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Dollar clears 3-month high, yields surge on hawkish Powell

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Dollar clears 3-month high, yields surge on hawkish Powell
© Reuters.

By Ambar Warrick

Investing.com — The U.S. dollar hit a three-month high against a basket of currencies on Wednesday, tracking a spike in Treasury yields after Federal Reserve Chair Jerome Powell said that interest rates were likely to rise more than market expectations.

The and rose about 0.2% each in Asian trade, hitting their highest levels since early-December. The two instruments also surged about 1.3% on Tuesday.

before Congress that the Fed is likely to raise interest rates more than market expectations, following recent resilience in the U.S. economy. This saw markets rapidly begin in March, up from prior expectations for a rise of 25 bps.

U.S. Treasury yields also surged in overnight trade, with a bias towards short-term yields. This in turn caused a further deepening in the yield curve, with close to their lowest level since October.

also surged past 5% for the first time since 2007.

Powell’s comments come after stronger-than-expected and labor market readings for January showed that the Fed likely needed to tighten policy further to ensure a sustained downtrend in inflation.

The central bank by a cumulative 450 basis points since March 2022 to an upper range of 4.75%, which had seen market positioning for a terminal rate – i.e., a peak – of around 5.5%.

But with inflation still showing signs of stickiness, markets are now positioning for rates potentially breaching 6%.

Focus this week is largely on more cues on the Fed and the labor market, with the central bank’s report on the economy due later on Wednesday.

data for February is due on Friday, with any signs of strength in the economy giving the Fed more headroom to keep raising rates.

Rising interest rates have drummed up fears of a sharp slowdown in the U.S. economy later this year. An inverted yield curve is regarded by markets to be a classic signal that traders are positioning for a potential recession.

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Column-Yuan won’t be FX reserve currency if no one buys China’s bonds: McGeever

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Column-Yuan won't be FX reserve currency if no one buys China's bonds: McGeever
© Reuters. FILE PHOTO: An advertisement poster promoting China’s renminbi (RMB) or yuan , U.S. dollar and Euro exchange services is seen outside at foreign exchange store in Hong Kong, China August 13, 2015. REUTERS/Tyrone Siu

By Jamie McGeever

ORLANDO, Florida (Reuters) – faces significant long-term obstacles to becoming a global reserve currency of any great import, but the biggest challenge in the near term is the fact that nobody wants to buy Chinese bonds.

Foreign investors have been dumping Chinese bonds ever since Russia invaded Ukraine in February last year, wary that Beijing’s ties to Moscow could potentially expose overseas holders of Chinese assets to international sanctions.

The reversal was sudden – non-residents had poured money into Chinese debt securities almost every single month over the preceding decade – and so far, it has been sustained.

Figures through March this year compiled by macroeconomic data research firm Exante Data show that foreigners have been heavy sellers of Chinese bonds every month bar one since Russia invaded Ukraine.

“It is very hard to create a reserve currency, without attractive reserve assets. China has a problem. It wants foreigners to buy bonds but they have been selling since early 2022,” says Jens Nordvig, founder and CEO of Exante Data.

“Both the private sector and the official sector are reducing yuan exposure within their fixed income portfolios,” Nordvig adds.

Exante Data’s figures show foreign investors bought a net $558 billion of Chinese bonds between 2010 and 2021. From February last year through March this year they sold $115 billion.

DE-DOLLARIZATION?

The global ‘de-dollarization’ debate has found a new lease of life recently.

The dollar’s nominal share of global reserves is 58.35%, according to the International Monetary Fund’s currency composition of official foreign exchange reserves, or ‘Cofer’ data, the lowest since the euro’s launch in 1999.

Several countries, including Brazil and other major emerging economies in Asia and the Middle East, have called for trade in oil, commodities and other global goods to be invoiced in non-dollar currencies.

To be sure, the renminbi’s share of world FX reserves has more than doubled in the last seven years to 2.69%, according to the IMF’s Cofer data.

It has grown much faster than the yen, sterling, and currencies like the Australian and Canadian dollars and Swiss franc that are bundled together in the ‘others’ category in the Cofer data. But from a much lower base.

The nominal amount of global reserves held in renminbi was $298 billion at the end of last year, down from a peak of $337 billion 12 months earlier.

But in a pool of $12 trillion global reserves, of which nearly 80% is denominated in dollars and euros, these are very small numbers. There is a long way to go for the yuan to reach even the levels of sterling and the yen at 4.95% and 5.50%, respectively.

RESERVE STATUS

Any currency that has designs on attaining international reserve status must meet several criteria and fulfill several roles.

It should be widely accepted as a unit of reserve for central banks, an accounting unit for international trade, and a transaction currency for trading in global financial assets like equities and bonds.

Beijing has gradually allowed more institutions and central banks to enter the yuan-denominated bond market over the past two decades by relaxing rules around quotas, lock-up periods and registration requirements.

But as IIF economist Jonathan Fortun notes, it is a slow and uneven process, which will be made even slower and more uneven by the heavy selling of Chinese bonds recently.

“Any episode of large outflows concentrated in a single locale, as has been the case of China for much of last year, would be detrimental for a currency to achieve reserve status,” Fortun said.

The IIF’s capital flows data shows some minimal net inflows into China in recent months, but paints a broadly similar picture: demand for Chinese debt has evaporated.

Reluctance to own Chinese bonds comes amid growing pressure form Washington on its Group of Seven allies to impose restrictions on certain investments in China with national security implications. It didn’t make it into the final G7 communique, suggesting other G7 members are less enthusiastic.

But Washington is likely to keep pressing its allies to take a stand against what it considers Beijing’s use of “economic coercion” against other countries.

Beijing, in turn, could view this as the thin end of the wedge, effectively a call for companies, institutions and investors in some of the world’s richest nations to steer clear of China and allocate capital elsewhere.

Which is what bond investors, at least, are already doing.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Simon Cameron-Moore)

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Dollar stabilizes near five-week high ahead of more debt ceiling talks

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Dollar stabilizes near five-week high  ahead of more debt ceiling talks
© Reuters.

Investing.com – The U.S. dollar stabilized in early European trade Tuesday, just off a five-week high helped by its safe haven status as the standoff in Washington over the U.S. debt ceiling continued.

At 03:15 ET (07:15 GMT), the , which tracks the greenback against a basket of six other currencies, traded largely flat at 102.250.

The potential for a U.S. default of its debts if a deal is not done to lift the country’s borrowing limit, which Treasury Secretary Janet Yellen reiterated could be hit as soon as June 1, has helped the dollar push higher of late, with traders seeking the greenback given it is often used as a safe haven in times of stress. 

The main parties are expected to meet once more later Tuesday, with President Joe Biden expressing confidence a deal can be done, but Republican House of Representatives Speaker Kevin McCarthy said on Monday that the two sides were still far apart.

“Unless we see truly encouraging progress, investors’ fears may keep growing,” said analysts at ING, in a note. “Barring positive news on this end, we think the balance of risks remains tilted to the upside for the dollar for now, which should see safe-haven flows as risk sentiment stays subdued.”

Aside from this, traders are likely to focus on the release of U.S. data for April, which is expected to show sales grew 0.8% on the month in April, an improvement from the dramatic slump of 0.6% last month.

The raised interest rates last week for a 10th straight time, but hinted that it may be about to pause its aggressive policy tightening as it studies incoming economic data and assesses the impact of the tightening to date.

Inflation remained elevated in April, even if slightly lower than the prior month, and a number of Fed officials have said in separate addresses that interest rates were likely to stay higher for longer if prices continue to remain substantially above the Fed’s 2% target.

Elsewhere, rose 0.1% to 1.0880, after bouncing off a five-week low overnight, ahead of the release of preliminary first quarter for the euro zone.

This is expected to show the region barely scraped growth in the first three months of the year, rising 0.1% on the quarter and 1.3% on an annual basis.

Also of interest will be the for May, which is expected to show a deterioration of sentiment in the eurozone’s largest economy.

fell 0.3% to 1.2494 after the U.K. unexpectedly rose to 3.9% in the three months to March, raising the likelihood of the Bank of England pausing its run of increases when it next meets in June.

dropped 0.3% to 135.78, fell 0.3% to 0.6683, while rose 0.2% to 6.9643 with the yuan trading near a two-month low after Chinese data showed and grew less than expected in April. 

rose 0.1% to 19.6861 as Turkey’s presidential race heads to a runoff with incumbent Tayyip Erdogan leading his opposition rival.

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The Virk brothers earned their engineering degrees at one of India’s premier engineering institutes – Punjab Engineering College – before pursuing their MBAs in the United States. Sarvjeet specialised in business management and marketing, while Tajinder focused on finance. Both brothers embarked on impressive careers right out of college, with Sarvjeet starting his first business at the age of 25 and Tajinder becoming the Vice President of Global Equity Trading at Fortis (NYSE:FTS) Bank at the same young age.

In 2009, the brothers founded Finvasia as a Foreign Institutional Investor (FII) in India. Setting out as money managers for prominent hedge funds and institutional investors, they were struck by the flaws of the financial industry in India.

Aiming to democratise the retail trading sector and provide greater accessibility to financial services and tailored products cost-effectively, the Virk brothers decided to challenge the status quo and lay the groundwork for zero-cost brokerage services. The growth they witnessed over a relatively short period of time was so remarkable that they agreed to pursue a multidimensional path. This led to the creation of the cross-industry conglomerate that Finvasia is today.

From thought to action there is only one step

Spanning several countries and industries, including technology, healthcare, and real estate, Finvasia marks a new era of engineering-driven, conflict-free and ethical businesses that shape the industry they operate in. Embarking on a multidisciplinary journey, Sarvjeet and Tajinder Virk worked towards creating an umbrella group servicing multiple verticals.

Finvasia’s diverse portfolio of brands creates an accessible, cost-effective, and integrated ecosystem that challenges industry norms and devises innovative solutions to real-world problems. Key brands within the Finvasia ecosystem include Shoonya, India’s first “Zero Cost” financial ecosystem; ZuluTrade, the world’s largest broker-agnostic social trading platform; Fxview, a globally recognised forex and OTC broker; and ActTrader, a leading fintech platform providing traders with access to a range of financial instruments.

The multidisciplinary group, along with its subsidiaries, has served a client base exceeding 5 million individuals across 190 countries, and has hosted several millions of accounts transacting trillions of dollars worth of transaction value.

The company employs over 450 employees across its offices in Australia, Japan, India, Mauritius, Cyprus, Greece, UK, South Africa, Canada, and the USA. What’s more interesting is that the Group has been EBIT positive all these years, showcasing its strong financial foundation and sustainable growth.

 

In 2023, Finvasia obtained an investment banking license and plans to launch a Global EMI and a neo-bank in India soon. This expansion demonstrates the company’s commitment to offering innovative financial solutions to its growing customer base.

Beyond the realm of finance, the company operates an innovative diabetes reversal medical facility that combines medical science and technology to create patient-centric treatment plans to put an end to this debilitating disease.

Also, in collaboration with a premier Indian institute, Finvasia is also developing Bodyloop, a groundbreaking project focusing on ‘in-body’ microsensors for personal health monitoring. Additionally, the group has invested in a food research entity that aims to address medical problems through food-based solutions, including a patent-pending natural food extract to provide relief for skin-related fungal infections.

The inspiring journey of the Virk brothers, who transformed Finvasia into a global enterprise, demonstrates the power of vision, innovation, and tenacity. Their unwavering dedication to creating ethical, sustainable products that benefit stakeholders has set new benchmarks for excellence, paving the way for a brighter, more inclusive future.

As Finvasia continues to grow and evolve, the bold leadership of Sarvjeet and Tajinder Virk remains at the core of the company’s success, forever changing the landscape of finance, healthcare, and technology. Their compelling story serves as an inspiration to entrepreneurs and visionaries worldwide, and with their continued innovation and dedication to excellence, Finvasia is set to make an even greater impact in the years to come.

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