Latest news with #DharaRanasinghe
Yahoo
a day ago
- Business
- Yahoo
Investors fearing worst-case Middle East scenarios hunker down
By Amanda Cooper and Dhara Ranasinghe LONDON (Reuters) -Investors' worst-case scenario of a full-blown Middle East conflict is coming into view, unleashing a flood of capital out of risk assets and into classic safe-havens, topped once more by the dollar. Israel on Friday said it had launched a strike against nuclear facilities and missile factories in Iran and killed a swathe of military commanders in what could be a prolonged operation to prevent Tehran building an atomic weapon. Oil, which accounts for roughly 30% of global energy demand, soared - gaining almost 14% at one point - along with gold, while government bond yields fell briefly. Shares, near record highs, also declined, led by airlines. "This is a dangerous situation," said Francois Savary, chief investment officer at Genvil Wealth Management in Geneva. "This is one of those situations where everything is under control and then everything is not under control." Iran is one of the world's largest exporters of crude. It also borders the Strait of Hormuz, a critical choke-point through which roughly a fifth of daily global consumption flows and which Iran has previously threatened to close in retaliation to Western pressure.U.S. President Donald Trump suggested Iran, which promised a harsh response, had brought the attack on itself by resisting U.S. demands in talks to restrict its nuclear programme, and urged it to make a deal, "with the next already planned attacks being even more brutal". In markets, focus returned the real-world implications of the flare-up. Investors and central banks alike have been wrestling with the direction of interest rates from here, given the likely upward hit to consumer prices and growth from U.S. tariffs. Friday's strikes by Israel added to that dilemma, given the surge to 5-1/2 month highs in the oil price. U.S. Treasuries struggled to gain much of a safe-haven tailwind, leaving 10-year yields holding steady on the day around 4.36%. DOLLAR BACK The dollar, which for weeks has borne the brunt of investor risk aversion, again took up the mantle of ultimate safe haven. "The dollar is reverting to that traditional role of safe haven, which we haven't seen for months," City Index strategist Fiona Cincotta said. "We've got the equities markets coming lower in the safe-haven, risk-off trade and giving the dollar some much-needed boost from the lows that it was trading at." The S&P 500 fell 0.7% in early trade on Friday, but remained near record highs struck in February. The dollar, which is down 10% against a basket of six others this year, has traded virtually in lockstep with stocks since Trump's April 2 "Liberation Day" unveiling of tariffs and subsequent erratic approach to trade policy that has shattered confidence in U.S. assets. That relationship began to erode on Friday, as investors embraced the dollar at the expense of stocks, crypto, industrial commodities and currencies such as the safe-haven Swiss franc and yen. OIL SLICK Brent crude oil prices were last up 7% at $75.54 per barrel, were set for their biggest one-day jump since 2022, when energy costs spiked after Russia's invasion of Ukraine. "If we see oil prices moving towards $80 and above then that becomes more of an issue for global central banks," said Chris Scicluna, head of economic research at Daiwa Capital Markets. Marlborough fixed income fund manager James Athey said there was a risk investors may be too quick to take a lack of ratcheting-up in tensions as a green light to dive back into things like stocks. "In general, markets tend to look through these sorts of events quite quickly but of course therein lies the risk of complacency," he said. "The situation is genuinely tense and fraught and risk assets are still priced for perfection," he said. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Mint
2 days ago
- Business
- Mint
The dollars crown is slipping, and fast
Dollar index at three-year lows Scandinavian currencies are star performers Safe-haven currency strength a headache for central banks (Updates story first published on Thursday, adds Middle-East news, updates prices, changes dateline) By Dhara Ranasinghe and Amanda Cooper LONDON, June 13 (Reuters) - The dollar has sunk to its lowest in three years as rapidly changing U.S. trade policy unsettles markets and expectations build for Federal Reserve rate cuts, fuelling outflows from the world's biggest economy. While the dollar was higher on Friday, lifted by safe haven flows as Israel launched a strike on Iran, it was still set for its biggest weekly drop in a month. It is also down almost 10% against a basket of major currencies this year, leaving other countries grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation. "There's clearly solid dollar selling," said Kit Juckes, chief FX strategist at Societe Generale. Here's a look at some of the biggest movers: Scandinavia's currencies are the standout performers against the dollar so far in 2025. The Swedish crown is up 15%, its best performance at this point in the year against the U.S. currency in at least 50 years. Norway's crown is up 13%, its best run since 2008. Highlighting just how much of this strength stems from dollar weakness, Sweden's crown is up only 4.5% against the euro and Norway's just 2% . Sweden is expected to cut rates this month as inflation and its economy slow, yet its currency shows no signs of weakening. In Norway, lower oil prices often temper the crown, but that dynamic has also been upended by its relationship with the dollar. The euro, Swiss franc and Japanese yen are also among the biggest beneficiaries of the dollar's fall from grace, up roughly 10% each so far this year. But this comes at a price. Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years. The surge in the franc reduces the price of imported goods, and piles pressure on the central bank to cut rates back below 0%. European Central Bank rate setters will also have a wary eye on the single currency, which at around $1.1533 is near its highest since 2021. "In my heart-of-hearts we are going to get to $1.20 but we shouldn't get there too fast because it's deflationary," said SocGen's Juckes. Even after the recent surge, the yen remains down roughly 30% from end-2020 levels, leaving Japan to try to balance the negatives of a stronger currency with the need to demonstrate in trade talks with Washington that it is not seeking an unfair advantage from its longer-term weakness. For years, Asian investors parked trillions of dollars in U.S. assets such as Treasuries. U.S. President Donald Trump's April 2 "Liberation Day" fired the starting gun for that capital to start flowing back to the world's manufacturing powerhouses, boosting their currencies. Taiwan's dollar surged 10% over two days in May and is up nearly 10% this year, while the Korean won has gained around 8%. Singapore's dollar, Malaysia's ringgit and Thailand's baht are all up 6% too, but China's yuan - arguably the most exposed to tariffs - has only appreciated by about 2% offshore, hemmed in by the central bank's guardrails around its onshore counterpart. China wasn't labelled a manipulator in the U.S. Treasury's latest currency report, but the lag in the yuan will not have gone unnoticed in Washington. Argentina's peso is an outlier, down around 15% against the dollar and one of this year's weakest performers. The reasons are domestic with the introduction of a new exchange rate regime in April allowing the peso to float freely within a gradually expanding band that started between 1,000-1,400 pesos per dollar. Still, the chaotic crash feared by some has been avoided and a recent $20 billion loan agreement with the IMF is positive. In contrast, Mexico's peso, which was under particular pressure at the start of the year from U.S. trade policy, has bounced back to near its strongest levels since August. While it could gain further if tariff spats are resolved, it is also sensitive to the U.S. economic outlook. Softer data has raised the prospect of Bank of England rate cuts and capped sterling's recent rally to more than three-year highs against the dollar. The pound is up almost 9% this year and analysts say foreign buyers may be rushing to snap up UK Plc before any further dollar weakness makes future transactions more expensive. More than $10 billion in bids for British companies were announced on Monday, this year's busiest day, according to Dealogic data. Analysts do, however, expect sterling to underperform other major currencies bar the dollar, given fiscal worries and weakening growth. "Sterling is less appealing than others (currencies) and the macro risks are elevated," said Lloyds FX strategist Nick Kennedy. (Reporting by Dhara Ranasinghe and Amanda Cooper, Additional reporting by Karin Strohecker, Editing by Kirsten Donovan)
Yahoo
3 days ago
- Business
- Yahoo
The dollar's crown is slipping, and fast
By Dhara Ranasinghe and Amanda Cooper LONDON (Reuters) -The dollar has sunk to its lowest in three years as rapidly changing U.S. trade policy unsettles markets and expectations build for Federal Reserve rate cuts, fuelling outflows from the world's biggest economy. With the dollar down almost 10% against a basket of major currencies this year, other countries around the globe are grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation. "There's clearly solid dollar selling," said Kit Juckes, chief FX strategist at Societe Generale. Here's a look at some of the biggest movers: 1/ CROWN JEWELS Scandinavia's currencies are the standout performers against the dollar so far in 2025. The Swedish crown is up 14%, its best performance at this point in the year against the U.S. currency in at least 50 years. Norway's crown is up nearly 12%, its best run since 2008. Highlighting just how much of this strength stems from dollar weakness, Sweden's crown is up only 4% against the euro and Norway's just 1.8%. Sweden is expected to cut rates this month as inflation and its economy slow, yet its currency shows no signs of weakening. In Norway, lower oil prices often temper the crown, but that dynamic has also been upended by its relationship with the dollar. 2/ SAFE-HAVEN WOES The euro, Swiss franc and Japanese yen are also among the biggest beneficiaries of the dollar's fall from grace, up roughly 10% each so far this year. But this comes at a price. Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years. The surge in the franc reduces the price of imported goods, and piles pressure on the central bank to cut rates back below 0%. European Central Bank rate setters will also have a wary eye on the single currency, which at around $1.1572 is at its highest since 2021. "In my heart-of-hearts we are going to get to $1.20 but we shouldn't get there too fast because it's deflationary," said SocGen's Juckes. Even after the recent surge, the yen remains down almost 30% from end-2020 levels, leaving Japan to try to balance the negatives of a stronger currency with the need to demonstrate in trade talks with Washington that it is not seeking an unfair advantage from its longer-term weakness. 3/ FACTORY ASIA For years, Asian investors parked trillions of dollars in U.S. assets such as Treasuries. U.S. President Donald Trump's April 2 "Liberation Day" fired the starting gun for that capital to start flowing back to the world's manufacturing powerhouses, boosting their currencies. Taiwan's dollar surged 10% over two days in May and is up nearly 12% this year, while the Korean won has gained around 10%. Singapore's dollar, Malaysia's ringgit and Thailand's baht are all up 6% too, but China's yuan - arguably the most exposed to tariffs - has only appreciated by about 2% offshore, hemmed in by the central bank's guardrails around its onshore counterpart. China wasn't labelled a manipulator in the U.S. Treasury's latest currency report, but the lag in the yuan will not have gone unnoticed in Washington. 4/ OUTLIER Argentina's peso is an outlier, down around 15% against the dollar and one of this year's weakest performers. The reasons are domestic with the introduction of a new exchange rate regime in April allowing the peso to float freely within a gradually expanding band that started between 1,000-1,400 pesos per dollar. Still, the chaotic crash feared by some has been avoided and a recent $20 billion loan agreement with the IMF is positive. In contrast, Mexico's peso, which was under particular pressure at the start of the year from U.S. trade policy, has bounced back to near its strongest levels since August. While it could gain further if tariff spats are resolved, it is also sensitive to the U.S. economic outlook. 5/ STERLING Softer data has raised the prospect of Bank of England rate cuts and capped sterling's recent rally to more than three-year highs against the dollar. The pound is up almost 9% this year and analysts say foreign buyers may be rushing to snap up UK Plc before any further dollar weakness makes future transactions more expensive. More than $10 billion in bids for British companies were announced on Monday, this year's busiest day, according to Dealogic data. Analysts do, however, expect sterling to underperform other major currencies bar the dollar, given fiscal worries and weakening growth. "Sterling is less appealing than others (currencies) and the macro risks are elevated," said Lloyds FX strategist Nick Kennedy. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
05-06-2025
- Business
- Yahoo
Analysis-For markets, end to ECB rate cuts just got closer
By Dhara Ranasinghe and Naomi Rovnick LONDON (Reuters) -Traders are increasingly confident the European Central Bank will pause its run of interest rate cuts now that the central bank sees itself as well-positioned to deal with global economic uncertainty fuelled by U.S. tariff policy. Following Thursday's quarter-point cut in rates to 2%, ECB chief Christine Lagarde said the central bank was in a "good place" and was getting to the end of the monetary policy cycle. That lit a fuse under markets: The euro rose to six-week highs against the dollar and rate-sensitive short-dated euro zone government bond yields jumped as investors trimmed their rate cut bets. Money markets now price in a roughly 20% chance of a July cut compared with almost 30% just before Lagarde started speaking, with market attention initially falling on downward revisions to the ECB's latest inflation forecasts. While traders still anticipate one more cut this year given U.S. tariff uncertainty, the bigger picture is that the ECB's most aggressive easing cycle since the 2008/2009 global financial crisis was nearing an end, analysts said. "The phrase that turned markets was that the ECB is in a good place to navigate the uncertainties," said Aviva Investors senior economist Vasileios Gkionakis. "Absent a major shock on tariffs or an external shock, the most likely outcome is that the ECB is done." The euro rose more than 0.5% to $1.1481, while two-year German government bond yields rose 8 basis points to around 1.88% in their biggest one-day jump in more than three weeks. "The strength of the euro is coming from the ECB's surprisingly hawkish message that they are approaching the end of the cutting cycle with today's rate cut," said Commerzbank currency strategist Michael Pfister. Becky Qin, multi-asset portfolio manager at Fidelity International, said she took a positive view on the euro given expectations for European investors to bring money back home from the United States. The euro's trade-weighted exchange rate is up almost 4% so far this year while oil prices are down 13%, putting downward pressure on inflation. Data on Tuesday showed inflation slowed to 1.9% in May from 2.2% a month earlier. TURNAROUND A cut in the ECB's inflation projections initially caught market attention, but that was quickly overshadowed by Lagarde's comments. "The language was tilted to a pause being the base case," said Gareth Hill, portfolio manager at Royal London Asset Management. "The objective for this meeting was to get the market prepared for rates staying near where they are right now in case something left-field comes." Inflation could dip in the short term - possibly even below the ECB's target - but increased government spending, including German fiscal stimulus and higher trade barriers, may add to price pressures later. Lagarde said policymakers were "virtually unanimous" on the rate cut. "Despite the downward revision on growth and inflation since the last forecast, given the uncertainty about trade negotiations for the ECB to be data-dependent is the right assessment," Fidelity's Qin said. "'Wait-and-see or pause' is probably the fair assessment for the next meeting." Europe's broad stock index trimmed its falls following the ECB decision. Banking stocks rallied and their outperformance was another sign that investors were sensing an end to further rate reductions. ELEPHANT, ROOM Analysts said that U.S. tariff policy remained the biggest challenge to the ECB outlook. U.S. President Donald Trump last month backed away from his threat to impose 50% tariffs on imports from the European Union, restoring a July 9 deadline to allow for talks between Washington and the 27-nation bloc to produce a deal. "It's 3-4 months since Trump's inauguration and the world has changed and turned upside down, so forecasting with certainty what will happen in the next few months would be challenging," said RLAM's Hill. The ECB expects the economy to grow 0.9% this year and trimmed 2026 forecasts to 1.1%. Aviva's Gkionakis noted the euro zone economy was holding up better than anticipated at the start of the year, with the composite PMI -- a closely watched gauge of business activity -- holding around the 50 mark that divides contraction from expansion. "My view is that the ECB should stay at 2%," he added. Sign in to access your portfolio
Yahoo
05-06-2025
- Business
- Yahoo
Analysis-For markets, end to ECB rate cuts just got closer
By Dhara Ranasinghe and Naomi Rovnick LONDON (Reuters) -Traders are increasingly confident the European Central Bank will pause its run of interest rate cuts now that the central bank sees itself as well-positioned to deal with global economic uncertainty fuelled by U.S. tariff policy. Following Thursday's quarter-point cut in rates to 2%, ECB chief Christine Lagarde said the central bank was in a "good place" and was getting to the end of the monetary policy cycle. That lit a fuse under markets: The euro rose to six-week highs against the dollar and rate-sensitive short-dated euro zone government bond yields jumped as investors trimmed their rate cut bets. Money markets now price in a roughly 20% chance of a July cut compared with almost 30% just before Lagarde started speaking, with market attention initially falling on downward revisions to the ECB's latest inflation forecasts. While traders still anticipate one more cut this year given U.S. tariff uncertainty, the bigger picture is that the ECB's most aggressive easing cycle since the 2008/2009 global financial crisis was nearing an end, analysts said. "The phrase that turned markets was that the ECB is in a good place to navigate the uncertainties," said Aviva Investors senior economist Vasileios Gkionakis. "Absent a major shock on tariffs or an external shock, the most likely outcome is that the ECB is done." The euro rose more than 0.5% to $1.1481, while two-year German government bond yields rose 8 basis points to around 1.88% in their biggest one-day jump in more than three weeks. "The strength of the euro is coming from the ECB's surprisingly hawkish message that they are approaching the end of the cutting cycle with today's rate cut," said Commerzbank currency strategist Michael Pfister. Becky Qin, multi-asset portfolio manager at Fidelity International, said she took a positive view on the euro given expectations for European investors to bring money back home from the United States. The euro's trade-weighted exchange rate is up almost 4% so far this year while oil prices are down 13%, putting downward pressure on inflation. Data on Tuesday showed inflation slowed to 1.9% in May from 2.2% a month earlier. TURNAROUND A cut in the ECB's inflation projections initially caught market attention, but that was quickly overshadowed by Lagarde's comments. "The language was tilted to a pause being the base case," said Gareth Hill, portfolio manager at Royal London Asset Management. "The objective for this meeting was to get the market prepared for rates staying near where they are right now in case something left-field comes." Inflation could dip in the short term - possibly even below the ECB's target - but increased government spending, including German fiscal stimulus and higher trade barriers, may add to price pressures later. Lagarde said policymakers were "virtually unanimous" on the rate cut. "Despite the downward revision on growth and inflation since the last forecast, given the uncertainty about trade negotiations for the ECB to be data-dependent is the right assessment," Fidelity's Qin said. "'Wait-and-see or pause' is probably the fair assessment for the next meeting." Europe's broad stock index trimmed its falls following the ECB decision. Banking stocks rallied and their outperformance was another sign that investors were sensing an end to further rate reductions. ELEPHANT, ROOM Analysts said that U.S. tariff policy remained the biggest challenge to the ECB outlook. U.S. President Donald Trump last month backed away from his threat to impose 50% tariffs on imports from the European Union, restoring a July 9 deadline to allow for talks between Washington and the 27-nation bloc to produce a deal. "It's 3-4 months since Trump's inauguration and the world has changed and turned upside down, so forecasting with certainty what will happen in the next few months would be challenging," said RLAM's Hill. The ECB expects the economy to grow 0.9% this year and trimmed 2026 forecasts to 1.1%. Aviva's Gkionakis noted the euro zone economy was holding up better than anticipated at the start of the year, with the composite PMI -- a closely watched gauge of business activity -- holding around the 50 mark that divides contraction from expansion. "My view is that the ECB should stay at 2%," he added. Sign in to access your portfolio
