANGJ.J and Harmony Gold HARJ.J fell 6.69%, 6.25%, 5.98% and 5.83% respectively. The mining index .JMINI slumped 5.79%.

ArcelorMittal South Africa ACLJ.J fell 5.97% as a strike entered a second day after wage negotiations broke down. nL5N2X42BL

(Reporting by Alexander Winning, Nqobile Dludla and Olivia Kumwenda-Mtambo; Editing by Alison Williams)

((Olivia.Kumwenda@thomsonreuters.com; +27 10 346 1084))

Adds Q&A comments, updates Canadian dollar

By Julie Gordon and David Ljunggren

OTTAWA, May 12 (Reuters) – The Bank of Canada’s policy rate, at 1%, is “too stimulative” given soaring inflation and needs to return to more neutral levels “quickly,” an official said on Thursday, while downplaying the likelihood of a supersized increase.

Deputy Governor Toni Gravelle, speaking to economists in Montreal, also said the central bank would likely revise up its near-term inflation projections, as the “perfect storm” of global and domestic price increases continue to persist.

“Our policy rate, at 1%, is too stimulative, especially when inflation is running significantly above the top of our control range,” Gravelle said. “We need our policy rate to be at more neutral levels.”

Inflation in Canada hit a 31-year high at 6.7% in March, its 12th consecutive month above the Bank of Canada’s 1-3% control range and more than triple the 2% target. nL2N2WI0UU

He said the central bank was moving quickly to get back to the neutral range – between 2% and 3% – and reiterated it was prepared “to be as forceful as needed” to cool demand.

But later, answering audience questions, Gravelle said the outlook remained unusually uncertain and therefore it would not be easy to increase by 75 basis points (bps) in one go.

The Bank of Canada last month took the rare step of hiking its policy rate by 50 bps and it is widely expected to go ahead with another half-point move at its June 1 decision. BOCWATCH

Earlier, Gravelle said the central bank could pause once rates are in the neutral range if price increases reverse course. Alternatively, rates may need to go above neutral as parts of the economy may now be less sensitive to hikes, he added.

“On average, Canadians are in better shape financially than they were before the pandemic,” Gravelle said, noting households have more savings and less non-mortgage debt than before the pandemic.

But higher interest rates could also pinch household budgets and cool consumer spending more than expected, he said. And the housing slowdown could be more severe than thought.

“We could see a larger-than-expected slowdown due to higher indebtedness and unsustainably high housing prices,” Gravelle said.

The Canadian dollar CAD= was trading 0.5% lower at 1.3060 per U.S. dollar, or 76.57 U.S. cents as the greenback surged against a basket of major currencies.

(Reporting by Julie Gordon and David Ljunggren in Ottawa;
Editing by Kirsten Donovan and Sandra Maler)

((julie.gordon@thomsonreuters.com; 343-961-4020;))

Adds details, updates prices; changes byline, dateline; previous LONDON

By Chuck Mikolajczak

NEW YORK, May 12 (Reuters) – The dollar climbed to a 20-year high on Thursday as concerns persisted that central bank actions to counter high inflation would crimp global economic growth, boosting the currency’s safe-haven appeal.

Data from the Labor Department showed weekly initial jobless claims rose to their highest level in three months, although the labor market remains a strength of the U.S. economy, while the producer price index showed a sharp deceleration in April to a 0.5% rise from the 1.6% surge the prior month, thanks in part to a sharp drop in energy products. nL2N2X419C

In the 12 months through April, the PPI increased 11.0% after accelerating 11.5% in March and above an estimated increase of 10.7%.

“PPI slightly mixed to slightly less than expected today but overall there is still a lot to worry about… if S&P sells off again that is going to be broadly supportive of dollars,” said Erik Bregar Director, FX & Precious Metals Risk Management at Silver Gold Bull Inc in Toronto.

“We could get to a point where positioning becomes a little lopsided and that could maybe engineer some short covering in equities and maybe some cooling off in the dollar broadly but right now, the news cycle, you are finding enough reasons to stay long dollars.”

The dollar index =USD rose 0.433% at 104.450 after touching 104.72, its highest level since Dec. 12, 2002. The euro EUR= down 0.95% to $1.0411 after falling to 1.0328, its lowest since Jan. 3, 2017.

After the Fed raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, investors have been attempting to assess how aggressive the central bank will be. Expectations are completely priced in for another hike of at least 50 basis points at the central bank’s June meeting, according to CME’s FedWatch Tool.

Irish Central Bank Governor Gabriel Makhlouf joined a chorus of European Central Bank policymakers calling for the Governing Council to act to tackle inflation, though not necessarily at the same pace as the U.S. Federal Reserve. nL2N2X40YD

Rick assets have been under pressure for most of the year, with the S&P 500 .SPX on the verge of confirming it is in a bear market, commonly viewed as a decline of 20% from its record high.

Investors have moved towards safe-haven assets such as the dollar as worries have mounted about the Fed’s ability to tamp down inflation without causing a recession, as well as repercussions from the war in Ukraine and rising COVID-19 cases in China sapping demand.

On Thursday, OPEC cut its forecast for growth in world oil demand in 2022 for a second straight month. nL2N2X412Q

Another safe-haven, the Japanese yen, strengthened 1.40% versus the greenback at 128.16 per dollar, while Sterling GBP= was last trading at $1.2219, down 0.25% on the day after a flurry of soft economic data in Britain. nL5N2X434P

In cryptocurrencies, Bitcoin BTC= {BTC=;PCTCHNG;[F10]last rose F1% toF1=0 was unchanged at} ${BTC=;CF_LAST:2} after falling to $25,390.26, its lowest level since December 2020.

Ethereum ETH=, ETH=BTSP {ETH=;PCTCHNG;[F10]last rose F1% toF1=0 was unchanged at} ${ETH=;CF_LAST:2}.

(Reporting by Stefano Rebaudo; Editing by Chizu Nomiyama and Raissa Kasolowsky)

((stefano.rebaudo@thomsonreuters.com;))

Adds comment, details, updates prices

By Ashitha Shivaprasad

May 12 (Reuters) – Gold and other precious metals dropped on Thursday, with palladium shedding more than 8%, as investors flocked to the dollar driven by bets the U.S. Federal Reserve will stick to aggressive rate hikes.

Spot gold XAU= fell 0.7% to $1,839.01 per ounce by 10:29 a.m. EDT (1429 GMT). U.S. gold futures GCv1 were down 0.7% at $1,841.60.

“Dollar is rallying as things potentially look negative in the U.S., which is hurting gold. Also, the market is realising the likelihood of seeing pretty aggressive interest rate increases,” said Bart Melek, head of commodity strategies at TD Securities.

Rival safe-haven dollar =USD climbed to fresh 20-year highs — making gold less appealing for other currency holders — driven by concerns tighter monetary policies to tame surging inflation will hurt the global economy. USD/ nL5N2X43HC

Although it is considered a hedge against inflation and a safe bet during economic and political turmoil, gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion.

“However, gold is holding relatively better when compared to the industrial precious metals,” the demand for which could be hurt in a recession environment, Melek added.

Declines in gold were, however, capped by a slide in the benchmark 10-year Treasury yields US10YT=RR, which hit the lowest level in two weeks. US/

Spot silver XAG= fell 2.1% to $21.11 per ounce – it hit its lowest since July 2020 earlier in the session.

“Silver is falling faster than gold, that’s a bearish sign for the whole complex. With the ongoing lockdowns in China, industrial metals are struggling and US institutional investor who’s bailing out a gold ETF by extension bails out of silver as well,” independent analyst Ross Norman said.

Palladium XPD= slid 5.4% to $1,926.13, having earlier slid as much as 8.2% to its lowest since January at 1,867.68.

Platinum XPT= dropped 4% to $952.86.

(Reporting by Ashitha Shivaprasad and Eileen Soreng in Bengaluru; Editing by Krishna Chandra Eluri)

((Ashitha.Shivaprasad@thomsonreuters.com;))