Friday, 30 June 2017

Brightening economy sets euro up for strongest quarter since debt crisis

The euro came off yearly highs on Friday but was still set for its strongest quarter in six years as investors pile into the currency on a brightening euro zone economy and its implications for monetary policy in the bloc.

The single currency dropped 0.1 percent to trade at $1.1426, but in the April-June quarter the euro has climbed over 7 percent, putting it on track for its biggest quarterly gain since January-March 2011.

The euro shot to one-year highs after Tuesday's speech by European Central Bank President Mario Draghi bolstered expectations that a reduction in stimulus measures would be signalled as soon as September.

Though policymakers looked to play this down in the days that followed, investors appear convinced that economic strength will push them to end stimulus sooner rather than later.

"This is partly a response to Draghi's comments and also on the back of a euro zone economy that is firing on all cylinders and outperforming the rest of the developed economies," said Investec economist Victoria Clarke.

Growth in the bloc outstripped that of the United States in the first quarter and set the stage for a strong 2017.

"It's at a different stage in the cycle as the U.S. so I do expect some of that to cool in the second half of the year, but the growth momentum doesn't seem to be going anywhere," said Clarke.

Money markets in the euro zone are fully pricing in a rate rise from the ECB by July next year.

Conversely, the dollar was on course for its worst quarter in seven years on Friday, recovering only marginally against major peers.

"Obviously there's a shift afoot. It really seems that there's some coordinated effort going on out here among the G10 central banks," said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore, referring to the series of hawkish-sounding comments on monetary policy.

Bank of England Governor Mark Carney surprised many on Wednesday by conceding a rate hike was likely to be needed as the British economy came closer to running at full capacity.

Sterling edged higher on Friday to $1.301, adding to Thursday's 0.6 percent gain.

Two top policymakers at the Bank of Canada also suggested they might tighten monetary policy there as early as July.

The environment of tightening policy has seen stocks lose some of the lustre of recent months.

MSCI's index of world stocks, came further off recent highs, dropping 0.14 percent to add to Thursday's sharp fall.

European shares were flat in early deals on Friday, but were set to end June with their biggest monthly loss in one year as worries over tightening monetary conditions soured the mood.

Earlier, the MSCI's broadest index of Asia-Pacific shares outside Japan, fell 0.7 percent, after hitting a two-year high on Thursday. It is up 5.3 percent for the quarter and has risen 18.3 percent this year.

In commodities, oil prices continued their recovery this week on a decline in weekly U.S. crude production.

U.S. crude added 0.7 percent to $45.23 a barrel in its seventh straight session of gains, bringing its weekly increase to over 5 percent.

Global benchmark Brent gained 0.6 percent to $47.70 a barrel, poised for a nearly 10 percent rise for the quarter.

Reference: Abhinav Ramnarayan;

Hawkish Bank of England sends sterling above $1.30

Sterling rose above $1.30 for the first time in five weeks on Thursday, investors taking stock of increasing signs the Bank of England is looking at tightening monetary policy.

After losing more than 2 percent against the dollar when Prime Minister Theresa May lost her parliamentary majority in the June 8 elections, the pound has recovered as BoE officials bent towards raising record low UK interest rates.

The Bank's Governor Mark Carney said on Wednesday that a rise in rates was likely to be needed as the economy comes closer to running at full capacity, and that the Bank would debate this in the coming months.

For markets, that ran contrary to comments Carney made last week when he said now was not the time to raise interest rates, when his chief economist Andy Haldane flipped to support a hike later this year.

Sterling strengthened to $1.2995 in early European trade, briefly rising as high as $1.3007 after Haldane told the BBC the bank needed to look seriously at raising rates.

The pound was 0.2 percent higher at 87.82 pence per euro.

"It's a clear push higher (for sterling) on a combination of the Bank of England looking a bit more hawkish than it was letting on and the Federal Reserve seeming to be quite content with their position (to raise interest rates)," said CMC Markets analyst David Madden.

"The Conservative Party have formed a minority government...that also adds to the overall political and financial stability of the UK because a lot of sterling's woes in the last month or so has come on the back of the general election."

Political uncertainty was still on investors' radar, however, with hours to go until a deadline for Northern Irish politicians to reach an agreement to restore the British province's power-sharing executive.

With a weakening dollar and a strengthening euro, strategists were suggesting investors might now use the single currency to express a bearish take on sterling as Britain enters a period of political uncertainty negotiating its exit from the European Union.

"With the euro in play, many may feel that the euro also now provides a more suitable vehicle with which to express their politically-orientated doubts about sterling: of course, there is just the question of whether the market has placed the appropriate spin on Mr Carney's 'hawkish' comments yesterday," Neil Mellor, currency strategist at Bank of New York Mellon, wrote in a note.

Reference: Jemima Kelly and Ritvik Carvalho

Thursday, 29 June 2017

End of easy money? Euro surges, bond yields advance

The euro jetted past $1.14 to its highest in just under 14 months on Thursday, with attempts by European Central Bank sources to moderate the message taken from a speech by President Mario Draghi this week falling on deaf ears.

Three days of the biggest gains in more than a year for the single currency have pushed the broader dollar index to its lowest since October and prompted some of the market's biggest dollar supporters to call the currency's rally over.

Draghi's speech on Tuesday - coming amid a raft of hawkish signals from other major global central banks - convinced markets the ECB was preparing to start withdrawing its own emergency stimulus for the euro zone economy later this year.

After a long run lower, that has put the euro back in relatively uncharted territory, with some analysts arguing there is little technical resistance beneath $1.20.

"The biggest test will be 1.1500," said RBC's head of global FX strategy Elsa Lignos.

"Though month-end USD selling may reinforce the bearish USD sentiment in the next few days, we still think EUR’s rally is more likely to run out of steam at 1.15."

By 0730 GMT, the euro was trading 0.4 percent stronger at $1.1425, having broken briefly above last year's June high of $1.1428. It was also 0.4 percent higher against the yen at 128.275 yen.

The other big gainers among the G10 group of major developed world currencies over the past 24 hours were the Canadian dollar and sterling, both also driven by comments by their respective central bank governors.

Sterling gained another half a percent in morning trade in London, stopping just shy of its first break above $1.30 in five weeks.

"This is simply the central banks getting together and trying to arrest inflation," said Nomura's head of G10 currency trading Peter Gorra.

"They are trying to be as smart as they can and agreeing that they have to act in unison. I don't think this is necessarily a dollar move and I don't think the dollar's rally is over. They are just trying to add some two-way risk to the market."

Reference: Patrick Graham

Carney says to debate rate rise 'in the coming months'

The Bank of England is likely to need to raise interest rates as the British economy comes closer to operating at full capacity, and will debate this "in the coming months", BoE Governor Mark Carney said on Wednesday.

Speaking at a European Central Bank conference in Portugal, Carney said that policymakers would need to look at the extent to which stronger business investment offset a slowdown in consumption, as well as growth in wages and labour costs.

"These are some of the issues that the MPC will debate in the coming months," Carney said. "Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional."

The BoE's Monetary Policy Committee split 5-3 earlier this month on whether it was time to start to raise British interest rates from a record-low 0.25 percent. Carney voted to keep rates steady.

The Dow Jones Industrial Average, rose 111.82 points, or 0.52 percent, to 21,422.48. The S&P 500  gained 12.46 points, or 0.51 percent, to 2,431.84. The Nasdaq Composite, added 21.90 points, or 0.36 percent, to 6,168.53.

U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.

"Would I say there will never, ever be another financial crisis?" Yellen said at a question-and-answer event in London.

"You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be," she said.

Yellen said it would "not be a good thing" if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.

U.S. President Donald Trump has said during his election campaign that he would cut banking regulation. The U.S. Treasury Department earlier this month proposed easing up on restrictions big banks now face in their trading operations.

Yellen declined to comment when asked about her relationship with Trump but said she had a good working relationship with U.S. Treasury Secretary Steve Mnuchin.

She also reiterated her view that the U.S. central bank would continue to raise interest rates only gradually.

"We think it will be appropriate for the attainment of our goals to raise interest rates very gradually to levels that are likely to remain quite low, although there is uncertainty about this, to remain low by historical standards for a long time," she said.

She said the stockpile of bonds the Fed amassed to help the U.S. economy through the crisis would be shrunk "gradually and predictably."

Asked about share price valuations by a member of the audience, Yellen said "by standard metrics, some asset valuations look high but there's no certainty about that."

Reference: Reuters

Wednesday, 28 June 2017

Post-Draghi surge drives euro to one-year high

The euro surged to a one-year high on Wednesday, adding to its biggest daily gain in more than a year a day earlier after a change in tone by European Central Bank President Mario Draghi.

The hints in Draghi's speech to a major central bank conference in Portugal convinced investors that its policymakers are ready to start to withdraw the emergency stimulus for the economy that has dominated policy-making for almost a decade.

That provoked the banking world's single biggest cheerleaders for a stronger dollar, Deutsche Bank, to abandon calls for a stronger greenback and instead call the end to a dollar rally dating back to 2014.

"Our main message is that the EUR is likely to be the key vehicle via which financial conditions in the Euro-area will be tightened," Deutsche analyst George Saravelos said in a note to clients on Wednesday.

"We now see the risks as shifting towards an attempted break-out of the euro’s multi-year 1.05-1.15 range to the topside."

Saravelos, who at the height of the dollar's rally called for the euro to fall to $0.85 by the end of this year, raised his end of year forecast from $1.03 to $1.16.

In Asian and early European trade, the euro rose another 0.7 percent, adding to a 1.4 percent daily gain on Tuesday to trade at $1.1381.

The latest failure of Republicans to pass healthcare legislation in the United States was also playing in to the dollar's weakness, further undermining faith in President Donald Trump's promises of other measures to support growth.

Eyes will again be fixed on the central banking conference in Sintra, Portugal, with several ECB officials speaking, along with Bank of Canada Governor Stephen Poloz and the Bank of England's Mark Carney.

The dollar's weakness pushed sterling, again under pressure from Britain's recently volatile politics, above $1.28 to its highest since Prime Minister Theresa May lost her parliamentary majority in June.

Conversely, it hit its weakest since November at 88.79 pence per euro.

"No matter the subtlety of any shift in guidance (by Draghi), the reaction in a yield-sensitive market is generally binary and we may well have to add currency appreciation to the risks facing ECB policy," said Bank of New York Mellon strategist Neil Mellor.

"Euro bulls may now feel that they have the perfect opportunity to challenge the post-2015 trading range whose ceiling is a couple of big figures north of spot."

Reference: Patrick Graham

Stocks, dollar ease as central bank officials take centre stage

The dollar weakened on Tuesday as investors awaited Federal Reserve signals on whether the U.S. central bank will stick to its guns and raise rates this year, while firmer commodity-related shares helped limit losses across major stock indices.

The Fed's Chair, Janet Yellen, is scheduled to take part in a discussion in London later on Tuesday. Investors expect her to underline her positive view on the U.S. economy, which would support the Fed's forecast of a rate hike this year.

But softer-than-expected U.S. data overnight gave rise to some caution. New orders for key U.S.-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.

"Her words will be scrutinised for any color about the timing of the next rate hike against a backdrop of mounting concerns over the inflation outlook," strategists at Societe Generale said in a note to clients.

U.S. stock futures were off 0.1 percent.

The dollar fell 0.1 percent against a basket of six major currencies .DXY, though it hit a five-week high against the Japanese yen.

A packed roster of top central bank officials speaking at various events kept volumes light and investors cautious. Also due to speak on Tuesday were Fed officials Patrick Harker and Neel Kashkari.

Fed officials have stuck to their hawkish scripts, in stark contrast to the firmly dovish view expressed by Draghi against exiting super easy monetary policy too quickly.

Draghi reiterated his views at an ECB conference in Portugal but also highlighted the continued recovery in the euro zone.

His comments helped bond yields in the single-currency bloc nudge higher and lifted the euro to a nine-day high.

In Britain, the Bank of England raised banks' capital requirements and warned about levels of credit growth in pockets of the economy.

Worries about an extended consumer binge have weighed on the outlook for the country's retailers, spurring some hedge funds to double down on bearish bets on the sector.

The BoE said it was continuing to oversee banks' preparations for Brexit, including for if Britain exits the European Union in 2019 without securing any trade deal, cutting off banks from their European customers, which could undermine financial stability.

Sterling fell almost half a percent against a broadly stronger euro on Tuesday, a tightening of capital controls on banks offering only brief support given competing interpretations of what it means for interest rates and growth going forward.

The defection by several Monetary Policy Committee officials to the camp supporting a rise in base interest rates has given the pound, battered by another round of political uncertainty after this month's elections, some support in the past week.

On the one hand, reinstating the 0.5 percent of risk-weighted assets banks are asked to hold as a buffer against shocks to consumer finances was a sign of confidence in an economy which has looked to be slowing.

But it may also take any unwanted steam out of areas of loan growth which could otherwise be cited as one reason for raising rates, helping policymakers hold off for longer with any hike in the Bank's main borrowing rates.

"When you're looking at the buffer, they have increased it and that is a marginal tightening of monetary conditions, and hence possibly a plus for the pound," said Oanda analyst Craig Erlam.

"The interesting thing for the next few hours is will people see it as the compromise between policymakers that lets them agree to leave rates where they are for now? Sterling is drifting off now and we may see a further retreat."

After jumping around 0.2 percent to as high as $1.2770 immediately after the Bank's announcement, the pound retreated to trade just 0.1 percent higher on the day at $1.2735.

It fell half a percent to 88.29 pence per euro.

Derek Halpenny, a strategist with MUFG in London, has been one of the bank analysts calling for a rise in sterling in recent months, judging the worst of the pound's Brexit-led sell-off is now in the price.

But he also says the uncertainty generated by Prime Minister Theresa May's loss of her parliamentary majority in elections on June 8 has made it harder for sterling to rise in the near term.

May has sealed the deal she needs to approve a stripped-down legislative programme, but many political commentators still expect another election to be called in the next year under a new Conservative leader.

After initial salvos on EU citizens' rights in the past week, Halpenny said it will be how the rest of the talks on Britain's departure from the European Union pan out that should be crucial to sterling in the coming weeks.

"While macroeconomics might start to have a greater influence, the big events are still Brexit related," he said.

"The sooner this first stage of talks is over and we can get on to what investors really care about - the negotiating of a smooth transition period - the better

In other corporate news, the EU slapped a record 2.42 billion euro fine on Alphabet's Google saying it had abused its dominant market position. Google said it was considering an appeal.

More broadly, firmer metals and oil prices as well as upbeat data on Chinese industrial profits helped mining shares recover recent losses.

Brent crude futures, the international benchmark for oil prices, gained 1.2 percent to $46.39 per barrel while U.S. West Texas Intermediate crude futures rose 1 percent to $43.83 per barrel.

Gold prices, which tumbled to their lowest level in nearly six weeks on Monday after large sell order sent ripples through the market, steadied, supported by an easing dollar.

Spot gold was up 0.6 percent to $1251.21 per ounce.

Reference: Vikram Subhedar

Tuesday, 27 June 2017

Dollar hits near five-week high against yen ahead of Yellen comments

The dollar rose on Tuesday to its highest level against the yen in nearly five weeks ahead of comments from Federal Reserve Chair Janet Yellen that are expected to underline her positive view of the U.S. economic outlook.

She is scheduled to take part in a discussion later on Tuesday at London's Royal Academy. A positive view despite a recent batch of weak U.S. economic data would support the Fed's forecast for another rise in policy rates this year.

"Hedge funds are already selling yen this week, and positive comments from Yellen could give them an excuse to sell even more," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The dollar rose to 112.075 yen earlier on Tuesday, its highest level since May 24. It was last at 111.88 yen, up slightly on the day.

U.S. data on Monday gave investors reason to be cautious about buying the dollar. New orders for key U.S.-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.

"Even after the break of the 112 level, the dollar didn't show any strong upward momentum," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

After the weak data raised concerns about falling inflation and lacklustre growth, long-dated U.S. Treasury bond yields dropped to seven-month lows and the yield curve between five-year notes and 30-year bonds narrowed to its flattest level since 2007.

U.S. 10-year Treasury yields were at 2.138 percent in Asian trading, little changed from a U.S. close on Monday of 2.137 percent.

Fed officials have stuck to their hawkish scripts.

San Francisco Fed President John Williams said in Sydney on Monday that a slowdown in U.S. inflation was mainly due to one-off factors and should not prevent further increases in interest rates.

Financial conditions have loosened in the past year despite the Fed raising interest rates three times since December, which is another reason to continue tightening, New York Fed President William Dudley said in remarks published on Monday.

The euro rose 0.1 percent to $1.1188, moving up from its overnight low of $1.1172 reached after dovish comments from European Central Bank President Mario Draghi, which contrasted sharply with those of Fed officials.

In a town-hall with university students in Lisbon, Draghi said super low interest rates create jobs, foster growth and benefit borrowers. He rejected calls to exit super easy monetary policy quickly, arguing premature tightening would lead to a fresh recession and more inequality.

The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.1 percent lower on the day to 97.367.

Reference: Lisa Twaronite

Wall St. boosted by tech stocks, rebound in oil prices

U.S. stocks were higher in early trading on Monday, as technology stocks rose and oil prices climbed from last week's seven-month lows.

Apple's 1.1 percent rise was the biggest boost to all the three major indexes. The S&P tech index's 0.67 percent rise lead the gainers among the 11 major S&P 500 sectors.

Adding to the sentiment was a rise in European shares, driven by Italian banks gaining after a deal to wind up two failed lenders.

Oil edged up for the third straight session but gains were capped by the relentless rise in U.S. supply and bloated global inventories.

The recent drop in oil prices has spurred concerns about low inflation, which stubbornly remains below the Federal Reserve's 2 percent target rate.

The central bank raised rates this month for the second time this year and is expected to raise it again. Futures imply only a 50 percent chance of another rate hike by December.

On Monday, San Francisco Fed President John Williams said the Fed needs to raise rates gradually or the economy runs the risk of overheating.

New York Fed chief William Dudley said recent narrowing of credit spreads, record stock prices and falling bond yields could encourage the Fed to continue tightening U.S. policy.

"The Fed policymakers had been broadly hawkish last week, and most of them anticipate another rate hike in 2017 (most likely in December)," said Hussein Sayed, chief market strategist at FXTM.

"However, fixed-income markets are saying it's over for this year as they don't see inflationary pressures coming anytime soon. It's still too far from December, but oil prices will play a significant role on how interest rates go from here."

At 9:39 a.m. ET (1339 GMT), the Dow Jones Industrial Average .DJI was up 75 points, or 0.35 percent, at 21,469.76, the S&P 500 .SPX was up 8.67 points, or 0.35 percent, at 2,446.97.

The Nasdaq Composite .IXIC was up 36.56 points, or 0.58 percent, at 6,301.81.

Data on Monday showed new orders for key U.S.-made capital goods unexpectedly fell in May, with non-defense orders excluding aircraft - a closely watched proxy for business spending plans - dropping 0.2 percent.

Economists polled by Reuters had expected a rise of 0.3 percent.

Micron  was up 3.5 percent at $32.85 after Cowen & Co increased its price target on the chipmaker's stock.

Arconic fell 7.1 percent to $23.69 after it was found that the specialty metals producer knowingly supplied flammable panels to a distributor for use at Grenfell Tower, London, where 79 people died in a blaze last week.

Advancing issues outnumbered decliners on the NYSE by 1,869 to 677. On the Nasdaq, 1,533 issues rose and 857 fell.

Reference: Tanya Agrawal

Monday, 26 June 2017

Asia stocks edge up on optimism over global growth, dollar soft

Asian shares edged up on Monday on optimism for global growth, while the dollar was on the defensive as a subdued U.S. inflation outlook capped U.S. bond yields and raised questions about the Federal Reserve's plans to tighten policy.

European shares are seen opening little changed. Spread-betters expect Britain's FTSE .FTSE to open 0.1 percent higher and Germany's DAX .GDAXI and France's CAC .FCHI to start almost flat.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.4 percent as tech counters led gains in Korean .KS11 and Taiwanese .TWII shares to record highs and 27-year highs respectively. [

Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadan.

Japan's Nikkei .N225 rose 0.1 percent.

Mainland Chinese shares rallied, with the CSI300 index .CSI300 rising 1.2 percent to hit its highest level in almost a year and a half, after the MSCI chief said the index provider could raise its weighting of China's mainland-listed 'A' shares.

The prospect of solid global economic growth has kept alive investor optimism for world equities even as some markets, including Wall Street, have slowed from a meteoric run because of high valuations.

Share prices have also been supported by relatively loose monetary policies in the developed world, with the Bank of Japan and the European Central Bank still pumping in funds.

The U.S. Federal Reserve is gradually tightening its policy, but investors think the pace of its tightening will be much slower than policymakers want, given subdued U.S. inflation.

Money market futures FFZ7 FFF8 price in only about 50 percent chance of another rate hike by the end of the year, compared to Fed's own projection of one more rate increase.

That hardly changed after San Francisco Fed President John Williams said the U.S. central bank needs to keep raising rates gradually with the U.S. economy at full employment and inflation set to hit the Fed's two-percent target next year.

The 10-year U.S. Treasuries yield stood at 2.153 percent, not far from seven-month low of 2.103 percent hit mid-June, after news that inflation had undershot expectations for a third straight month.

The 30-year yield hit 7-1/2-month low of 2.710 percent on Friday, making the yield curve the flattest in almost a decade. It last stood at 2.722 percent.

The lower yields have put the dollar on the defensive, though some market players say both Treasury yields and the dollar could rise if U.S. President Donald Trump manages to push his healthcare bill through Congress.

"There will be renewed focus on U.S. healthcare bill. Its passage in the parliament could lead to expectations that the administration will get down to stimulus next," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Republican Senate leader Mitch McConnell has pushed for a vote on the bill before the July 4th Independence Day holiday recess that begins at the end of this week.

Yet he can afford to lose the support of only two Republicans in the face of unanimous Democratic opposition, while five Republican senators have said they will not support the bill in its current form.

The dollar stood at 111.29 yen JPY=, off last week's high of 111.79.

The euro EUR= traded at $1.1194, slowly recovering from its three-week low of $1.1119 touched on Tuesday.

A strong reading in Germany's Ifo business sentiment survey due at 0800 GMT could open the way for a test of $1.1296, its seven-month high hit earlier this month.

The euro was little damaged by the news that Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion).

"This won't cause a major financial crisis considering the current strength of the euro zone economy," said Yukio Ishizuki, senior strategist at Daiwa Securities.

Oil prices ticked up after having fallen for five weeks in a row on concerns OPEC-led production cuts have failed to ease a global crude glut stemming in part from increased U.S. oil production.

U.S. energy firms added 11 oil rigs in the week to June 23, bringing the total count up to 758 RIG-OL-USA-BHI, the most since April 2014, according to data from energy services firm Baker Hughes Inc.

Brent crude futures rose 1.1 percent to $46.02 per barrel from seven month lows of $44.35 hit last week.

U.S. West Texas Intermediate crude futures CLc1 fetched $43.47 per barrel, up 1.1 percent on the day and extending gains from their 10-month low of $42.05 set on Wednesday.

"There is some support near $40 in the WTI. People think that U.S. shale development will stop if it falls below $40," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Reference: Hideyuki Sano

Dollar posts steepest loss in three weeks on U.S. rate-hike doubts

The dollar fell against a basket of major currencies on Friday, recording its biggest one-day fall in three weeks, on persistent doubts whether the Federal Reserve would raise interest rates again this year due to softening inflation data.

The greenback also broadly weakened versus commodity-linked currencies, which got a boost as global benchmark Brent futures recovered from a seven-month low.

Sterling rose for a third consecutive day after soon-to-depart Bank of England policymaker Kristin Forbes late on Thursday urged hiking UK rates immediately on fears that the pound's weakness could have a lasting upward effect on inflation.

Trading volume was muted in the absence of major economic data.

"This has been largely a week of consolidation among major currency pairings given the lack of economic data this week," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.

The dollar index, which tracks the dollar against six major peers fell 0.35 percent at 97.248, retreating further from a one-month peak reached on Tuesday.

The euro was up 0.44 percent at $1.1198, while the greenback slipped nearly 0.1 percent against the yen, to 111.25 yen.

The pound gained 0.4 percent at $1.2725.

The greenback rose earlier this week on comments from New York Fed President William Dudley, who said a tightening labor market would push up wages and cause U.S. inflation to reverse upward toward the Fed's 2 percent goal.

On Friday, St. Louis Fed chief President James Bullard said the central bank should wait on further rate hikes, while Cleveland Fed chief Loretta Mester said recent inflation weakness should not defer another rate rise this year.

Traders, however, were doubtful about another rate increase later this year as recent U.S. data on balance have fallen short of forecast.

On Friday, Markit's flash June reports on U.S. factory and services activity was weaker than expected, while the government said new-home sales rebounded more than expected in May.

"The data need to confirm the Fed's stance for another rate hike this year," Esiner said.

The futures market implied traders saw a 49 percent chance the Fed would raise rates in December CME Group's FedWatch program showed.

Meanwhile, commodity-linked currencies rose with a rebound in crude oil prices. Brent crude futures settled 0.7 percent higher at $45.54 a barrel after hitting their lowest level since November on Thursday.

The Australian dollar  was up 0.5 percent at $0.7575, while the New Zealand dollar was up 0.3 percent at $0.7288.

Reference: Richard Leong

Friday, 23 June 2017

Dollar little changed as low U.S. yields offset solid data

The dollar was flat against a basket of currencies on Thursday as low U.S. bond yields offset in-line data on domestic jobless claims and home prices, keeping it close to the one-month peak it reached earlier this week.

The yen garnered some safe-haven demand on initial weakness on Wall Street and softness in other major stock markets.

The Norwegian crown and the New Zealand dollar were the notable gainers in a quiet trading session after their countries' central banks showed confidence in their economic outlook.

The dollar had strengthened following the Federal Reserve's decision to raise U.S. interest rates last week and leave the door open for another increase by year-end despite a recent softening of inflation.

The bounce faded as doubts crept in as to whether the modest current economic expansion warrants further rate increases and while the Fed plans to shrink its $4.5 trillion balance sheet.

"The market has not bought into the Fed's hawkish rhetoric," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "The market is dubious about U.S. growth in the second half of the year. That's having a mild negative effect on the dollar."

The U.S. bond market has reflected traders' doubts as the yield curve on Wednesday flattened to levels not seen in nearly a decade.

The yield curve stabilised on Thursday in reaction to reports showing a continually tight labour market and home prices that appreciated in April more than what traders expected.

An index that tracks the dollar against six major currencies was 0.05 percent lower at 97.509. It reached an one-month high of 97.871 on Tuesday.

The euro was 0.1 percent lower at $1.1157, while the dollar was fractionally weaker at 111.35 yen.

The yen was 0.1 percent firmer against the euro at 124.22 yen, with the pan-European STOXX 600 down 0.04 percent.

Among other currencies, the Norwegian crown rose after Norway's central bank lifted its rate forecasts for 2017 and 2018 and said a rate cut was no longer likely.

It was last up 0.55 percent at 8.4826 crowns per dollar and up 0.6 percent at 9.4670 crowns per euro.

Meanwhile, the kiwi rose 0.7 percent to $0.7267 after the Reserve Bank of New Zealand rang several upbeat notes in its outlook for growth and impact of current exchange rates.

Richard Leong 

Australian state slugs the nation's big banks with fresh $280 million tax

An Australian state said on Thursday it would introduce a new tax on the country's five biggest banks amounting to $280 million over four years - a move that comes on the heels of a surprise $4.6 billion federal levy on the same lenders.

South Australia, the country's fifth-largest state by population, announced the tax in its budget to help fund job-creation initiatives.

It said it will impose a 6 basis point tax on 6 percent of the assets being taxed by the federal government, adding that it had derived that percentage as the state accounts for 6 percent of the national economy. The measure will raise A$370 million ($280 million) over the first four years.

"The profits of the big banks are large - in the last year alone the five banks have collectively made profits of about A$30 billion after tax," South Australian Treasurer Tom Koutsantonis said in a statement.

"They can and should contribute more to economic growth and job creation in this state."

Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group, National Australia Bank and Macquarie Group will be subject to the state levy in addition to the federal tax that was passed into law on Monday.

The Australian Bankers Association (ABA), which represents the major banks, did not respond immediately to a request for comment. ABA Chief Executive Anna Bligh said last week that imposing a tax on parts of the banking sector because of its financial success set a "worrying precedent" for other industries.

Australia's banks have come under scrutiny by politicians and the public following a series of scandals involving misleading financial advice, insurance fraud and alleged interest-rate rigging.

Reference: Jamie Freed

Thursday, 22 June 2017

U.S. could ease Volcker Rule, exempt small banks: regulators

U.S. financial regulators could ease rules that keep taxpayer-backed banks out of some risky investments, according to testimony released on Wednesday ahead of a Senate hearing.

Officials from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) said they were looking at ways to simplify the Volcker rule, which prevents banks from making speculative bets with their own money. The possible steps included exempting small banks from having to comply with it.

"In our view, there is room for eliminating or relaxing aspects of the implementing regulation," Fed Governor Jerome Powell said in testimony to be given before the Senate Banking Committee on Thursday.

"The Volcker Rule provides a practical example of how conflicting messages and inconsistent interpretation can exacerbate (the) regulatory burden," said Keith Noreika, the acting Comptroller of the Currency, a leading regulator for national banks.

The Fed and the comptroller's office are among five bank regulators that must agree to any reform of the Volcker Rule, part of the Dodd-Frank law that passed in the wake of the 2008 financial crisis. The Volcker rule also limits relationships between covered banks and hedge funds or private equity funds.

Wall Street and some regulators have said the standard is too constricting, leaving banks vainly trying to separate accounts that may not actually take risky bets and sapping liquidity in some markets because bank dealers are put off from participating.

Backers of the rule say it guards against speculation that could lead to another costly government bank bailout.

The Federal Reserve wrote much of the regulatory language spelling out the Volcker Rule, and the central bank now thinks there is a way to improve the standard, Fed Governor Jerome Powell said.

Noreika and Powell are among a handful of national regulators due to testify about regulatory reform on the banking panel. They said they could envision smaller banks being exempted from the Volcker Rule, named after former Fed Chairman Paul Volcker who led the central bank in the 1980s.

President Donald Trump has favored less restrictive banking rules to boost lending and spur economic growth. But Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), which insures bank assets, warned it could be risky to loosen the rules too much.

"It is important to preserve the gains that have been achieved in restoring financial stability," Gruenberg was due to tell the banking panel.

Gruenberg's term ends in November. Trump has said he intends to nominate James Clinger, a Republican Congressional staffer, to replace Gruenberg.

Reference: Patrick Rucker

Asian stocks rise, oil languishes near 10-month low on glut fears

Asian stocks advanced on Thursday, but oil futures hovered near a 10-month low hit overnight on concerns over a supply glut and falling demand.

European stocks were mixed with financial spreadbetter CMC Markets expecting Britain's FTSE 100 to open up 0.1 percent, Germany's DAX to be little changed and France's CAC 40 to start the day down 0.1 percent. All three closed in negative territory on Wednesday.

MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.7 percent.

Japan's Nikkei rose almost 0.1 percent. Shares in auto air bag-maker Takata Corp plunged 50 percent as they exchanged hands for the first time since sources said last week it was preparing to file for bankruptcy.

South Korea's KOSPI added 0.3 percent, while Australian shares jumped 1 percent. Taiwan shares hit a 27-year high.

Chinese shares added to gains made on Wednesday after MSCI included mainland shares in its emerging market indexes. The blue-chip index rose 1.3 percent. Hong Kong's Hang Seng climbed 0.5 percent.

Crude oil was subdued as investors' doubts that OPEC-led output cuts would dent a three-year glut offset data showing a drop in U.S. inventories.

"The time for contrarian trades in oil is fast approaching, but I would want to see some stability in price and the technicals start to become more convincing," said Chris Weston, chief market strategist at IG in Melbourne.

U.S. crude futures slipped almost 0.1 percent, or 3 cents, to $42.50 a barrel. They closed down 1.6 percent on Wednesday after touching their lowest level since August.

Global benchmark Brent lost 0.1 percent, or 5 cents, to $44.77. It closed down 2.6 percent on Wednesday after touching a seven-month low.

The resulting decline in oil shares hit Wall Street overnight.

The Dow Jones Industrial Average closed down 0.3 percent, while the S&P 500 was slightly lower. Nasdaq bucked the trend to end up 0.7 percent, lifted by biotech stocks.

Financial stocks also contributed to losses on Wall Street, driven lower by a drop in the Treasury yield curve to its flattest in almost a decade, as investors tried to reconcile a hawkish Federal Reserve with deteriorating inflation measures.

Boston Fed President Eric Rosengren and Fed Vice Chair Stanley Fischer suggested they are concerned less about raising rates too fast or too high than about keeping them too low for too long.

The yield curve between five-year notes and 30-year bonds flattened to 95 basis points, the narrowest since December 2007, on Thursday.

The dollar eased, falling 0.2 percent to 111.145 yen.

The dollar index was about 0.1 percent lower at 97.487, extending Wednesday's 0.2 percent loss.

The New Zealand dollar gained 0.5 percent to $0.7257 after the central bank left its interest rate unchanged at a record low as expected and reiterated it would remain steady for a while.

Sterling was steady at $1.2674, holding Wednesday's 0.3 percent gain on comments by the Bank of England's chief economist that he was likely to vote for an interest rate hike this year. Until now, he has been seen as largely supportive of keeping rates low.

The euro was flat at $1.117, after Wednesday's 0.3 percent gain.

The weaker dollar lifted spot gold 0.5 percent to $1,252.80 an ounce.

Reference: Nichola Saminather

Dollar edges away from three-week high vs. yen; kiwi firm after RBNZ

The dollar eased versus the yen on Thursday as a recent rally tied to bets on another U.S. interest rate hike this year lost steam, while the New Zealand dollar rose after its central bank stopped short of aggressively trying to talk down the currency.

The New Zealand dollar was the big mover during Asian trade, rising 0.4 percent on the day to $0.7248, edging back in the direction of a four-month peak of $0.7320 set last week.

The kiwi rose after New Zealand's central bank played down the recent rise in the currency, while it kept interest rates steady at record lows as analysts had widely expected.

"The main takeaways from the statement were pretty much in line with the last statement. They're still optimistic and positive on the medium-term growth outlook," said Peter Dragicevich, G10 FX strategist for Nomura in Singapore.

"It could be some people were looking for the RBNZ to be a little bit more forceful in their rhetoric around the exchange rate given how it's rallied the last few weeks," he said, adding the absence of such jawboning probably helped give the kiwi a lift.

The U.S. dollar eased 0.2 percent against the yen to 111.15, pulling away from a three-week high of 111.79 yen reached on Tuesday.

"Risk aversion arising out of ongoing decline in oil prices is one of the factors explaining the move in dollar/yen," said Christopher Wong, senior FX strategist for Maybank in Singapore.

A recent narrowing of the U.S.-Japan 10-year yield differential, was also weighing on the dollar, Wong said.

The U.S. 10-year bond yield is now 209 basis points above its Japanese counterpart, compared to levels around 237 basis points seen in the early part of May.

"Yield differentials should continue to drive dollar/yen direction," Wong said, adding that a pick-up in U.S. inflation data is needed for markets to price in higher U.S. Treasury yields and lift the dollar.

Brent crude oil futures eased 0.1 percent after sliding 2.6 percent in the previous session.

The dollar index, which measures the greenback against a basket of six major currencies, was marginally weaker at 97.504, having retreated from a one-month high of 97.871 set on Tuesday.

The euro was little changed at $1.1168

Last week, the Federal Reserve, as expected, raised key borrowing costs by a quarter point to 1.00-1.25 percent, while Fed Chair Janet Yellen downplayed recent signs of inflation softening.

Sterling held steady at $1.2670, after having risen 0.3 percent on Wednesday when the Bank of England's chief economist, Andy Haldane, said he expected to back a British rate increase this year.

Reference: Masayuki Kitano

Wednesday, 21 June 2017

Oil-linked currencies pressured by lower oil prices, sterling slips

Commodity-linked currencies such as the Canadian dollar and the Norwegian crown were on the back foot on Wednesday, dragged lower by declining oil prices, while sterling wallowed near two-month lows.

Oil prices held near multi-month lows on Wednesday as investors discounted evidence of strong compliance by OPEC and non-OPEC oil producers with a deal to cut global output.

That pulled the commodity-linked complex of currencies lower with the Norwegian crown languishing close to 5-month lows against the dollar after falling half a percent on Tuesday.

It last traded at 8.5564 crowns per dollar, down 0.2 percent on the day.

The Canadian dollar, which fell about 0.4 percent on Tuesday, traded at C$1.3296 per dollar, down 0.2 percent on the day. It moved further away from a 3-1/2-month high of C$1.3165 reached a week ago after Bank of Canada's governor expressed support for an interest rate hike.

The Australian dollar fell 0.3 percent to $0.7550 and the New Zealand dollar was 0.2 percent lower at $0.7228.

"The culprit behind their (commodity currencies) lacklustre performance is the oil price in recent days," said Valentin Marinov, head of FX strategy at Credit Agricole in London.

"The key question for the FX markets on the day is the extent to which the oil price weakness will ultimately grow into a broad-based risk-off move."

The safe-haven yen, which tends to gain when "risk-on" commodity currencies decline, rose 0.3 percent to 111.120 yen per dollar.

The dollar itself stayed tightly range-bound, almost flat against a basket of peers at 97.764.

The euro was also flat at $1.1132, off a seven-month peak of $1.1296.

Sterling hit fresh two-month lows, extending its declines after Bank of England governor Mark Carney said on Tuesday that now was not the time to raise British interest rates. It was last 0.3 percent lower at $1.2590.

Last week three out of eight BoE policymakers voted in favour of a rate hike and raised hopes for a near-term tightening.

Prime Minister Theresa May is still in talks with Northern Ireland's Democratic Unionists' Party, nearly two weeks after Britain's election produced no clear majority for any party.

"Sterling is weak as this political risk premium embedded in the pound looks like it is set to extend into next week with the DUP and the Conservative Party still not finalising talks," said Stephen Gallo, currency strategist with BMO Capital Markets in London.

Reference: Ritvik Carvalho

FTSE gets sterling boost as Carney holds line on rates

Britain's index of major companies got a boost from a weaker pound, which fell after Bank of England governor Mark Carney said now was not the time to raise interest rates.

Sterling hit a one-week low after Mark Carney dashed prospects of an early rise in borrowing costs after three BoE members surprised markets by voting for a hike last week.

The sterling effect turned the FTSE around from a lacklustre start of trading, with some weak company updates weighing. The index was up 0.2 percent by 0920 GMT.

The prospect of lower rates for longer boosted housebuilders Persimmon and Taylor Wimpey, which were among the top FTSE gainers.

Shares in plumbing and heating supplier Wolseley fell 3.4 percent after its quarterly results.

The firm saw sales growth in all its regions except the UK, adding to signs that Britons are cutting back on big ticket spending. Analysts at Liberum and Davy Research said eroding margins in its U.S. business were disappointing.

BT fell up to 1.6 percent, then paring losses after France's Orange said it could get $1.15 billion by cutting its stake in the British telecoms company. A downgrade to 'neutral' from BAML on Monday also weighed.

Antofagasta, Glencore, BHP Billiton and Rio Tinto reined blue-chips back, falling on lower copper and iron ore prices.

Barclays was in focus after the bank and four former senior executives were criminally charged over undisclosed payments to Qatari investors during a 12 billion pound emergency fundraising in 2008.

The announcement, which had been anticipated, left Barclays shares down 0.3 percent.

Domino's Pizza fell 5.1 percent to a 16-month low after Investec initiated coverage of the company with a 'sell'.

Workspace provider IWG was set for its worst day in a year after Estorn Limited placed 27 million shares in the company for sale at 345.1 pence per share.

Despite the losses from IWG and Domino's, mid-caps rose 0.2 percent gain, with Serco up 2.9 percent after winning a $2 billion contract to run an Australian prison.

Consumer, financial and tech stocks were the main drivers for the FTSE 250 index which, having suffered heavy losses on Thursday, was climbing back up to near record highs on Tuesday.

Among small caps, plus-size clothes retailer N Brown jumped 12 percent to a 14-month high after a strong start to the year with first-quarter revenue up 10 percent and loss-making store closures pleasing investors.

Reference: Helen Reid

Tuesday, 20 June 2017

Bank of England's Carney says now not the time to raise rates

Now is not the time to raise interest rates, Bank of England Governor Mark Carney said on Tuesday, warning that already weak wage growth risked a further loss of momentum as Britain prepares to leave the European Union.

In a speech to London's banking community a day after Brexit talks started, Carney dashed any prospect that he might be close to joining the three BoE policymakers who last week unexpectedly voted to raise rates from their record low of 0.25 percent.

Sterling plunged by three quarters of a cent against the dollar after Carney's remarks, and 10-year gilt yields dipped below 1 percent.

The BoE is juggling the tricky combination of rising prices caused in large part by the fall in the value of the pound since the June 2016 vote to leave the bloc, and slowing wage growth as the economy loses much of last year's impetus.

The uncertain outcome of the Brexit talks is also expected to weigh on consumers and companies.

Finance minister Philip Hammond told the same Mansion House audience that it was important to avoid a "cliff edge" when Britain quits the EU in 2019 and to have a transitional deal on trade before a full agreement is reached.

Carney said that if there was insufficient progress on this, businesses in Britain and other EU countries might soon start to activate their own Brexit contingency plans.

"Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption," he said.

"Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU."

Before becoming Britain's foreign minister, Boris Johnson had dismissed the idea of trade-offs in the EU divorce process by saying his "policy on cake is pro having it and pro eating it".

Sterling dropped more than 10 percent after last summer's referendum vote, which Carney said reflected financial markets' dim view of Brexit's likely effect on the economy.

Sterling's weakness been a factor in consumer price inflation reaching its highest in nearly four years, contributing to a slowdown in consumer spending and lacklustre first-quarter growth.

Carney's concerns about the economic impact of Brexit added to "mixed signals" on consumer spending and business investment, as well as wage growth that remained "anaemic" even with unemployment at its lowest for more than 40 years.

A rate rise was not yet appropriate, Carney said.

"Now is not yet the time to begin that adjustment," he said. "In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to ... the reality of Brexit negotiations."

Carney underlined the importance of free trade - especially in financial services - and said the EU it would face greater costs if it tried to remove activities such as clearing euro-denominated derivatives from London.

He also said that whether Britain's large current account deficit was sustainable remained an open question, "one whose answer depends crucially on the outcome of the Brexit negotiations".

Reference: Reuters

Wall St. at record highs as tech stocks bounce back

U.S. stocks were higher in early afternoon trading on Monday, with the S&P 500 and the Dow Jones Industrial Average hitting record highs as technology stocks rebounded after recent losses.

The S&P technology sector is coming off its second straight weekly decline, triggered by fears of stretched valuations and investors moving money to other sectors. Tech stocks have led the S&P 500's 9.4 percent rally this year.

Apple rose 2.5 percent, providing the biggest boost to the three major sectors. Facebook  and Alphabet  were also higher.

The tech sector's 1.37 percent rise led the gainers on the S&P 500, putting it on track for its biggest one-day percentage rise since March.

"Some of it is folks taking a second-look at names that may have been unduly punished in the rotation out of tech that started about 10 days ago," said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas in New York.

"There has been no change in the fundamentals for the tech sector. Earnings growth, earnings revisions and forward looking indicators remain healthy."

At 12:47 p.m. ET (1647 GMT), the Dow .DJI was up 115.2 points, or 0.54 percent, at 21,499.48, the S&P 500 .SPX was up 17.37 points, or 0.71 percent, at 2,450.52.

The Nasdaq Composite .IXIC was up 75.64 points, or 1.23 percent, at 6,227.39.

While the tech sector is at the high end of its valuation, Lefkowitz said they were nowhere near the bubble territory of the 90s.

The S&P tech sector is trading at about 18.7 times forward earnings, compared with the historical 10-year average of 14.5, according to Thomson Reuters Datastream.

New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, said U.S. inflation was a bit low but should rise alongside wages as the labor market continues to improve, allowing the Federal Reserve to continue gradually tightening U.S. monetary policy.

Yellen's confidence as her team raised interest rates for the third time in six months last week surprised investors who had expected more caution about the economy following a set of weak U.S. economic data.

Advancing issues outnumbered decliners on the NYSE by 1,808 to 1,049. On the Nasdaq, 1,888 issues rose and 916 fell.

The S&P 500 index showed 49 new 52-week highs and 10 new lows, while the Nasdaq recorded 99 new highs and 87 new lows.

Reference: Tanya Agrawal

Monday, 19 June 2017

Asia stocks shake off Wall St. blues, sterling steady pre-Brexit talks

Asian stocks rose on Monday, shaking off Wall Street's subdued performance on Friday, and sterling was steady after a van rammed into worshippers leaving a London mosque, killing at least one person, as markets braced for the start of Brexit talks.

European stock markets were set for a strong start to the week, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 to open 0.6 percent higher, France's CAC 40 to be up 0.3 percent and Germany's DAX 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7 percent.

Japan's Nikkei climbed 0.6 percent.

Australian shares added 0.3 percent and South Korea's KOSPI rose 0.4 percent.

Chinese blue-chip shares advanced 0.8 percent on signs tight liquidity conditions were easing. Data showing home prices rose 10.4 percent in May from a year ago, although slowing from April's 10.7 percent gain, helped boost real estate stocks.

Hong Kong's Hang Seng gained 0.9 percent.

"Generally, the environment still remains fairly positive for risk appetite," said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group in Singapore.

"Now that the (Federal Reserve interest rate decision) is out of the way, the focus, for this region anyway, will remain on whether the economic environment will stay positive and the recovery will continue."

On Friday, Wall Street ended mixed, with energy names offsetting declines in consumer stocks, which were clobbered by's $13.7 billion deal to buy upscale grocer Whole Foods Market.

The S&P 500 index closed flat, the Dow Jones Industrial Average ended up 0.1 percent and the Nasdaq lost 0.2 percent.

Europe had a more upbeat session on Friday, with British, German and French stocks, as well as the broader STOXX Europe 600, closing higher.

The British pound was flat at $1.2777 after a van rammed into worshippers as they were leaving a Finsbury Park mosque in North London early on Monday.

Police said one man had been pronounced dead and 10 people were injured, in what Britain's largest Muslim organization said was a deliberate act of Islamophobia. The van driver has been arrested.

British Prime Minister Theresa May said police confirmed the incident was being treated as a potential terrorist attack.

Brexit Secretary David Davis starts negotiations in Brussels on Monday, which will be followed by a Brussels summit on Thursday and Friday where May will encounter - but not negotiate with - fellow European Union leaders.

Davis's agreement to Monday's agenda led some EU officials to believe that May's government may at last be coming around to Brussels' view of how negotiations should be run for Britain's exit from the EU. May's own immediate political survival is in doubt after she lost her parliamentary majority in an election.

Projections showing a strong parliamentary majority for French President Emmanuel Macron following Sunday's vote, giving him a powerful mandate to push through pro-business reforms, lent support to the euro.

The common currency was steady at $1.1195 , retaining Friday's 0.5 percent gain.

The dollar was little changed on Monday. On Friday, it fell after U.S. homebuilding dropped for a third month in May to the lowest in eight months and a barometer of U.S. consumer sentiment unexpectedly fell in early June, prompting concerns about the Federal Reserve's plans to stick with its monetary policy tightening.

The dollar index, which tracks the greenback against a basket of six global peers, was little changed at 97.182, failing to make up any of Friday's 0.3 percent loss.

The market is awaiting comments by New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, when he speaks at a business roundtable in New York state.

"In the wake of Friday's weak U.S. data, Dudley could provide insight into whether the Fed is still poised to continue normalising monetary policy," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"My view is that Dudley won't sound too dovish, and thus allow the dollar's gradual rise to resume."

The greenback fared better against the Japanese yen, which remained weak after the Bank of Japan left its ultra-loose monetary policy unchanged last week.

The yen didn't respond to data on Monday showing Japanese exports rose at their fastest pace in May since January 2015.

The dollar added 0.1 percent to 110.98 yen, after touching a two-week high on Friday.

In commodities, oil futures lingered near six-week lows, as concerns about a supply glut amid faltering demand.

U.S. crude slipped 0.35 percent to $44.58 a barrel, while global benchmark Brent dropped 0.3 percent to $47.21.

Gold touched a 3-1/2-week low earlier in the session, and was trading down slightly at $1,252.70 an ounce at 0500 GMT.

Reference: Nichola Saminather;

Canadian dollar pares its gains as oil prices slump, Fed hikes

The Canadian dollar edged higher on Wednesday against its U.S. counterpart but pulled back from a 3-1/2-month high as oil prices fell sharply and the Federal Reserve raised interest rates.

The loonie has soared this week after the Bank of Canada signalled higher interest rates ahead.

Investors have moved forward their expectations for when the central bank will begin raising rates, said Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management.

Chances of a rate hike this year have surged to 87 percent from less than one-in-four before stronger-than-expected jobs data on Friday.

Canadian household debt as a share of income dipped to 166.9 percent in the first quarter but remained near record highs, while separate domestic data showed that home prices rose in May.

Canada's central bank, which had long said interest rates are too blunt a tool to tackle the country's housing market, may have finally decided to act and at least limit its role in fuelling a potential bubble with low interest rates.

The U.S. dollar had been pressured by weaker-than-expected economic data but reversed most of its losses against a basket of major currencies after the Fed raised rates and said it was prepared to continue tightening monetary policy.

Crude oil prices slumped to their lowest close in seven months on Wednesday, hit by an unexpected large build in gasoline inventories. U.S. crude oil futures settled $1.73 lower at $44.73 a barrel. [O/R]

At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading at C$1.3234 to the greenback, or 75.56 U.S. cents, up 0.1 percent.

The currency's weakest level of the session was C$1.3271, while it touched its strongest since Feb. 28 at C$1.3165.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 4 Canadian cents to yield 0.887 percent and the 10-year climbed 51 Canadian cents to yield 1.505 percent.

The gap between the 10-year yield and its U.S. equivalent narrowed by 0.9 of a basis points to a spread of -63.7 basis points, its smallest since Nov. 8, the day of the U.S. election.

Spreads between Canada and the U.S. could narrow further as Canada's economy builds momentum in the first half of the year and as the U.S. economy shows some signs of slowing, Marjaee said. "Our portfolio strategy is to benefit from that."

Sterling inched up against the dollar on Friday, ending the week just a touch higher than where it began as political and economic worries counterbalanced the surprise of three Bank of England policymakers voting in favour of a rate hike.

Sterling surged to its highest in a week against the euro on Thursday after it emerged that the central bank's monetary policy committee had seen a 5-3 split on whether to raise interest rates immediately, amid rapidly increasing domestic consumer prices.

At a time when the BoE has blamed the rise in inflation past its 2 percent target mainly on a weak pound, traders read the split vote as a warning that officials could seek to defend the currency with rhetoric or action, even as the economy overall slows.

The pound has fallen over 15 percent since last June's vote for Brexit, although it has recovered some ground since the 31-year lows hit in October and even popped above $1.30 last month on bets that the Conservative party would increase its parliamentary majority in elections held last week.

However, with no party taking a majority, the pound sank as investors worried that a minority government would bring turmoil and could weaken Britain's hand in exit negotiations with the European Union.

Reference: Fergal Smith

Friday, 16 June 2017

Sterling surges after BoE vote swing, Fed hopes lift dollar

Sterling jumped more than a cent on Thursday on signs of a shift in the Bank of England's stance on keeping interest rates at record lows, before giving up its gains on nagging investor caution over the outlook for the UK economy.

Two more policymakers at the Bank of England (BoE) joined Kristin Forbes in calling for a reversal to the BoE's interest rate cut last August, sending the pound as high as $1.2795 in the minutes following its decision to leave rates unchanged.

Economists polled by Reuters had expected only Forbes - whose term on the BoE rate setting committee expires at the end of the month - to back higher rates, especially given a slowdown in growth in the first three months of 2017.

The risks to that view - and to sterling - were underlined by another lower-than-expected batch of retail sales data.  By 1225 GMT, the pound had eased back to $1.2741, down 0.1 percent on the day.

"I still think there is a case for weaker (UK) growth so I don't really agree with their arguments in the minutes this time," SEB currency strategist Richard Falkenhall said, adding that he saw no change to BoE policy this year or next.

"What will be important (for sterling going forward) is really the tone we will have in the first negotiations which will begin next week between the UK and the EU."

The pound has hovered near the $1.27 mark after a nearly 3 percent fall in the wake of Britain's election last week, which produced no clear majority for any party.

Prime Minister Theresa May and her Conservative party are still in talks with another party from Northern Ireland to form a government, with just days remaining before the planned start date of talks on Britain's exit from the European Union.

The dollar inched higher against a basket of peers, after the Federal Reserve's policy meeting kept up expectations of another interest rate hike this year.

As widely expected, the Fed raised interest rates a quarter percentage point to a target range of 1.0-1.25 percent on Wednesday but it also gave its first clear outline on its plan to reduce its $4.2-trillion bond portfolio.

That undid all of the damage done to the greenback in Asian trading and pushed it higher in morning European trade.

The dollar was up 0.6 percent against the euro at $1.1160 and 0.8 percent higher at 110.340 yen.

The index that measures its broader strength was up half a percent at 97.399.

A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its Sept. 19-20 policy meeting. The rest of them said it would make such a move at its Dec. 12-13 meeting.

"Long term Fed expectations remain very much supported - that is the main reason why the dollar is remaining supported for now," Credit Agricole currency strategist Manuel Oliveri said.

Reference: Ritvik Carvalho 

Bank of England shocks markets with close vote on rate hike

The Bank of England shocked financial markets on Thursday when it said three of its policymakers voted for an interest rate hike, the closest it has come to raising rates since 2007, despite signs of a slowdown in Britain's economy.

The unexpectedly tight 5-3 vote adds questions over monetary policy to uncertainty over Britain's political outlook since Prime Minister Theresa May failed to win a parliamentary majority in an election last week.

BoE policymakers Ian McCafferty and Michael Saunders joined previous rate rise advocate Kristin Forbes in voting to reverse the BoE's decision last August to cut rates to a record-low 0.25 percent, the BoE said.

Governor Mark Carney and the four other members of the Monetary Policy Committee voted to leave rates unchanged.

Financial markets were pricing in a roughly 50 percent chance of an interest rate hike by next June, compared with 20 percent earlier this week, Societe Generale fixed income strategist Jason Simpson said.

But many economists said they still saw no rate hike on the horizon possibly for another two years.

Sterling jumped almost a cent against the U.S. dollar GBP= after the decision but it pared gains as doubts grew about whether an outright majority of Bank officials would back higher rates in the foreseeable future

"Last week's election unexpectedly gave us a hung parliament, and now it seems the MPC is also split down the middle," HSBC economists Elizabeth Martins and Chris Hare wrote in a note to clients.

"We think there could be a protracted period of split votes, as political uncertainty, waning growth momentum and weak wages weigh against the case for tightening," they added.

Britain's economy slowed sharply in early 2017 as consumers felt the pinch from higher inflation and slowing wage growth.

That had led most investors to think it was unlikely that the BoE would quickly follow the lead of the U.S. Federal Reserve which raised interest rates for the second time in three months late on Wednesday.

Economists polled by Reuters had expected only Forbes, whose MPC term expires at the end of the month, to back higher rates.

Attention is now turning to the future make-up of the MPC.

Chancellor Philip Hammond has yet to announce replacements for Forbes and for former deputy governor Charlotte Hogg, who quit earlier this year after lawmakers criticised her failure to declare a potential conflict of interest.

Hammond and Carney had been due to address an annual dinner for financiers in the City of London later on Thursday. But the event was cancelled out of respect for victims of a deadly fire in a London apartment block on Wednesday.


Rising inflation and a further fall in the pound have become the BoE's main concerns since its last rates meeting in May.

The BoE said on Thursday that a recent jump in inflation to 2.9 percent meant it was likely to exceed 3 percent this autumn - higher than the BoE forecast just a few weeks ago and well above its 2 percent inflation target.

The fall in the pound after last week's election could push prices yet higher, the central bank said.

Prime Minister May is trying to get a commitment of support from Northern Ireland's main pro-United Kingdom party to allow her to pass legislation.

The pound shed 2.5 percent of its value since the last BoE meeting and is now 13 percent weaker than before Britain voted to leave the EU.

Britain's economy was the worst performer among the world's top seven advanced economies in the first quarter of this year as the effect of higher inflation - partly due to a weaker pound - caught up with consumers at a time of sluggish wage growth.

Retail data released earlier on Thursday showed the joint slowest growth in sales volumes in four years.

But the BoE said it was unclear how long the consumer weakness would last as confidence surveys have looked solid. Moreover, indicators of investment and exports looked upbeat, and unemployment was its lowest in over 40 years, the BoE said.

"The continued growth of employment could suggest that spare capacity is being eroded ... and, all else equal, reducing the MPC's tolerance of above-target inflation," the BoE said.

Key considerations for future rate rises would be inflation pressures, whether consumer demand stayed weak, and if other sources of demand such as exports and business investment grew to compensate, the central bank added.

Reference: David Milliken and Andy Bruce 

Thursday, 15 June 2017

U.S. Treasury unveils financial reforms, critics attack

The U.S. Treasury Department unveiled a sweeping plan on Monday to upend the country's financial regulatory framework, which, if successful, would grant many items on Wall Street's wishlist.

The nearly 150-page report that suggested more than 100 changes, most of which would be made through regulators rather than Congress, Treasury Secretary Steven Mnuchin said in an interview.

"We were very focused on, what we can do by executive order and through regulators," he said. "We think about 80 percent of the substance in the report can be accomplished by regulatory changes, and about 20 percent by legislation."

Republican President Donald Trump has gradually been nominating heads of financial agencies to carry out his agenda, but only Mnuchin and Securities and Exchange Commission Chairman Jay Clayton have been approved by Congress. Other agencies are operating under "acting" chiefs or have leaders appointed by Trump's Democratic predecessor, Barack Obama.

Changes proposed by the Treasury Department include easing up on restrictions big banks now face in their trading operations, lightening the annual stress tests they must undergo, and reducing the powers of the Consumer Financial Protection Bureau (CFPB), which has been aggressively pursuing bad behavior by financial institutions.

The plan would also expand the authority of the Financial Stability Oversight Council, which is chaired by Mnuchin, and change the way global capital standards are implemented to give U.S. banks a leg up against foreign rivals. Smaller banks would get some relief as well: Lenders with $50 billion or less in assets would have to jump through fewer regulatory hoops than rivals with multitrillion-dollar balance sheets.

The industry has long many of the proposed changes, which would mostly benefit banks like JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc , Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley .

Industry trade groups applauded the proposal on Monday evening, though some said they wished there were more specifics on tricky questions, such as what level regulators should set for banks' assets before subjecting them to stricter rules.

"This is the first time in a while where there's been an official undertaking where our concerns resonated with the folks in the driver's seat," said Rich Foster, senior counsel for regulatory and legal affairs at the Financial Services Roundtable, a trade group.

Representatives for the six largest U.S. banks declined to comment, did not immediately respond or said they were reviewing the document.

Reform advocates and Democratic lawmakers were quick to criticize the plan as a handout to Wall Street and a dangerous one for U.S. consumers who lost homes and jobs during the 2007-2009 financial crisis.

Democratic Senator Elizabeth Warren, a critic of Wall Street, said it would "make it easier for big banks to cheat their customers and spark another financial meltdown." Her Democratic colleague Senator Sherrod Brown noted that Treasury consulted with industry groups more than consumer groups, by a ratio of 17-to-1, while developing its report.

"The Treasury proposal advances ideas that have been pushed by industry lobbyists since Dodd-Frank was passed," said Lisa Donner, executive director of Americans for Financial Reform. "We need more effective regulation and enforcement, not rollbacks driven by Wall Street and predatory lenders."

Mnuchin said the regulatory overhaul is needed to grow the economy, give consumers more choices and ensure U.S. taxpayers would not have to bail out big banks again. While the Trump administration has said it wants to protect consumers, existing rules limit their access to loans and investment products they want.

By trying to make many of the changes through regulatory agencies, the Trump administration may avoid a lengthy and perhaps futile battle with Democratic lawmakers.

Although the White House and Congress are led by Republicans, Democrats in the Senate can block legislation and are unlikely to support any overhaul that eases rules on big banks. Some of the Treasury's proposals, like defanging the CFPB, would require new laws to be written and therefore face an uphill political battle.

The report, which focused on banks, is the first of four examinations being carried out by the Treasury Department after Trump pledged to do a "big number" on the Dodd-Frank reform law. Proposals on capital markets, clearing houses and derivatives as well as the insurance and asset management industries and financial innovation and banking technology will come later.

Reference: Pete Schroeder and Lisa Lambert