Fed and Trump keep dol­lar glum, Europe up

Kuwait Times - - BUSINESS -

LON­DON: The dol­lar sat at a more-than-one-year low while stocks climbed yes­ter­day as in­vestors bet that sub­dued US in­fla­tion and strains in Wash­ing­ton would limit Fed­eral Re­serve in­ter­est rate moves for the rest of the year.

The Fed starts a two-day meet­ing later in the day to dis­cuss its monetary stance and the tim­ing of its long-awaited balance sheet re­duc­tion, a plan most likely to be de­tailed in Septem­ber.

There is a grow­ing sense that it will want to tread care­fully, and mar­kets were re­flect­ing that. They were also boosted by “euphoric” Ger­man eco­nomic data and Greece’s first re­turn to cap­i­tal mar­kets since 2014. With US, stock mar­kets set to be­gin the day at or near their all-time highs, volatil­ity was in deep hi­ber­na­tion with the so called “fear gauge” the VIX in­dex-at a 24-year low and only lower twice in its 25-year his­tory.

Google par­ent Al­pha­bet was down 2.5 per­cent in pre­mar­ket trad­ing, af­ter the tech gi­ant flagged up ris­ing costs but the broader mar­ket was feed­ing off a stronger Europe.

Strength among com­mod­ity firms and bank­ing stocks, as well as a string of solid cor­po­rate re­sults, boosted bourses as the euro, the pound and main Scan­di­na­vian currencies took ad­van­tage of the soft dol­lar. The US cur­rency was stuck at its low­est since June 2016 af­ter a near 4 per­cent drop over the last month and more than 8 per­cent fall this year.

“We may see some con­sol­i­da­tion here from the dol­lar but fun­da­men­tally our bear­ish view on it re­mains,” Uni­Credit Global Head of FX Strat­egy Vasileios Gkion­akis said.

“What the Fed says to­mor­row is the mil­lion dol­lar ques­tion... but the risk is that they sound a bit more cautious af­ter the fourth con­sec­u­tive down­side sur­prise in in­fla­tion.”

Against the yen, the dol­lar did man­age to put up a bit of fight, edg­ing up to 111.380 yen hav­ing slipped as low as 110.625 yen - its low­est since mid-June - the pre­vi­ous day.

The yen had yielded as two new Bank of Ja­pan pol­i­cy­mak­ers said it would be pre­ma­ture to even talk about end­ing its mas­sive monetary stim­u­lus. An­a­lysts see the dol­lar un­der 110 yen though, if the Fed shows any se­ri­ous con­cern this week. The po­lit­i­cal trou­bles of Pres­i­dent Don­ald Trump’s White House con­tinue to mount too, with in­ves­ti­ga­tions into his pre-elec­tion links to Rus­sia deep­en­ing.

Trump blasted the probes again in a pair of early morn­ing tweets aimed at his at­tor­ney gen­eral. There is also grow­ing anx­i­ety about the United States hit­ting an­other debt ceil­ing in Oc­to­ber with few op­tions to po­ten­tially off­set that. The debt ceil­ing is­sue has started to cause prob­lems at Trea­sury bill auc­tions and the three-month T-bill yield rose above the 6month equiv­a­lent late Mon­day to ac­count for the out­side risk of a tech­ni­cal de­fault.

EURO-PHORIC

The euro got a boost early on as Ger­man busi­ness morale hit a new high, with firms “euphoric” ac­cord­ing to the Mu­nich-based Ifo eco­nomic in­sti­tute that com­piles the data from 7,000 of them in Europe’s largest econ­omy. “Hardly any­thing seems to be able to hit the Ger­man econ­omy,” Ifo econ­o­mist Klaus Wohlrabe added, say­ing with ref­er­ence to the euro’s re­cent sharp rise that Ger­man busi­ness was ex­pe­ri­enced in man­ag­ing the im­pact of ex­change rate moves.

The IMF also was ex­pected to give an up­beat eu­ro­zone re­port later. Greek gov­ern­ment bor­row­ing costs hov­ered near their low­est level since 2010, mean­while, as the coun­try sold its first longer-dated bond in three years at 4.625 pct. Some five years since Euro­pean Cen­tral Bank Mario Draghi pledged to do “what­ever it takes” to pre­serve the euro, the debt sale by Greece was the clear­est sign yet of the bloc’s re­cov­ery from its crip­pling debt cri­sis.

It spurred de­mand for other low-rated debt, with bonds of Por­tu­gal and Spain out­per­form­ing those in pow­er­house Ger­many and the gap be­tween Ital­ian and Ger­man 10year yields drop­ping to its small­est since De­cem­ber 2016.

“Con­fi­dence in Greece is re­ally com­ing back, but we need to con­tinue the good work. We need to be on the bi­cy­cle, and to keep on ped­alling,” Europe’s eco­nomics com­mis­sioner, Pierre Moscovici, said.

In com­modi­ties, oil prices ex­tended their re­cov­ery on a pledge by lead­ing OPEC pro­ducer Saudi Ara­bia to cut ex­ports in Au­gust to help re­duce the global crude glut. Hal­libur­ton Co’s ex­ec­u­tive chair­man also said the US shale drilling boom would prob­a­bly ease next year. US crude jumped 1.6 per­cent to $47 a bar­rel, af­ter clos­ing up 1.25 per­cent on Mon­day. Global bench­mark Brent added 1.55 per­cent to $49.35, ex­tend­ing Mon­day’s 1.1 per­cent rise. The rise in risk ap­petite stalled gold, with the pre­cious metal dip­ping al­most 0.3 per­cent, or 5 cents, to $1,250 an ounce.

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