TradeNews

TradeNews We`ll meet all of your needs

Investing.com-- Gold prices fell slightly on Monday, extending sharp declines from last week as strength in the dollar a...
09/07/2022

Investing.com-- Gold prices fell slightly on Monday, extending sharp declines from last week as strength in the dollar and growing uncertainty over hawkish U.S. monetary policy weighed on appetite for the yellow metal.

Spot gold fell 0.2% to $1,710 an ounce, while gold futures fell nearly 0.1% to $1,721 an ounce by 22:15 ET (02:15 GMT). Both instruments sank sharply last week on growing concerns that the Federal Reserve will continue to raise interest rates at a fast pace in the near-term.

Bullion prices saw fresh pressure on Monday as the greenback jumped to a new 20-year high, while Treasury yields also advanced. Data on Friday showed that U.S. nonfarm payrolls grew more than expected in August, giving the Fed more space to keep hiking rates sharply.

While U.S. wage growth lagged and unemployment rose, traders are pricing in a 57% chance of a 75 basis point hike at the Fed’s next meeting, seeing sufficient tightness in the labor market.

Gold prices have fallen significantly from 2022 highs as the Fed began hiking interest rates and pushed up yields.

The Fed is looking to combat inflation reaching 40-year highs on rising food and fuel prices. Several members of the central bank recently indicated that interest rates are likely to keep increasing until inflation is substantially closer to the bank’s 2% target.

The prospect of stronger interest rates has also seen the dollar largely overtake gold as a go-to safe haven. This saw the yellow metal benefit little from a recent escalation in geopolitical tensions between China and Taiwan.

Other precious metals also retreated on Monday. Silver futures fell 0.1%, while Platinum futures lost 0.6%.

Among industrial metals, copper prices reversed early losses and traded flat after better-than-expected Chinese services sector activity data.

Copper futures were up 0.1% at $3.3988.

Caixin data showed that a recovery in China’s services sector persevered through August, indicating that certain facets of the economy remained robust despite a slowdown in manufacturing activity.

China is the world’s largest importer of copper. Slowing economic growth in the country has severely dented copper prices so far this year.

TOKYO/LONDON (Reuters) - The dollar was lord of all it surveyed on Wednesday, at a fresh 24-year peak on the yen and ret...
09/07/2022

TOKYO/LONDON (Reuters) - The dollar was lord of all it surveyed on Wednesday, at a fresh 24-year peak on the yen and retesting a 20-year high on the euro after U.S. economic data reinforced the view that the Federal Reserve would maintain aggressive policy tightening.

Economic jitters elsewhere, pushing investors to safety, also supported the U.S. currency.

The dollar soared as high as 144.38 yen in Asia trade, hitting the level for the first time since August 1998, while the euro wallowed below 99 cents after dipping as low as $0.9864 overnight, its lowest since late 2002.

This caused the U.S. dollar index, which measures the greenback against six major peers, to hit a fresh 20-year high of 110.69 early on Wednesday.

The European Central Bank is seen as more likely than not to deliver a massive 75 bps rate hike on Thursday, but these expectations are doing little to support the currency in the face of a battered European economy and Russia's decision to keep the key Nord Stream 1 gas pipeline shut indefinitely.

In contrast, a report overnight showed the U.S. services industry unexpectedly picked up last month, supporting the view that the economy is not in recession and giving the Fed leeway for another 75-basis-point rate rise on Sept. 21.

But the moves were most dramatic for the yen, whose tumble, even by its own recent standards, has been precipitous. The dollar has climbed 3.7% from 138.96 yen just since the end of August.

Japan's currency is extremely sensitive to moves in long-term U.S. interest rates, and the yield on the 10-year Treasury note climbed as high as 3.365% in Tokyo trading, a level not seen since June 16.

"The speed at which the dollar is appreciating against the yen is getting out of control and is at risk of becoming unanchored," said Davis Hall, head of capital markets at Indosuez Wealth Management Asia.

"Right now you're drawing in everybody to stop out by throwing in the towel," he said. "We could reach 148 without (Ministry of Finance) action."

Japan's top government spokesperson, Chief Cabinet Secretary Hirokazu Matsuno, told a news briefing that the administration would like to take necessary steps if "rapid, one-sided" moves in currency markets continue, ratcheting up the rhetoric.

However, many analysts see intervention as difficult.

"Foreign central banks are prioritising dealing with inflation, and cannot afford to worry about exchange rate fluctuations," said Rikiya Takebe, senior strategist at Okasan Securities.

"Currency intervention or policy revisions by the Bank of Japan are likely to be difficult, and it will not be easy to stop the yen from falling."

Sterling fell 0.17% to $1.1497, approaching the 2 1/2-year low of $1.1444 reached on Monday, with Britain also entangled in the energy crisis, despite new prime minister Liz Truss's plans for a massive support package.

Back in Asia, many currencies were trading at or around multi-year lows. China's yuan sank to a two-year trough, closing in on the 7-per-dollar mark despite steps by authorities to stem its decline.

The onshore yuan weakened to a low of 6.9808, the softest level since August 2020, and the offshore yuan was even closer to the key level, falling as low as 6.9949 per dollar.

The New Zealand dollar dropped to its lowest since May 2020 at $0.5997, and the Singapore dollar declined to the weakest since June 2020 at 1.4107 per greenback.

Cryptocurrency bitcoin slumped to the lowest since June 19 at $18,540, extending a 5% tumble from Tuesday. The overall crypto market capitalisation dropped below $1 trillion once again, having been as high as nearly $3 trillion in late 2021.

TOKYO (Reuters) - Japan's government said it was ready to take action if "rapid, one-sided" moves in the currency market...
09/07/2022

TOKYO (Reuters) - Japan's government said it was ready to take action if "rapid, one-sided" moves in the currency market continue, signalling their alarm over the yen's fall to a fresh 24-year low.

"I'm concerned about rapid, one-sided moves in the currency market recently," Chief Cabinet Secretary Hirokazu Matsuno told reporters on Wednesday, adding that the government "would take necessary steps if such movements continue."

Finance Minister Shunichi Suzuki declined to comment, when asked what kind of steps could be taken to stem yen falls.

The remarks are similar to those made in June, when the government and the central bank said they were "concerned" and ready to respond to sharp yen falls in a rare joint statement, issued after the Japanese currency's fall to a 20-year low of 134.55 versus the dollar. On Wednesday, the yen fell to 144.38 per dollar, the lowest level since 1998.

Aside from verbal intervention, Japan has several options to stem excessive yen falls. Among them is to directly intervene in the currency market and buy up large amounts of yen.

Below are details on how yen-buying intervention could work, the likelihood of this happening as well as challenges:

WHEN DID JAPAN LAST CONDUCT YEN-BUYING INTERVENTION?

Given the economy's heavy reliance on exports, Japan has historically focused on arresting sharp yen rises and taken a hands-off approach on yen falls.

Yen-buying intervention has been very rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflow from the region. Before that, Tokyo intervened to counter yen falls in 1991-1992.

WHAT WOULD PROMPT TOKYO TO BUY YEN AGAIN?

Currency intervention is costly and could easily fail given the difficulty of influencing its value in the huge global foreign exchange market.

That is one key reason it is considered a last-resort move, which Tokyo would greenlight only when verbal intervention fails to prevent a free fall in the yen. The speed of yen declines, not just levels, would be crucial in authorities' decision on whether and when to step in.

Some policymakers say intervention would only become an option if Japan faces a "triple" threat -- selling of yen, domestic stocks and bonds -- in what would be similar to sharp capital outflows experienced in some emerging economies.

HOW WOULD IT WORK?

When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills to raise yen which it can then sell in the market to weaken the Japanese currency's value.

If it were to conduct intervention to stop yen falls, authorities must tap Japan's foreign reserves for dollars to sell in the market in exchange for yen.

In both cases, the finance minister will issue the final order to intervene. The Bank of Japan will act as an agent and execute the order in the market.

WHAT ARE THE CHALLENGES?

Yen-buying intervention is more difficult than yen-selling.

Japan's foreign reserves stand at $1.33 trillion, the world's second largest after China's and likely comprised mostly of dollars. While abundant, reserves could quickly dwindle if huge sums are required to influence rates each time Tokyo steps in.

That means there are limits to how long it can keep intervening, unlike for yen-selling intervention - where Tokyo can continue issuing bills to raise yen.

Currency intervention would also require informal consent by Japan's G7 counterparts, notably the United States if it were to be conducted against the dollar/yen. That is not easy with Washington traditionally opposed to the idea of currency intervention, except in cases of extreme market volatility.

Address

155, Rue Notre-Dame Est
Montreal, QC
H2Y1B5

Website

Alerts

Be the first to know and let us send you an email when TradeNews posts news and promotions. Your email address will not be used for any other purpose, and you can unsubscribe at any time.

Contact The Business

Send a message to TradeNews:

Shortcuts

Share

Category