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© Reuters.

Dollar Set to Snap Two-Week Win Streak Amid Expectations Low Rates to Persist

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© Reuters.

By Yasin Ebrahim

Investing.com – The dollar is set to snap a two-week losing streak, raising concerns about whether the greenback has really found its footing after five-straight months of declines, with lower for longer interest rates expected to persist.

The , which measures the greenback’s strength against a trade-weighted basket of six major currencies, was flat at 92.97.

The dollar’s sluggish end to the week comes just days after the Federal Reserve left rates unchanged and tied monetary policy guidance to inflation rising above 2% for some time. But the decision was accompanied by projections that suggest rates hikes would remain on hold at least through 2023, and inflation unlikely to get above the 2% level by then.

“As long as market expectations of an economic rebound hold, we’d say negative real yields will keep the dollar bear trend intact and investors will use position adjustments (like today) to reset dollar short positions” ING said in a note.

Adding to the dollar woes, the prospect of the economy receiving another shot of stimulus from congress appears murky, at best, even as economists warn that a lack of fiscal support could halt the current economic rebound.

traded flat $1.1850, while fell 0.37% to $1.2924, with the latter shrugging off better-than-expected retail sales data amid ongoing fears that the odds of a no-deal Brexit are rising.

traded fell 0.13% to 104.59 while added 0.27% to $1.3199.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.

Bond Market Shows U.S. Is Leading in Race to Reflate the Economy

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© Reuters. Bond Market Shows U.S. Is Leading in Race to Reflate the Economy

(Bloomberg) — The U.S. is emerging as an early favorite in the all-out showdown to rekindle inflation in the world’s major economies.

With the Federal Reserve planning to hold interest rates near zero until at least 2023 and Congress working on another fiscal boost, a pocket of the debt market is starting to see consumer prices modestly over 2% in years to come. That’s in stark contrast to Europe where deflation fears have reawakened, and Japan, which has battled moribund price pressures for decades to no avail.

It’s early days, of course, and investors are still quibbling over whether the Fed will succeed in spurring price gains. But they’re ramping up bets that its new inflation policy, aggressive bond buying and its slate of liquidity programs will help the U.S. reflate its economy more convincingly than in other developed nations. With many central banks backed into a corner with ultra-loose monetary policy even before the crisis, the U.S. has quickly out-eased its peers, squelching criticism — from the president, among others — of earlier rate hikes and widening the gap between price expectations in the U.S. and euro area to a decade high.

“The U.S. is reflating, but Europe and Japan are struggling,” said Robin Brooks, chief economist of the Institute of International Finance. It’s “unambiguously” a big deal that the Fed has shifted policy, and “that creates headaches for the ECB and the Bank of Japan, who are both facing a challenging inflation picture,” he said, during a Bloomberg TOPLive blog.

Moderate price gains are generally seen as a positive for an economy as they encourage consumers to spend now, rather than save for another day.

The Fed has made reviving inflation a cornerstone of its recovery playbook, announcing a new framework last month that would allow prices to exceed its 2% target to offset periods of depressed gains. That policy gained sharper teeth this week when the Fed said it would look to see this level of inflation — as well as full employment — before hiking rates.

Inflation won’t return overnight. A Fed survey of economists shows most see limited price pressures as far out as a decade. And even the central bank itself sees inflation only hitting 2% in 2023, according to its median projection — although at least one committee member thinks it could be as soon as next year.

Investors are clamoring for more detail on how the Fed will encourage inflation, but they’ve already paid attention to the change in tone.

While U.S. breakevens — the difference between nominal rates and those on inflation-linked bonds — remain subdued, a swaps-market measure of five-year price expectations in five years time has climbed above 2% since the Fed’s policy adjustment. The gauge, which references the consumer-price index rather than the Fed’s preferred PCE price index — is still a long way from the highs it reached after the 2008 financial crisis. But last month it booked its biggest gain since November 2016.

By contrast, headline inflation in the euro area is negative for the first time since 2016. And ECB President Christine Lagarde warned last week that the situation may get worse in the near term, despite the central bank moderately raising its forecast for price gains in 2021. The gap between similar inflation swaps in the U.S. and euro-area hit a decade high in the past week, excluding a brief March spike amid abnormal market conditions.

The Bank of Japan is in a similarly tight spot. The differential between 10-year U.S. breakevens and Japanese equivalents is near the widest in over a year.

“We remain relatively skeptical of European inflation,” said Thomas Walker, investment director at Aberdeen Standard Investments, who has an overweight position in inflation-linked U.S. Treasuries. “There are a multitude of factors at play here, but Europe has been struggling to generate inflation for quite some time now. Even before Covid-19, the ECB has struggled to generate inflation.”

It’s a long-standing dilemma for the euro-area’s policy makers, as well as investors. The ECB is reviewing its inflation target, but flagging price pressures could potentially stymie consumer spending, worsening the economic shock from the coronavirus and cementing fears of Europe’s “Japanification” — a state of near-permanently low inflation and reliance on institutional support.

In the worst case, price declines can become entrenched and spur a slump in wages, in a downward spiral of deflation that has historically wrecked economies.

While some of the reasons for Europe’s troubles are structural — an aging population, for example — others are far more recent, such as the euro’s more than 10% appreciation since a low in March. The currency’s strength is a double-edged sword; on the one hand, it reflects trader optimism in the region’s economic recovery, as well as fading fears of an EU breakup, but it also makes achieving the central bank’s 2% inflation goal a tall order.

When the euro broke above $1.20 this month for the first time since 2018, the central bank’s Chief Economist Philip Lane was quick to talk it down, and Bloomberg Intelligence strategists Huw Worthington and Bhumika Gupta say euro strength raises the threat that prices in the euro area will fall.

“A strong euro can stoke deflationary pressures in the EU,” they wrote in a note. “The currency is working against Lagarde’s inflation target, but options are limited, with QE having little impact on the exchange rate and rate cuts becoming toothless.”

Still, a reduction of 10 basis points or more in the ECB’s deposit rate — already at a record low of minus 0.5% — may prevent euro appreciation fueling deflation fears, they added.

Christoph Rieger, a strategist at Commerzbank (DE:), sees investor bets on a further ECB rate cut persisting. Traders in money markets currently expect such a move in the second half of next year.

“Unless inflation starts to rise or the euro starts to tumble on its own, this should keep rate-cut speculation alive,” Rieger wrote in a note to clients. “The genie is out of the bottle.”

 



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© Reuters.

$65 billion cash mystery puzzles Britain

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© Reuters.

LONDON (Reuters) – As cash declines in day-to-day transactions, Britain’s National Audit Office has uncovered a mystery: the number of pound notes in circulation has soared, so who is holding around 50 billion pounds ($65 billion) in cash?

In July 2020, the number of notes in circulation reached a record high of 4.4 billion, with a monetary value of 76.5 billion pounds, up from 24 billion pounds in 2000.

But the National Audit Office said the Bank of England in 2018 estimated only about 20%–24% of the value of notes in circulation were being used or held for cash transactions,

with UK households holding a further 5% as savings.

“Little is known about the remainder, worth approximately 50 billion pounds,” The National Audit Office, Britain’s independent public spending watchdog, said in a report.

“Possible explanations include holdings overseas for transactions or savings and possibly holdings in the UK of unreported domestic savings or for use in the shadow economy.”

The Audit Office said the Bank of England and other institutions should improve their understanding of why demand for cash has increased. The Bank of England declined to comment.

“The Bank, working with other public authorities, should improve its understanding of both the factors that are driving the increase in demand for notes, and also who is holding the approximately £50 billion worth of notes,” it said.

“This work might help inform wider policy, for example on tax evasion,” it said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.  Russia Hits Brakes on Rate Cuts, Sees Further Easing Possible

Russia Hits Brakes on Rate Cuts, Sees Further Easing Possible

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© Reuters. Russia Hits Brakes on Rate Cuts, Sees Further Easing Possible

(Bloomberg) — Russia’s central bank paused its monetary easing cycle after a surprise inflation uptick, but said that a rate cut was possible at one of its next meetings.

The benchmark interest rate remains at 4.25%, the central bank said in a statement on Friday, in line with expectations. Only four out of 42 analysts forecast a rate reduction, the rest saw no change, according to a Bloomberg survey. Governor Elvira Nabiullina will hold a news conference at 3 p.m. Moscow time.

While a weak ruble and increased demand have lifted the pace of price growth, the central bank said it sees the potential for economic recovery slowing with time. “If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings,” the regulator said in its statement.

The Bank of Russia joined other emerging economies in slowing down its monetary easing, as peers such as Brazil and South Africa kept rates unchanged this week. Russia’s economy is recovering faster than initially expected from the impact of measures to combat the coronavirus epidemic, and inflation continues to accelerate.

Key Insights:

  • Expectations for the central bank’s decision shifted to no change after Deputy Governor Alexey Zabotkin said last week that policy makers will weigh whether they should use the remaining easing space at all.
  • Annual inflation accelerated to 3.6% in August from 3.4% in the previous month, still below the central bank’s 4% target. Economists had forecast 3.5%.
  • The lost more than 5% this quarter, one of the worst performers among its peers, on concerns of new sanctions over the poisoning of opposition leader Alexey Navalny and Russia’s support for Belarus’s embattled president. The coming U.S. election means tensions are unlikely to ease soon.
  • Russia’s local bonds have handed investors the worst returns apart from Turkey so far this quarter. The share of local notes held by foreigners has fallen to the lowest in almost a year.
  • Forward-rate agreements show that traders are expecting no more easing in the next three months.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.

Dollar Weakens as Data Disappoints; Sterling in Focus

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© Reuters.

By Peter Nurse

Investing.com – The dollar edged lower in early European trade Friday, weighed down by disappointing employment and housing data and with the tech sector continuing to suffer strong selling in the equity markets.

At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 92.823, the rose 0.2% to trade at 1.1865, while was largely flat at 104.70, but still on course for a gain of 1.5% over the week.

Employment data, released on Thursday, showed that fell by less than expected. At the same time, data from the showed that part of the economy cooling off after three months of an extremely strong rebound.

So while the U.S. economy is recovering, the rebound seems to be slowing. This prompted the Federal Reserve to pledge to keep rates near zero until at least the end of 2023, but the central bank also called for more fiscal help from Congress, which still looks unlikely.

“As long as market expectations of an economic rebound hold (second wave lockdowns and the fiscal response will have a say here), we’d say that negative real yields will keep the dollar bear trend intact and investors will use position adjustments to reset dollar short positions,” wrote ING’s Chris Turner, in a note.

Additionally, U.S. tech stocks suffered another rout Thursday, with the tech-heavy index falling 1.3%, which contributed to a weak dollar. 

“For the dollar to regain its upward trend, it’s necessary for the market to make sure that the U.S. stocks take a pause from a correction in stock prices,” said Mizuho Securities chief currency strategist Masafumi Yamamoto, in a Reuters report.

Elsewhere, fell 0.1% to 1.2964, despite rising by 0.8% in August, slightly above the 0.7% forecast, as parts of the sector enjoyed a much faster rebound than most of the economy.

However, the focus of sterling traders is elsewhere as policymakers in the Bank of England indicated Thursday that they’re considering using negative interest rates as the central bank prepares for the possibility the U.K. government fails to reach a trade deal with the European Union by the end of this year.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.

No-Deal Brexit May Be the Trigger for BOE to Use Negative Rates

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© Reuters. No-Deal Brexit May Be the Trigger for BOE to Use Negative Rates

(Bloomberg) — The Bank of England’s preparations for the aftermath of a potentially messy Brexit could include a new weapon by the end of the year.

Policy makers have given the strongest signal yet that they’re considering using negative interest rates, saying they’ll work with bank regulators on how they might implement such a policy for the first time in the central bank’s history. A failure by the U.K. government to reach a trade deal with the European Union by the end of this year could tip them over the edge.

They’re saying “you’ve got to get your ducks in a row because we may be forced to use it,” said Cathal Kennedy, an economist at Royal Bank of Canada. “They’ve come an awfully long way in a short space of time.”

Stepping up work — just over a month since Governor Andrew Bailey emphasized that there were no plans to follow most of Europe and Japan with negative rates — comes amid an increased likelihood of a chaotic end to the post-Brexit transition. Prime Minister Boris Johnson’s move to renege on the withdrawal agreement with the EU threatens to scupper talks on a new trade accord with the bloc.

Such an outcome would add a new dimension of pain to the economy through customs checks, tariffs and higher costs for businesses.

The U.K. is already grappling with a resurgence in coronavirus infections, fresh social restrictions to counter them, and fears that unemployment could spike when government support for wages is withdrawn next month. All that would be compounded by a disruptive Brexit, according to Goldman Sachs Group Inc (NYSE:).

Bond purchases will likely remain the BOE’s main immediate policy tool, with economists forecasting an expansion later this year. But the chance of negative rates in 2021 is rising. U.K two-year bond yields, those most sensitive to rate-cut speculation, declined Thursday for the first time in four days.

What Bloomberg’s Economists Say…

“It’s becoming increasingly likely that if the economy is blown off course next year, the central bank could employ sub-zero rates.”

-Dan Hanson. Read his BOE REACT

The prospect has put British banks on alert. A foray below zero would further drag down net interest margins and squeeze the supply of the riskiest mortgages, denting house prices and consumer confidence, said Bloomberg Intelligence’s Jonathan Tyce.

The pain that negative rates cause to finance-sector balance sheets is one reason why the BOE resisted considering them until recently. The tool has had mixed success elsewhere, and Sweden opted to end its own experiment with the policy last year.

BOE officials highlighted sub-zero borrowing costs even though the economy hasn’t been as weak as anticipated. But the risk that the recovery could be undone means they’ve had to start looking hard at a previously unthinkable measure.

Thomas Costerg, senior economist at Pictet Wealth Management in Geneva, says a messy Brexit is the only thing that would make the BOE likely to pull the trigger on negative rates. For HSBC Holdings Plc (LON:), it’s the difference between no easing at all and a stimulus package of cutting rates to zero and an additional 100 billion pounds ($130 billion) in bond purchases.

Bank of America Corp (NYSE:). economists see a rate cut to zero in February, but a collapse of EU trade talks could prompt the U.K. central bank to go even further.

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.  The Sinking Dollar Won’t Help Emerging Currencies, Barclays Says

Dollar Down Over Disappointing U.S. Data, Bleak Economic Outlook

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© Reuters.

By Gina Lee

Investing.com – The dollar was down on Friday morning in Asia, with disappointing U.S. employment data dampening both the economic outlook and investor sentiment.

The , which tracks the greenback against a basket of other currencies, inched down 0.05% to 92.927 by 12:48 AM ET (5:48 AM GMT).

The employment data, released on Thursday, showed that initial jobless claims fell slower than expected. 860,000 claims were filed over the past week against the predicted 850,000.

Investors are still digesting the U.S. Federal Reserve’s policy decision, handed down on Wednesday, which pledged low interest rates for years to come while also upgrading its 2020 GDP forecast.

The  pair inched up 0.07% to 104.80. The Bank of Japan (BOJ) keeping its monetary policy steady, as widely expected, as it handed down its policy decision on Thursday.

“The dollar/yen dropped overnight almost too much, although it’s been falling since Monday,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.

Another rout in U.S. tech stocks on Thursday also contributed to a weak dollar. “For the dollar to regain its upward trend, it’s necessary for the market to make sure that the U.S. stocks take a pause from a correction in stock prices,” Yamamoto added.

The pair inched up 0.08% to 0.7318 and the gained 0.41% to 0.6782.

The pair edged down 0.11% to 6.7556. Although the yuan has risen more than 6% from late May’s lows against the greenback as the Chinese economy continues its recovery from COVID-19, some investors are raising concerns over the rapid rise.

The edged down 0.10% to 0.1259. The Bank of England (BOE) announced its own policy decision on Thursday, dangling the possibility of negative interest rates to counter rising numbers of COVID-19 cases, higher unemployment and the possibility of a hard Brexit. However, European Commission President Ursula Von der Leyen indicating that she was “convinced a trade deal with Britain was still possible” gave the pound a boost.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.

Pound Rebounds From Session Lows as BoE Keeps Rates Unchanged

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© Reuters.

By Yasin Ebrahim

Investing.com – The pound recovered from session lows on Thursday as the Bank of England kept rates unchanged and acknowledged the rebound in the economy is ahead of expectations, cooling investor expectations that easing at its next meeting is a foregone conclusion. 

fell 0.02% to $1.2963, but had been a low as $1.2865.

The Bank of England kept rates at 0.1% and the asset purchase target at £745bn and hinted that reiterated that it stands ready to “adjust” monetary policy to meet to support the recovery.

The central bank pointed to U.K. economic data as justification that its policies were supporting the recovery and acknowledged that GDP and inflation had recently been running above the estimates given in the August monetary policy report.

“Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out,” The Bank of England said in its monetary policy statement.

Despite the faster pace of economic recovery, the bank left the door open for negative interest rates as additional policy measures to keep the economy on track should a second wave of coronavirus or a wobble in the labor market trigger a slowdown.

Still, the overarching narrative from the Bank of England was less dovish than some had hoped, cooling expectations that easing in November is a forgone conclusion.

“There was little in this assessment to validate near-term expectations of more easing at the November meeting,” ING said in a note. The central bank’s main scenario is premised on the UK signing a comprehensive trade deal with the EU before 2021. In light of recent developments, this assumption is likely to be challenged by investors, thus resulting in more dovish pricing than today’s MPC might imply.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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© Reuters.

Taiwan Holds Interest Rate and Raises 2020 Growth Forecast

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© Reuters. Taiwan Holds Interest Rate and Raises 2020 Growth Forecast

(Bloomberg) — Taiwan’s central bank kept borrowing costs unchanged, reflecting confidence in an economy where the stock market is near a record high, exports are booming and the Covid-19 pandemic is being held at bay.

Policy makers kept the benchmark interest rate at 1.125%, as predicted by all of the 31 economists surveyed by Bloomberg. The central bank raised its forecast for economic growth this year to 1.6% from the 1.5% it forecast in June.

It was the second quarter of holding the rate steady since cutting it in March, when Taiwan’s exports began falling and the stock market dropped due to the pandemic’s impact on the global economy. Since then, exports have jumped to a record-high $31.2 billion in August, while the Taiwan Stock Exchange’s main has rebounded to reach a record high Wednesday.

The central bank is unlikely to change rates through the end of 2022, according to the median estimate in a Bloomberg survey of economists conducted over the past week.

The central bank’s focus is likely to be on the , which appreciated sharply against the dollar in the first half of the year, impacting both exporters as well as Taiwan’s massive life insurance sector, which manages $1 trillion in assets. The central bank has been stepping in during trading to “smooth” gains made by the local dollar against the greenback, although it denies this is intervention.

 

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© Reuters. FILE PHOTO: United States one dollar bills are curled and inspected during production at the Bureau of Engraving and Printing in Washington

Bruised dollar may bounce if U.S. election gets chaotic

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© Reuters. FILE PHOTO: United States one dollar bills are curled and inspected during production at the Bureau of Engraving and Printing in Washington

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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Some investors are betting that a bout of election-induced volatility may be just the thing to give the battered dollar a reprieve from its months-long decline.

The dollar stands near its lowest level in 16 months after falling more than 9% from its March peak on lower U.S. yields and expectations of comparatively slower U.S. growth. Net futures bets on a lower dollar totaled $32.67 billion, close to their highest point in a decade, the latest data from the Commodity Futures Trading Commission showed.

But the buck tends to rally around U.S. presidential elections, with the up seven out of 10 times between early September and early December for an average gain of 2.5% since 1980, said Ben Randol, G10 FX and rates strategist at BofA Global Research.

Such a move could be even more dynamic this year, as investors brace for the Nov. 3 election in which results may be uncertain or contested, potentially pushing market participants to sell their riskier investments and head for havens such as the dollar.

“A very tight election and contested result will probably be the spark to get people nervous,” said Amo Sahota, executive director at currency advisory firm Klarity FX in San Francisco. “That’s positive for the dollar.”

The heap of bets on a lower dollar could potentially exacerbate an upside move if a sharp rally forces bearish investors to unwind their trades and buy back the U.S. currency in a phenomenon known as a short squeeze.

“A narrowing race and historical seasonal trends

invite more uncertainty and potential drawdowns in crowded trades. Yet that’s a squeeze, not a reversal,” analysts at TD Securities said in a recent note.

John Floyd, head of macro strategies at Record Currency Management in New York, is betting that the U.S. dollar will rise against its Canadian counterpart, due in part to election-related volatility spurring investors into haven assets.

Randol, of BoFA Global Research, said the dollar is around 4% undervalued according to the bank’s model, which calculates valuation based on interest rate differentials and terms of trade. The bank recently recommended buying the dollar against the Swedish krona and Canadian dollar.

Longer term, the dollar has fewer fans. Expectations that U.S. rates will stay near record lows have dimmed the dollar’s attractiveness https://www.reuters.com/article/usa-markets-dollar-analysis/u-s-dollars-woes-are-only-beginning-some-bears-say-idUSKBN25S3KN to income-seeking investors. Others believe that perceptions of a more coherent response to the coronavirus crisis in Europe and Asia will keep investors away from dollar-denominated assets.

Analysts at Oxford Economics, for example, said any volatility-driven upside in the greenback would likely be temporary, predicting a multi-year decline for the dollar.

Richard Benson, co-chief investment officer at Millennium Global Investments Ltd, is short the dollar against the euro and is betting the currency will continue to depreciate in coming months.

That move, however, could be interrupted if it appears that Democratic presidential nominee Joe Biden is giving up his lead in the polls against President Donald Trump, he said. The president is less apt to deliver fiscal expansion and more likely to roil markets with a hard line toward China, making a Trump victory a more bullish outcome for the dollar, Benson said.

“If Biden screws up at a debate or if we get some catastrophic Biden moment, that will cause a short-term knee-jerk appreciation in the dollar, and we’re going to have market volatility,” he said.



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