Dollar set to snap 4-week winning streak on US fiscal health worries
SINGAPORE : The US dollar was soft on Friday, poised to make its first weekly drop in five weeks against the euro and the yen as worries over the US' worsening fiscal health sent investors scurrying for safe havens.
After Moody's last week downgraded its US debt ratings, investor attention this week has honed in on the country's US$36 trillion debt pile and US President Donald Trump's tax bill that could add trillions of dollars more to it.
Dubbed by Trump as a 'big, beautiful bill', it narrowly passed Republican-controlled US House of Representatives and now heads to the Senate for what is likely to be weeks of debate.
The dollar, which compares the US currency against six other units, including the yen and euro, is set for 1.1% decline this week though it was little changed at 99.829 in early Asia trade.
That's despite a steep selloff in US Treasuries at the start of the week. The 30-year bond yield stayed above 5% in Asian hours on Friday, hovering near 19 month highs. It is close to October 2023's high of 5.179%, a break past which would take it to its highest since mid-2007.
The elevated yield hasn't underpinned the dollar as investors flee US assets in a 'Sell America' move similar to last month.
'What has become quite stark this week is the reaction function in broad markets to the rise in US long-end Treasury yields,' said Chris Weston, head of research at Pepperstone.
Weston said higher yields are not being driven by improved growth dynamics, but by concerns of increasing fiscal recklessness, deficit spending and the perception of higher interest expenses.
'Add in the toxic mix of higher inflation expectations … and the net effect has been a strong rise in 'term premium' and the would-be foreign buyers simply staying out of the market.'
The euro strengthened 0.21% to US$1.1303 in early trading and is set for a 1.2% gain for the week.
The yen was steady at 143.84 per dollar, also on course for a 1.2% rise for the week, after Japan's core inflation accelerated at its fastest annual pace in more than two years in April, raising the odds of another interest rate hike by year-end.
The data underscores the quandary facing the Bank of Japan which must grapple with price pressures from persistent food inflation as well as economic headwinds from Trump's tariffs.
Super-long Japanese government bonds have also scaled record highs this week, although they were steady on Friday.
'Japan's inflation unsurprisingly was again reported to be firm. This might augment the turbulence in JGBs in the long end,' said Krishna Bhimavarapu, APAC economist at State Street Global Advisor.
The Swiss franc was slightly stronger at 0.8272 per dollar, also set for a 1.2% rise for the week after two weeks of losses.
Elsewhere, the Australian dollar, often seen as a proxy for risk appetite, is set to end the week and month broadly flat against the greenback. The Aussie last fetched US$0.6422.
Australia's central bank on Tuesday cut its cash rate to a two-year low of 3.85%, citing a darker global outlook and cooling inflation at home.
New Zealand dollar was 0.2% stronger at US$0.59095, set for a small rise for the week.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
24 minutes ago
- New Straits Times
Asia shares track tech-led decline on Wall Street
SINGAPORE: Shares in Asia fell on Wednesday, weighed down by a tech-led selloff on Wall Street, while the dollar gained some ground ahead of a key meeting of central bankers later in the week. Oil prices inched higher after falling in the previous session, as traders bet that talks over a possible agreement to end the war in Ukraine could ease sanctions on Russian crude oil, boosting global supply. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.47 per cent as did stock futures in Europe and the US. EUROSTOXX 50 futures slid 0.55 per cent, while DAX futures lost 0.5 per cent and FTSE futures eased 0.14 per cent. S&P 500 futures dipped 0.2 per cent and Nasdaq futures lost 0.34 per cent, extending its fall from the cash session overnight. "The S&P 500 and Nasdaq slumped overnight as investors ditched high-flying tech stocks with their lofty valuations," said Tony Sycamore, a market analyst at IG. Adding to headwinds for the sector, news that Nvidia and AMD have agreed to give the US government 15 per cent of the revenues from chip sales in China, as well as reports that the U.S. is considering taking a 10 per cent stake in Intel, have stoked investor worries of the Trump administration's growing influence on tech companies. Sources also told Reuters that US Commerce Secretary Howard Lutnick is looking into the federal government taking equity stakes in computer chip manufacturers that receive CHIPS Act funding to build factories in the country. "These developments signal that US government is heading in a concerning and more interventionist direction," said Sycamore. Other bourses in Asia were similarly in the red on Wednesday, with Japan's Nikkei down 1.2 per cent, while China's CSI300 blue-chip index fell 0.5 per cent. Much of investors' attention at the start of the week was on a meeting between US President Donald Trump, Ukrainian President Volodymyr Zelenskiy and a group of European allies over the Russia-Ukraine war. While the talks concluded without much fanfare, Trump said the United States would help guarantee Ukraine's security in any deal to end Russia's war there. He later said on Tuesday that the United States might provide air support to Ukraine, while ruling out putting US troops on the ground. "The US is not categorically underwriting anything, any security for Ukraine, even if they're open to provide some, because we don't know the conditions under which they will. So there's quite a bit of risk left out there," said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho. Oil prices recovered after a fall in the previous session, with Brent crude futures last up 0.46 per cent at US$66.09 a barrel. US crude advanced 0.6 per cent to US$62.72 per barrel. AWAITING JACKSON HOLE All eyes are now on the Kansas City Federal Reserve's August 21-23 Jackson Hole symposium, where Fed Chair Jerome Powell is due to speak on the economic outlook and the central bank's policy framework on Friday. Focus will be on what Powell says about the near-term outlook for rates, with traders almost fully pricing in a rate cut next month. "Given the apparent tensions between U.S. CPI and PPI data, (it) does come across as... premature to declare one way or the other. And most importantly, given this kind of dilemma embedded within the data, it is hard to decipher whether the Fed would take or would emphasise the risks that start to mount on the job side of the equation or (the) need to sit firm," said Mizuho's Varathan. Ahead of the gathering, the dollar firmed slightly, pushing the euro down 0.13 per cent to US$1.1633, while sterling fell 0.16 per cent to US$1.3470. The New Zealand dollar eased 0.17 per cent to US$0.5885 ahead of a rate decision by the Reserve Bank of New Zealand due shortly on Wednesday, where a rate cut is expected. Elsewhere, spot gold fell 0.07 per cent to US$3,312.89 an ounce.
Malay Mail
24 minutes ago
- Malay Mail
Natural resources minister rejects calls for centralised rare earth body, citing constitutional challenges and state objections
KUALA LUMPUR, Aug 20 — The Ministry of Natural Resources and Environmental Sustainability (NRES) has no plans to establish a centralised body to regulate Malaysia's rare earth elements (REE) industry, citing constitutional provisions and objections from state governments. Acting Minister Datuk Seri Johari Abdul Ghani said several states had raised concerns during engagement sessions, viewing the proposal as an attempt to nationalise state-owned mineral resources. 'Petroleum resources outside state waters are managed differently from land matters, which fall under state jurisdiction,' he told the Dewan Rakyat when winding up the 13th Malaysia Plan (13MP) debate for his ministry today. He cited the Federal Constitution's Ninth Schedule (State List), which gives states authority over mining permits, leases and licences. As such, any move to centralise REE regulation would require in-depth study and close consultation with all state governments to safeguard their rights. Johari also dismissed claims that Malaysia had offered to supply REE, raw or otherwise, exclusively to the United States as leverage in trade tariff talks. 'This was already clarified by the Investment, Trade and Industry Minister (Tengku Datuk Seri Zafrul Abdul Aziz) on Aug 7. The tariff discussions did not involve any commitment to supply REE,' he said. On negotiations with China, Johari said discussions are currently focused on strengthening bilateral cooperation to develop Malaysia's REE industry across the full value chain, including the setting up of processing plants. 'It's still early and China wants to see if our REE can be converted into the downstream products they need. No formal talks are underway regarding any buyback of processed REE,' he said. — Bernama
New Straits Times
an hour ago
- New Straits Times
Stock markets cautious with eyes on Ukraine talks, US rates
NEW YORK: European stock markets rose while Wall Street mostly retreated Tuesday as investors warily eyed signs of progress in talks to end Russia's war in Ukraine. Markets were also waiting for a key speech by the US Federal Reserve chief this week for clues on interest rate cuts that could bolster the world's biggest economy. Hopes for a Ukraine breakthrough rose after US President Donald Trump said he spoke by phone with Russian counterpart Vladimir Putin, following a meeting with Ukrainian President Volodymyr Zelensky and European leaders at the White House. Zelensky said he was ready for what would be his first face-to-face talks with Putin since Russia's invasion nearly three and a half years ago. Wall Street mostly pulled back, with the Nasdaq tumbling 1.5 percent and S&P 500 losing 0.6 percent. The Dow closed flat. London, Paris and Frankfurt stocks all closed higher following a lackluster session for Asian stock markets. Defense stocks fell sharply as chances grew for a breakthrough in Ukraine peace talks, with Germany's Rheinmetall dropping 4.7 percent and France's Thales down 4.1 percent. Investors were also eagerly awaiting a speech on Friday by Fed Chair Jerome Powell at the annual retreat of global central bankers in Jackson Hole, Wyoming. Traders hope Powell will provide more clues about a widely expected interest rate cut at the Fed's next policy meeting in September, after data last week provided a mixed picture about inflation. "Markets seem to be exercising some caution ahead of the Jackson Hole meeting later this week and as talks over a peace agreement between Russia and Ukraine remain inconclusive," said AJ Bell's head of financial analysis Danni Hewson. Oil prices, which have been volatile for several days -- Russia is a major crude producer -- retreated after gains on Monday. "Oil prices have dropped a little as a deal edges closer, given that it's likely to lead to an easing of sanctions on Russia energy imports, increasing supplies on global markets," said Susannah Streeter, head of money and markets at Hargreaves Lansdown. Japan's Nikkei briefly hit a record before retreating to close down 0.4 percent. Shanghai ended flat while Hong Kong, Sydney and Seoul fell, and Singapore, Bangkok and Mumbai edged up. Among individual companies, Intel shares advanced around 7.0 percent in New York after Japan-based tech investment giant SoftBank said it would invest $2 billion in the troubled US chip giant. White House Press Secretary Karoline Leavitt confirmed Tuesday that the US Commerce Department was "ironing out the details" on a deal with the company, as the government seeks a stake in Intel in exchange for grants.
