Reuters: South Africa's rand fell against a stronger dollar on Wednesday as investors focused on the central bank's interest rate decision due today. At 16:19 GMT, the rand was trading at 19.2800 against the dollar, about 0.35% lower than its previous close.
The South African rand fell
The dollar traded more than 0.3% higher at 103.890 against a basket of global currencies as concern over the US debt ceiling talks sent investors to safe havens. South Africa's core consumer inflation slowed to 6.8 percent in April from 7.1 percent in March, data showed on Wednesday, slightly below the 7 percent analysts had forecast.
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“April's CPI print was significantly more favorable than in recent months. However, we think a surprise is unlikely to have much of an impact on tomorrow's MPC decision given that, in our view, the SARB is mainly reacting to exchange rate weakness,” wrote Goldman Sachs' Andrew Matheny. Shares on the Johannesburg Stock Exchange fell, with the top-40 index down 1.60% and the broader all-share index down 1.47%. South Africa's benchmark 2030 government bond was stronger, with the yield down 19 basis points to 11.045%.
US dollar
Reuters: The dollar hit a two-month high against the euro and a six-month high against the yen on Thursday as a resilient U.S. economy prompted traders to scale back their bets on rate cuts this year. The dollar also benefited from safe-haven demand, ironically as the US debt ceiling impasse threatened a catastrophic default as early as June 1, when the Treasury Department warned it would not be able to pay all its bills. The dollar touched $1.07425 per euro at the start of the Asian session, for the first time since March 24, and remained high until last trading at $1.0748. The dollar also bought 139.66 yen, a level last seen on November 30. With just a week left until the "X date" to resolve the debt ceiling and a divided Congress that also needs several days to pass legislation, investors are getting nervous.
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Fitch put the United States' debt rating on negative review on Wednesday, adding to the sense of an impending crisis. "The dollar has seen good, solid growth and there are good reasons for that," said Tony Sycamore, an analyst at IG Markets, pointing specifically to haven demand amid debt ceiling volatility as well as growing signs of a slowdown in China and Europe. "I think the dollar could be on the verge of going up another 2% and Fitch could be the trigger for that." The U.S. dollar index, which measures the currency against six major bonds including the euro and yen, hit a two-month high of 104.01. Sycamore said a prolonged decline above 104 could see the index test 106. The latest sign of weakness from Europe came from a worse-than-expected deterioration in German business confidence.
Meanwhile, the Chinese yuan renewed a six-month low, falling to 7.0827 per dollar in the offshore market. The Asian giant has seen a series of disappointing economic indicators, all pointing to weak consumer demand and suggesting that the post-pandemic recovery is already on its way. The Australian dollar was hit hard by weakness in China due to its close trade ties, falling to a fresh 6.5-month low of $0.6527. The New Zealand dollar is still recovering from the central bank's shock tilt on Wednesday, which sent it down 2.2%. On Thursday, it fell to its lowest level since mid-November at $0.6085. The resilience of the US economy in the face of the Federal Reserve's aggressive tightening campaign has reduced expectations for a rate cut this year to just a quarter of a point in December, from 75 basis points previously.
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Money markets have raised the odds again to about 1 in 3 for another quarter-point hike in June, with several Fed officials taking an hawkish stance recently and consumer inflation still running around twice the 2% target . "Whether we accelerate or skip the June meeting will depend on how the data comes in over the next three weeks," Fed Governor Christopher Waller said at an event in California on Wednesday. "I do not support stopping interest rate hikes unless we have clear evidence that inflation is coming down towards our 2% target.
GBP
Reuters: The pound fell on Wednesday after data showed British inflation fell much less than expected in April. Sterling initially rose after the data, which increased pressure on the Bank of England to raise interest rates, but was last down 0.17% at $1.239. Britain's annual inflation rate slowed to 8.7% in April from 10.1% in March. Economists polled by Reuters had expected a drop to 8.2%. Core inflation, which strips out volatile energy and food costs, unexpectedly jumped to 6.8%, a 31-year high. "The reason you didn't see a bigger reaction today is context," said Ben Laidler, global markets strategist at trading platform eToro, referring to the pound. “The pound is already on a big rise this year and the dollar is already on the back foot. The debt ceiling adjustment is just heating up and the dollar is starting to flow to the safe haven.”
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Democratic and Republican negotiators wrapped up another round of debt ceiling talks on Tuesday with no sign of progress. That helped push the dollar, considered a "safe haven" in times of stress, to a two-month high on Tuesday. Dollar strength has sent the pound down about 2% since hitting a one-year high of $1.268 on May 10. The Bank of England raised interest rates to 4.5% earlier this month. Traders on Wednesday saw a 94% chance of raising borrowing costs again by 25 basis points in June, according to prices in derivatives markets, up from about 80% on Tuesday. The euro initially slipped against the pound after the inflation data, but reversed and was last up 0.2% at 86.92 pence.
Some analysts have voiced the prospect that high inflation in Britain will soon become a problem for the pound. Although currencies tend to rise if investors believe the central bank will raise interest rates, the impact of inflation on the UK economy could soon offset this effect. "The title drop looks great, but you're just scratching the surface and there's no reason to be happy," Laidler said. "If you're the Bank of England, I think that's the worst possible scenario." The UK has the second highest inflation rate in Western Europe
World markets
Reuters: Asian shares fell to two-month lows on Thursday and the U.S. dollar rose as the impasse in talks to raise the U.S. debt ceiling weighed on risk assets on worries about a hit to the global economy if the U.S. government defaults its obligations. . MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.84 percent to 503.93, its lowest since March 21 and on track for a second straight month of losses. Chinese shares fell 0.53 percent, while Hong Kong's Hang Seng fell 2 percent to its lowest level in 2023. The decline in both markets weighed on MSCI's Asia-Japan index, whose top 10 constituents include Tencent Holdings , Alibaba Group Holding, AIA Group and Meituan. Tokyo's Nikkei remained the region's best performer, rising 0.5 percent.
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Negotiators for Democratic President Joe Biden and the top Republican in Congress, Kevin McCarthy, held what both sides called productive talks on Wednesday as they tried to reach a deal on raising the debt ceiling. But with no solution in sight, traders remained wary of a possible and devastating default with US Treasury Secretary Janet Yellen keeping early June as the deadline for debt repayment. "There is a beginning to feel that this time may be a little different," said Rob Carnell, ING's regional head of research for Asia Pacific. "Despite comments that progress is being made, you just wonder if McCarthy has a deal and if even his own party will support it," he said. "So that's cause for concern."
Credit rating agency Fitch put the United States on watch for a potential downgrade late Wednesday, further dampening sentiment. A downgrade could affect the prices of trillions of dollars in Treasuries. Fitch's move revived memories of 2011, when S&P downgraded the United States to AA-plus and triggered a series of other downgrades, as well as a sell-off in the stock market. "I hope Fitch is aware of the implications of this and is almost doing it to try to apply some pressure," said ING's Carnell. "It doesn't necessarily mean they're going to downgrade, but it's like saying, 'You better watch out, or this is coming.' Overnight, Wall Street's main indexes closed lower on worries about the debt ceiling. E-mini futures for the S&P 500 rose 0.38 percent, while Nasdaq futures rose 1.4 percent in early Asian hours after Nvidia Corp forecast second-quarter revenue above 50 % above Wall Street estimates.
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The semiconductor company said it is increasing supply to meet growing demand for its artificial intelligence chips, which are used to power ChatGPT and many similar services. European shares opened higher, with Eurostoxx 50 futures up 0.14%, German DAX futures up 0.16% and FTSE futures up 0.21%. On monetary policy, Fed officials "broadly agreed" last month that the need for further rate hikes had "become less certain," according to minutes from the May 2-3 meeting, when the rate reference increased by a quarter of a percent. - grade up to 5.00%-5.25%. Several officials said the raid may be the last. Ray Attrill, head of FX strategy at National Australia Bank, said the minutes reflected the somewhat divisive nature of many of the comments from a range of Fed officials after the May meeting. "It appears that those who support the Fed not operating at the current 5.0-5.25% are ready for at least a pause in June," Attrill said.
But markets now see a 33.6% chance of a 25 basis point hike in June, compared with 28% last week, according to the CME FedWatch tool. Bonds maturing around June 1, the so-called X-date when the government runs out of money, have been under pressure for weeks and have seen further selling, pushing yields on June 1 to 7.628%. The two-year yield on U.S. Treasuries, which typically moves in line with expected rates, rose 7 basis points to 4.413 percent. In the foreign exchange market, the dollar index, which measures the US currency against six bonds, rose 0.173% to touch a fresh two-month high of 104.06. The yen fell 0.14% to $139.66, while sterling last traded at $1.234, down 0.19% on the day. U.S. crude was down 0.17% at $74.21 a barrel and Brent was at $78.32, down 0.05% on the day.
PublisherMercuryTeamon May 25, 2023
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