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Dollar Climbs, Commodities Decline as Traders Assess Fed Timing

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Bureau Of Engraving And Printing Prints New Anti-Counterfeit 100 Dollar Bills

The Fed effect reverberated through global markets, pushing the dollar up and commodities down as traders increased bets on higher borrowing costs in the world’s largest economy.

The dollar climbed against all of its major peers, while global stocks were set for the longest slide since June after hawkish comments from Federal Reserve officials last week. Oil slumped below $47 a barrel as metals retreated. The S&P 500 Index advanced after a report showing further improvement in consumer purchases underscored the strength of the U.S. economy. Treasury yields retreated after Friday’s surge. Japanese shares led gains among the world’s biggest equity markets after central bank chief Haruhiko Kuroda reiterated a pledge to boost monetary stimulus if needed.

Almost unthinkable two months ago, the prospect of a rate increase next month is now back on the table, with the probability rising to 42 percent from 24 percent in the space of a week. Fed Chair Janet Yellen said Friday in Jackson Hole the case for an increase is getting stronger, while Vice Chairman Stanley Fischer indicated a tightening is possible at the next review. Those comments will sharpen the focus on Friday’s monthly U.S. payrolls report to gauge whether the economy is strong enough to sustain higher borrowing costs.

“If they manage to raise rates that will be relatively good news but it does entail a little bit more tightening in the system,” said Samy Chaar, a Geneva-based strategist at Lombard Odier, which manages about $170 billion.

A report on Monday showed American consumers boosted spending for a fourth month in July, bolstered by stronger income gains, sending the biggest part of the U.S. economy to a solid third-quarter start. The 0.3 percent rise matched forecasts and followed a 0.5 percent increase the prior month that was revised up, Commerce Department data showed. Incomes rose 0.4 percent, the most in three months. Payrolls data on Friday are forecast to show 180,000 jobs were added in August, according to economists.

Stocks

The S&P 500 rose 0.1 percent at 9:30 a.m. in New York.

The Stoxx Europe 600 Index retreated 0.3 percent. A gauge of auto makers posted the biggest decline, while sliding oil prices dragged energy producers lower. The volume of shares changing hands today was 70 percent lower than the 30-day average as U.K. markets were closed for a holiday.

The MSCI Emerging Markets Index fell 0.8 percent as almost two stocks declined for every one that advanced.

Fischer reiterated in an interview on CNBC that the possibility exists for two rate increases this year, starting as soon as September.

“The market has realized that the Fed meant it when it said two hikes are possible this year, repricing the September Fed hike chance,” said Aurelija Augulyte, a strategist at Nordea Markets in Copenhagen. It’s negative for “dollar-financing needs and puts pressure on commodity prices and hence, emerging-market exports,” she said.

Japanese stocks advanced as a weaker yen boosted the outlook for exporters. The Topix index climbed 2 percent as Toyota Motor Corp. and Mazda Motor Corp. jumped at least 3.9 percent.

Currencies

The Bloomberg Dollar Spot Index gained 0.3 percent, after surging 0.8 percent on Friday. The yen fell 0.4 percent, after sliding 1.3 percent in the last session, and the euro fell to a two-week low. The pound weakened 0.5 percent.

The MSCI Emerging Markets Currency Index fell 0.8 percent, with South Korea’s won sliding 1 percent. Most of the central banks that are tracked by Bloomberg in both Asia and Europe have cut interest rates this year.
South Africa’s rand weakened 1.1 percent, after a 5.9 percent weekly loss. The currency posted its steepest slide of the year last week on concern that a stand-off between South African Finance Minister Pravin Gordhan and the country’s police could lead to Gordhan’s ouster.

Commodities

The Bloomberg Commodity Index, which measures returns on raw materials is down a fourth day, trimming a monthly advance as oil and precious metals fell.

West Texas Intermediate crude slid 1.4 percent to $46.98 a barrel amid doubts producers will agree on a deal to stabilize the market when suppliers meet next month for informal talks. A similar proposal was made in February, but a meeting in April ended with no final accord.

“The likelihood of them actually agreeing to some kind of production freeze is relatively low,” Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney, said in a Bloomberg television interview.

Gold extended its longest losing run since May to a 7th day, falling as much as 0.5 percent after losing 1.5 percent last week. Silver touched the lowest price in almost two months.

Bonds

Germany’s benchmark 10-year bond yield increased as much as four basis points to minus 0.035 percent, before being one basis point higher at minus 0.06 percent. The yield on similar-maturity French bonds was one basis point higher at 0.178 percent, having jumped earlier by four basis points.

Euro-area bonds are also coming under pressure with Spain’s acting Prime Minister Mariano Rajoy set to face a confidence vote Tuesday, and governments set to reissue debt after a summer lull that saw Germany the sole issuer last week. Countries in the region may sell about 30 billion euros ($34 billion) this week, according to Commerzbank AG.

“We treat the market rather defensively over the coming days and weeks” partly due to “heavy supply and Fed repricing,” Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris, wrote in a client note.

The yield on 10-year Treasuries fell three basis point to 1.60 percent, after jumping six basis points to a two-month high in the last session. Fed funds futures showed there is a 65 percent chance that Yellen will raise interest rates by year-end.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Again CBN Devalues Naira by N6 Ahead of World Bank’s $1.5bn Loan Request

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Naira Dollar Exchange Rate

The Central Bank of Nigeria (CBN) has once again devalued the Nigerian Naira by N6 to the United States Dollar, making it the third time the apex bank will adjust the Naira exchange rate this year.

The devaluation brings the CBN closer to actualising foreign exchange unification demanded by the International Monetary Fund (IMF) in April before the $3.4 billion loan was approved.

This same condition was enforced by the World Bank as a prerequisite for approval of $1.5 billion loan request submitted by the Federal Government. The loan the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said she was positive it would be approved by the multilateral institution in the next meeting given that the Federal Government has met all the conditions for the said loan.

24 hours later, the apex bank devalued the Naira official rate by N6 from N379/US$ to N385/US$. While the International Money Transfer Service Operators (IMTOs), all authorised dealers, bureau de change operators and service providers were asked to add N6 across all rates.

The rate for IMTOs against the US dollar has now moved from N382 to N388. Meaning banks will now sell dollar to the CBN at N389, up from the previous N383 to us dollar.

Again, the Central Bank sale of dollar to the bureau de change operators was pegged at N390 to dollar, against the old N384 to US dollar.

The apex bank, therefore, directed the BDCs to sell at not more than N392 per dollar to end-users. The old rate was N386 to a US dollar.

The CBN circlar reads in part, “Weekly Exchange Rate For Disbursement of Proceeds of International Money Transfer Service Operators’ pegged IMTOs sale of dollar to banks at N388 to dollar; banks sale of dollar to CBN at N389 to dollar and CBN sale of dollar to BDCs at N390 to dollar. The BDCs are now expected to sale to end-users at not more than N392 to dollar and each BDC is entitled to buy $10,000 weekly”.

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More Problem for CBN as Naira Approaches N500/US$ at the Black Market

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Forex Weekly Outlook March 6 - 10

Naira plunged against the United States Dollar to a record low of N495 at the black market on Thursday despite the Central Bank of Nigeria saying it has enough financial means to meet forex demands.

The Naira declined by N12 from N483 it exchanged on Monday amid persistent scarcity and high demands by importers and businesses looking to offset COVID-19 losses with the usual December high demand sales.

Godwin Emefiele, the Governor of the Central Bank of Nigeria (CBN), on Tuesday blamed the wide foreign exchange rate at the black market on speculators and hoarders looking for personal gain at the expense of the nation.

He went on to caution experts using black market rates to analyse the local currency performance to stop and claimed that section of the forex only accounts for 5 percent of the nation’s total foreign exchange transactions.

While that might be true, it is also true that majority of manufacturers and businesses have turned to the black market for their forex needs in recent months, especially after it became obvious that the apex bank does not have enough liquidity to service the economy.

The nation’s foreign reserves has been battered by the weak oil prices and the continuous production cut by OPEC and allies to artificially support low prices. Nigeria’s foreign reserves is presently hovering between $35 billion and $36 billion after plunging from $45 billion attained in June 2019, according to the latest data from the Central Bank of Nigeria.

Against the British Pound, the Nigerian Naira depreciated by N15 to N635 from N620 it exchanged on Monday. Another indication of chronic forex scarcity as the local currency also plunged to N580 against the European common currency, the Euro.

The wide forex is expected to further weigh on the nation’s inflation rate and consumer spending this December.

On Tuesday, the apex bank left the interest rate unchanged at 11.5 percent and attributed the rising inflation rate to structural policies, the recent #EndSARS protest and a surging fuel price.

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Naira Gains N1 to N483 Against US Dollar as CBN Warned Speculators of Impending Doom

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Naira Remains under pressure

The Central Bank of Nigeria on Tuesday warned speculators and hoarders of the United States Dollar against creating artificial forex scarcity for personal gain.

Godwin Emefiele, the Governor of the Central Bank of Nigeria, said black market forex rates does not reflect the economic reality of the Nigerian Naira as that section of the forex is tainted with bribes and individuals looking to profit at the expense of the nation.

We do not agree that the determining factor for our currency should be based on a market that is tainted, where people go to offer bribes,” he stated during a virtual monetary policy committee briefing in Abuja.

The Nigerian Naira gained N1 against the United States dollar to trade at N483 at the parallel market also known as the black market, up from N484 it traded on Monday.

Emefiele said “The black market is illegal where people do not provide documentation to support transactions. It is unfortunate and unfair for analysts to say Nigeria’s exchange rate is at 480 per dollar.”

The Association of Bureau De Change Operators of Nigeria (ABCON) agreed with the central bank, saying speculators and currency hoarders are responsible for the wide forex rates. The association warned that speculators are going to lose money given that the apex bank has foreign reserves of $36 billion to support the local currency and meet forex demands.

The apex bank left the interest rate unchanged at 11.5 percent to further stimulate growth in the real sector and speed up the recovery process with cheaper loans. Other ratios were left unchanged as well.

Speaking on the rising inflation rate, Godwin Emefiele attributed the 14.23 percent increase in consumer prices to the rising pump price, the recent #EndSARS protest and structural policies.

Therefore, it looks like the apex bank will damn rising inflation for the first time to focus on economic productivity, new job creation and general growth.

The Naira CBN official rate remains $379 to a United States Dollar while it exchanged at N385 on the Investors and Exporters Forex Window on Tuesday.

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