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Recasts, adds comment, updates prices

By Eileen Soreng

May 12 (Reuters) – Gold prices inched lower on Thursday as the dollar scaled a fresh two-decade peak after April U.S. inflation data bolstered expectations that the Federal Reserve would stick to its aggressive rate-hike roadmap.

Spot gold XAU= fell 0.2% to $1,848.15 per ounce by 0959 GMT. U.S. gold futures GCv1 were down 0.2% at $1,849.20.

“We would expect gold to get support from the higher inflation environment … The dollar has actually gained quite a bit since the CPI print and that’s prohibiting gold from making gains,” WisdomTree analyst Nitesh Shah said.

The U.S. dollar index =USD rose to fresh two-decade highs on as concerns that tighter monetary policies to tame surging inflation will hurt the global economy dampened risk sentiment and drove investors into the safe-haven currency. USD/ nL5N2X43HC

The inflation reading comes on the heels of the Fed raising its benchmark overnight interest rate by an aggressive half-a-percentage point last week, the most in 22 years.

There is also the risk of central banks overdoing it and posing recessionary risks which could support gold, Shah added.

Gold is highly sensitive to rising U.S. interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion and also tend to boost the dollar in which gold is priced. It is, however, seen as a safe store of value during economic and political crises.

Declines in gold were, however, limited 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 1.4% to $21.25 per ounce, platinum XPT= dropped 2.6% to $966.21 and palladium XPD= slid 3.2% to $1,969.85.

(Reporting by Eileen Soreng in Bengaluru; Editing by Vinay Dwivedi)

((eileen.soreng@thomsonreuters.com; Within U.S. +1 646 223 8780, Outside U.S. +91 80 6749 6131; Reuters Messaging: eileen.soreng.thomsonreuters.com@reuters.net))

Adds detail, updates prices

May 12 (Reuters) – The Russian rouble firmed on Thursday, crossing the 70 mark against the euro and heading towards 65 against the dollar as it retained artificial support from capital controls.

The rouble has become the world’s best-performing currency this year with support from capital controls that Russia imposed to shield the financial sector in late February after Moscow sent tens of thousands of troops into Ukraine.

At 1003 GMT, the rouble gained more than 2% to 65.58 against the dollar RUBUTSTN=MCX after briefly touching 65.0625, a level last seen in late February 2020.

Against the euro, the rouble firmed more than 3% to 68.28 EURRUBTN=MCX, having earlier hit 67.85, its strongest level since January 2020.

The rouble could firm to 65 to the dollar during the day, Promsvyazbank said in a note.

The rouble is driven by export-focused companies that have to convert their foreign currency revenues, while demand for foreign exchange is limited as imports into Russia have waned amid disruption in logistics and sweeping Western sanctions.

In the longer run, the rouble may see some downside pressure mounting from an increase in imports after Russia allowed so-called parallel imports of goods, analysts say.

Last week, Moscow published a list of goods from foreign carmakers, technology companies and consumer brands that the government has included in a “parallel imports” scheme aimed at shielding consumers from business isolation by the West. nL5N2WY56S

Russian stock indexes were mixed. The dollar-denominated RTS index .IRTS rose 0.7% to 1,132.6 points. Its rouble-based peer MOEX .IMOEX was 1.4% lower at 2,354.8 points.

Shares in Russia’s second-largest oil producer Lukoil LKOH.MM fell 1.8% on the day after the company said it will buy Shell’s SHEL.L Russian retail and lubricants businesses. nL3N2X42CT

For Russian equities guide see RU/EQUITY

For Russian treasury bonds see 0#RUTSY=MM

(Reporting by Reuters;
Editing by Robert Birsel and Bernadette Baum)

PRAGUE, May 12 (Reuters) – The Czech National Bank (CNB) said on Thursday it had launched currency market interventions after a sizeable depreciation of the crown.

It said the goal was to prevent a longer-term weakening of the crown in a situation of high inflation.

The crown EURCZK= reversed its earlier losses after the news and traded up 0.5% on the day at 25.19 to the euro at 0934 GMT.

(Reporting by Jason Hovet and Robert Muller, editing by Jan Lopatka)

((jason.hovet@thomsonreuters.com;))

Updates to domestic trading close

SHANGHAI, May 12 (Reuters) – China’s yuan ended domestic trade at its lowest level in more than 19 months on Thursday as expectations of aggressive U.S. policy tightening and a flight to safety lifted the dollar, while prolonged COVID lockdowns hobbled the Chinese economy.

The dollar’s climb to a two-decade high followed new data showing surprisingly persistent U.S inflation, raising investor worries that the Federal Reserve may need to accelerate policy tightening to cool prices. nL2N2X315F

That is likely to exacerbate conditions that have contributed to the yuan slipping more than 6% against the dollar since the end of March.

“Markets are wondering how aggressive Fed tightening has to be to curb high inflation. Domestically, COVID and lockdowns are also weighing on the yuan, and the property downturn is another risk,” said Ken Cheung, Asia chief FX strategist at Mizuho Bank.

But Cheung said that the People’s Bank of China (PBOC) seemed reluctant to step in more aggressively, while an index tracking the yuan against a trade-weighted basket .CFSCNYI remains above 100, offering some downside room for the currency.

While traders said a slightly stronger-than-expected yuan fixing on Thursday suggested the PBOC hopes to slow the pace of the yuan’s losses, analysts at Citi said the relatively mild regulatory reaction so far suggests tacit approval of depreciation.

A weaker yuan could potentially help support the country’s export sector and battered small businesses, Citi said.

Before the market open, the PBOC set the yuan’s daily midpoint rate CNY=PBOC at 6.7292 per dollar, firmer than a Reuters forecast of 6.7362 per dollar, but still its weakest since Oct. 16, 2020.

Onshore spot yuan CNY=CFXS opened at 6.7355 per dollar and slipped as low as 6.7919 per dollar, its weakest level since Sept. 30, 2020. It finished its domestic trading session at 6.79 per dollar, its weakest such close in the same time period.

Traders said the sharp drop of more than 650 pips from Wednesday’s late-night close reflected heightened exchange rate volatility as COVID lockdowns contributed to poor market liquidity, with bankers and FX brokers in both Shanghai and Beijing forced to work remotely.

Trading volume CNYSPTVOL=CFXT was about 30% lower on Thursday than in the previous day’s session.

Authorities in Shanghai on Thursday worked to clear the way for an end to a painful six-week COVID lockdown, while Beijing curbed taxi services to keep a lid on its smaller outbreak. nL5N2X408T

The offshore yuan CNH=D3 also weakened sharply, slipping past the psychologically important 6.8 per dollar level to a low of 6.8245, also its weakest since September 2020.

Traders and analysts said that widening spread between the onshore and offshore yuan pointed to solidifying expectations that the onshore currency could fall even more.

“The Chinese economy is set to slow further as the property softness and COVID-induced consumption (weakness) remain the key drag,” Hao Zhou, senior economist at Commerzbank said in a note, noting a weakening bias for the Chinese currency. Faster-than-expected Fed tightening could create further depreciation risks.

The PBOC is likely to opt for easing to prevent a full-blown economic slowdown, but will probably step in to reduce market volatility “when they deem necessary,” he said.

China is considering new incremental policies to prop up growth and will take steps when necessary, a senior official of China’s Communist Party said on Thursday. nB9N2W402E

Zhou forecast a level of 6.70 per dollar for the onshore yuan by the end of 2022, but said he plans to revisit the forecast in coming months.

Offshore one-year non-deliverable forwards contracts (NDFs)CNY1YNDFOR=, considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.8033.

(Reporting by Andrew Galbraith, Jindong Zhang and Winni Zhou; editing by Richard Pullin and Kim Coghill)

((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging: andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: https://twitter.com/apgalbraith))

LONDON, May 12 (Reuters) – The dollar rose to fresh two-decade highs on Thursday as concerns that tighter monetary policies to tame surging inflation will hurt the global economy dampened risk sentiment and drove investors into the safe-haven currency.

Data on Wednesday showed U.S. consumer price growth slowed sharply in April, suggesting that inflation had probably peaked, though it was likely to stay hot.

The dollar benefited as the data confirmed expectations for further aggressive hikes in interest rates by the Federal Reserve and investors fretted that central bank tightening could slow global economic growth.

Asian stocks fell to an almost two-year low, European shares tumbled and oil prices were down 2%.

Against this backdrop, the dollar index, which measures the greenback’s strength against a basket of six currencies, rose 0.4% to 104.44, its highest since December 2002.

Despite increasing expectations of a rate hike in July, the euro remained under pressure on fears that the war in Ukraine and rising energy prices could tip the eurozone into recession later this year.

“The market was already priced for this, but we can now have a high level of confidence that the ECB will hike in July,” strategists at MUFG said.

The euro EUR=EBS fell 0.5% to USD 1.0463, after hitting its lowest since January 2017 at USD 1.044.

“The risk sentiment soured further due to the disappointing news regarding China’s Covid situation,” Mizuho strategists said. “Two new infections in Shanghai were reported, which reset the timeline for ending the lockdown.”

Shanghai authorities combed the city on Thursday for its last COVID-19 cases to clear the way for an exit from a painful six-week lockdown.

China’s yuan fell as low as 6.8150 per dollar, its lowest since September 2020, and was last down 0.7% at 6.8125.

The yen rose 1% against the dollar but was not far from its lowest level since April 2002 as hawkish Federal Reserve rhetoric continued to weigh on the Japanese currency.

A Bank of Japan policymaker said it was inappropriate to change monetary policy to control exchange rates, brushing aside the idea of countering sharp yen falls with interest rate hikes.

Bitcoin meanwhile fell to its lowest in 16 months on Thursday, leading a rush out of risk assets, such as tech stocks, while the collapse of TerraUSD, a so-called stablecoin, underscored the strain on cryptocurrency markets.

Bitcoin, the world’s largest cryptocurrency, dropped 3% to USD 27,584, after hitting its lowest since December 2020. It has lost a third of its value in the last eight sessions.

(Reporting by Stefano Rebaudo and Kevin Buckland; Editing by Sam Holmes and Bradley Perrett)

FRANKFURT, May 12 (Reuters) – European Central Bank policymaker Peter Kazimir dropped a hint about a July interest rate increase on social media on Wednesday, joining a growing number of colleagues in calling for a hike to tackle record-high inflation.

“(I am) ready to hike in July — and not just the beautiful Atlas Mountains here in #Morocco,” the Slovak governor wrote on Twitter.

He added he was in the North African country for the annual meeting of the European Bank for Reconstruction and Development (EBRD).

(Reporting By Francesco Canepa; Editing by Toby Chopra)

((@FranCanJourno francesco.canepa@thomsonreuters.com; 004906975651247; Reuters Messaging: francesco.canepa.thomsonreuters.com@reuters.net))