Cautious optimism supports dollar ahead of ECB

By Tom Westbrook

SINGAPORE (Reuters) – Fragile investor confidence supported the dollar and weakened the yen on Wednesday but currency markets kept to tight ranges ahead of series of major central bank meetings over the next week.

Investor focus for now is centered on the European Central Bank’s meeting on Thursday, which is expected to push interest rates even further into negative territory.

The ECB could set the tone for upcoming rate-setting decisions by the U.S. Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite.

For now, a cautious risk-on mood has prevailed after political crises that had hobbled markets, from Britain to Hong Kong, abated, taking the shine off safe-haven assets.

Bonds slid overnight and the yen hit 107.65 per dollar, its lowest since Aug. 1.

Overhanging the relief buying, however, are signs of a slowdown in global demand, which have offset recent positive developments in U.S.-China trade negotiations.

The euro (), which has shed 3% since June, was flat at $ 1.1047. The dollar was flat against the Australian dollar at $ 0.6860 and steady on the yen and the New Zealand dollar .

“Expect a quiet day of trading, with some support of risk, as a broader cyclical rotation continues,” Australia and New Zealand Banking Group analysts said in a note.

“Speculation over whether the ECB will enact a new QE program on Thursday continues to ebb and flow.”

ECB policymakers are leaning toward a package that includes a rate cut, a pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said last week.

On the other hand, concerns have been building that global central banks are reaching the limits of their stimulus options, especially those with negative interest rates and sub-zero long-term sovereign bond yields.

“Given the chance that the ECB fails to match market expectations for easing policy, the balance of risks favors higher EUR/USD and European FX outperformance,” ING forex strategists said in an overnight note.

Much of the positive mood in recent days has been driven by optimism that a high-level meeting of U.S. and Chinese negotiators at Washington next month can deliver some sort of trade-war circuit breaker.

That was tamped down somewhat by White House trade advisor Peter Navarro on Tuesday, when he urged patience about resolving the two-year trade dispute between the world’s two largest economies and said to “let the process take its course.”

But the prospect of a breakthrough stoked appetite for Asian currencies such as the trade-exposed South Korean won , which drifted higher in Asian trading hours and to around 1189.50 per dollar, close to its highest since Aug. 2.

The yen, already under pressure as investors spurned safe havens, was further sold overnight after Reuters reported BOJ policymakers are more open to discussing the possibility of expanding stimulus at their board meeting on Sept. 18-19.

And the pound has held on to last week’s gains after British parliament passed a law compelling Prime Minister Boris Johnson to seek a delay to the Oct. 31 date for leaving the European Union. Sterling last traded at $ 1.2353.

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Forex – Dollar Slightly Lower in Cautious Trade, Sterling Steadies

© Reuters.  © Reuters.

Investing.com – The U.S. dollar was slightly weaker against a currency basket on Thursday as lower U.S. yields and a recovery in the British pound weighed.

The versus a basket of six major currencies dipped to 96.76 by 02:49 AM ET (06:49 GMT) after shedding 0.2% on Wednesday.

The index had climbed to a one-week high of 97.44 on Wednesday on stronger-than-expected U.S. retail sales and a slump in sterling. But it reversed course as Treasury yields fell following weak U.S. housing market data.

Concerns over the ongoing U.S.-China trade war also weighed after the Wall Street Journal reported that progress toward a deal had stalled.

“The dollar basically handed back earlier gains as Treasury yields pulled back and on IMF comments, and came back to where it was a few days ago,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

Various economic data have given conflicting signs regarding the state of the U.S. economy, but that does not change the bigger picture of the dollar facing downward pressure due to an impending rate cut by the Federal Reserve, Kanda said.

The International Monetary Fund (IMF) on Wednesday said the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals.

The Fed is to cut interest rates by 0.25% at its July meeting, with some in the market pricing in a larger 0.5% rate cut.

The was almost unchanged at 1.2432. It hit a low of 1.2382 in the previous day, its weakest level since April 2017 amid growing fears over the prospect of a no-deal Brexit, before selling abated.

The was a touch higher at 1.1234 after edging up 0.1% on Wednesday. The single currency’s gains were modest as it was restrained by expectations of easing from the European Central Bank as early as next week.

The dollar was weaker against the , down 0.3% to 107.71 following an overnight loss of 0.3%.

The hovered near a three-month peak of 0.6745 scaled overnight. The kiwi has gained more than 0.5% this week, supported by positive domestic factors such as strong inflation.

The was up 0.36% at 0.7032 after ending the previous day little changed. Data overnight showed that Australian full-time employment surged in June, but the unemployment rate stayed stuck at 5.2% for a third straight month.

The data reinforced the view that labor market conditions have eased, underlining expectations for further rate cuts by the country’s central bank later this year.

–Reuters contributed to this report

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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A ‘perfect storm’ for weaker CHF but cautious EUR/CHF can extend through 1.15 – BAML

Bank of American Merrill Lynch on the Swiss franc

Bank of America Merrill Lynch Research discusses CHF outlook and maintains a bearish bias in the medium-term. 

In many ways April provides the roadmap on how we think CHF will evolve over the coming months if global (and particularly Eurozone) growth stabilises and should regional geo-political concerns (such as Brexit) fade as we expect that they will.

We therefore remain bearish on CHF over the medium-term due to its persistent overvaluation, the trend deterioration in Switzerland’s basic balance of payments (the current account surplus continues to be neutralised by sizeable net portfolio and FDI outflows) and the SNB’s commitment for a weaker CHF,” BofAML notes. 

However, we are cautious that the current move can meaningfully extend through key resistance at 1.15. Whilst the market backdrop remains supportive for further EUR/CHF gains: volatility compression; the rally in European bank stocks, carry-to-vol; and stable BTP-Bund spreads, the move has taken place against a backdrop of a void in Brexit news flow. In addition, with European Parliamentary elections scheduled in a months’ time,” BofAML adds.

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ECB's Nowotny: Our approach to rate hikes will be cautious

Dovish comments from Nowotny with Austria’s Der Standard

  • Concerned about psychological factors driving slowdown

  • Germany vulnerable to slump in global machinery demand

  • Don’t see 2008-style crisis, only slowdown

Why’d he have to bring up 2008?

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Dollar steadies, off lows as Fed less cautious on policy

© Reuters. A woman counts U.S. dollar bills at her home in Buenos Aires © Reuters. A woman counts U.S. dollar bills at her home in Buenos Aires

By Vatsal Srivastava

SINGAPORE (Reuters) – The dollar was steady in Asian trade on Thursday, and was off its overnight lows after the Federal Reserve rowed back from a more aggressive policy tightening path even as it gave markets the impression of being much less cautious than they had anticipated.

In a widely anticipated decision, the U.S. central bank hiked interest rates by 25 basis points and forecast fewer rate increases next year than it had at its September policy meeting.

Yet markets were surprised by the Fed’s commitment to retain the core of its plan to tighten monetary policy, despite rising uncertainty about global economic growth, sending Wall Street stocks tumbling and depressing Asian equities.

"Investors had braced for the worst – from no rate hike to dissents and a change in the risk assessment," said Kathy Lien, managing director of currency strategy at BK Asset Management.

"And while there were subtle tweaks in the statement and lowered growth and inflation forecast, these changes were not as significant as the market had hoped."

Indeed, while the Fed’s ‘dot plots’ now signal two, instead of three, rate hikes for next year, the market remains unconvinced and is barely pricing one increase in a reflection of the slowdown in global growth.

The () was a touch higher at 96.99 in early Asian trade, managing to recover from an overnight low of 96.55 and the New York close of 96.97 as markets came to terms with the Fed’s outlook.

"Forward guidance was much more balanced relative to the market dovish expectation. This should prove moderately positive for USD risk heading into the New Year," said Stephen Innes, head of trading in Asia at Oanda.

In a press conference, Fed Chairman Jerome Powell suggested that the expected two hikes for 2019 weren’t set in tone.

"There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so," Powell told reporters.

Oanda’s Innes expects the dollar to strengthen against commodity currencies such as the Australian dollar , which fell one percent overnight to its lowest level since Nov.1. The dollar was last fetching $ 0.7108.=>

The yen weakened by 0.1 percent against the dollar, changing hands at 112.57, having gained for four days in a row. The focus for yen traders will be on the Bank of Japan’s rates decision later in the day, though policy makers are widely seen maintaining their ultra-loose monetary settings. =>

The euro () gained 0.1 percent on the dollar to $ 1.1385. The single currency was supported by news Italy had struck a deal with the European Commission over its contested 2019 budget.

The dollar was steady after losing 1.2 percent overnight, and falling briefly on weak economic data. It was last at $ 0.6775. =>

New Zealand’s economic growth slumped to its lowest in almost five years in the third quarter, stoking talk the central bank might take a more dovish monetary policy stance in 2019.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forex – Dollar Hurt by Cautious Clarida Remarks, Sterling Rebound

© Reuters. © Reuters.

Investing.com – The dollar swooped lower against its rivals Friday, and looked set to snap a four-week winning streak, after Federal Reserve Vice Chairman Richard Clarida flagged concerns about global growth and delivered somewhat dovish remarks on monetary policy.

The , which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.46% to 96.35.

Clarida told CNBC on Friday the Fed is getting closer to a neutral rate — one that neither overstimulates the economy, nor stifles growth — and cited “some evidence” that global economy is slowing.

Clarida’s remarks was viewed as dovish, sending the dollar tumbling, leading some to speculate whether the Fed would pause its gradual rate hikes sooner than expected, despite analysts downplaying the remarks.

RBC said that the market reactions to interpretations of the Fed “seem completely backwards,” as there was “nothing in the economic data has shifted the Fed’s growth and inflation outlook.”

Economic data offered little in the way of support for the greenback, as industrial production fell short of economists’ estimates.

Industrial production, a measure of output at factories, mines and utilities, rose a 0.1% in October, the Federal Reserve said Friday. This was slightly below the forecast by economists.

A rebound in the pound following its worst slump of the year Thursday also kept a lid on the greenback, as traders were relieved that no additional ministers had resigned from UK Prime Minister Theresa May’s government as she prepares to sell her deal to parliament and could face another leadership challenge.

rose 0.45% to $ 1.2832, rose 0.72% to $ 1.1410.

traded fell 0.74% to Y112.81 and fell 0.14% to C$ $ 1.3160. The loonie was underpinned by strong oil prices, which rebounded for a third-straight day Friday.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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