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Bet Against Dollar at Own Peril, Managers of $365 Billion Say

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Dollar

The dollar’s weak start to 2016 is showing signs of a turnaround as doubts about the economic outlook fade, according to U.S. Bank Wealth Management and Pioneer Investments.

Traders who almost completely rule out a Federal Reserve interest-rate increase this year are confronted with data showing the U.S. economy is growing at a faster pace than its major peers. A forecasting tool created by the Fed Bank of Atlanta indicates U.S. growth in the first quarter of 2.6 percent at an annual rate, exceeding 1.6 percent average for Group of Eight countries, according to Bloomberg surveys.

“Moving to the extreme of zero hikes this year is not based on rational thought,” said Jennifer Vail, head of fixed-income research in Portland, Oregon at U.S. Bank Wealth Management, which oversees $125 billion. “The Fed’s dual mandate of employment and inflation are both crying for normalization. It’s going to support our case for modest dollar appreciation throughout the year” against the euro and currencies of commodity exporters.

The dollar’s selloff paused this week, as oil prices rose and eased concern that a global demand slump may spill into the U.S. The Bloomberg Dollar Spot index, which tracks the greenback versus 10 peers, was little changed this week and is down 1.1 percent this year. The index rose 20 percent during the past two years.

The greenback is down 2.4 percent versus the euro and 6.3 percent against the yen in 2016 as investors scaled back wagers of dollar strength based on Fed rate increase while other major central banks increase monetary stimulus.

Futures traders price in a 44 percent probability that the Fed raises rates this year, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the next increase. The likelihood is up from 30 percent a week earlier.

Monetary Policy

“Divergence in monetary policies still matters,” said Paresh Upadhyaya, director of currency strategy in Boston at Pioneer Investments, which oversees more than $240 billion. He said he is “more heartened” to buy the dollar against the euro and the yen.

Data due next week may provide more clues on whether the world’s biggest economy is weathering the global storm. Economists forecast a rebound in manufacturing activities and durable goods orders in January.

A report Friday showed consumer prices excluding food and fuel rose by the most in more than four years in January, adding to evidence that inflation may be moving toward the Fed’s 2 percent target.

“The risk right now is so skewed to one extreme that the reward favors the pendulum swinging the other way,” Upadhyaya said.

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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naira

Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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New Naira notes

The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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