Tight monetary policy coupled with a penny-pinching fiscal agenda usually results in currency appreciation, and sterling is surging on the prospect. But it’s far from clear why the UK government or the Bank of England want a rising pound right now. This week’s BoE decision to hold off on its second interest rate cut of the year was billed by many central bank watchers as an expected “non-event”. But the freeze is more meaningful – and even a little head-scratching – given what the BoE’s G7 peers are doing – ...

China’s major state-owned banks were seen buying dollars in the onshore spot foreign exchange market on Friday to prevent the yuan from appreciating too fast, two people with knowledge of the matter said. The move comes as the yuan strengthened to a high of 7.0527 per dollar in morning deals, the strongest level in 16 months. Rapid yuan gains could hurt China’s export competitiveness at a time when signs of slowdown weigh on the world’s second-largest economy, market watchers said. Source: Reuters (Reporting by Beijing and Shanghai newsroom; Editing by ...

The Indian rupee rose for the fifth straight session on Friday, helped by gains in Asian peers and likely portfolio inflows, after the U.S. Federal Reserve kicked off its interest rate cutting cycle earlier this week. The rupee closed at 83.5625 against the U.S. dollar, up from its close at 83.68 in the previous session. The Indian currency jumped to an more than two-month high of 83.4850 earlier in the session and gained nearly 0.4% week-on-week, its strongest weekly rise this year. The Fed’s larger-than-usual 50-basis-point rate cut on Wednesday, ...

USD: Softer amid intra-day volatility Amid much intra-day volatility, DXY is down around 0.5% on the week. That’s not much, but DXY is now just a whisker away from the lowest levels in two years. The story here is fading US exceptionalism as acknowledged by the Fed in this week’s pre-emptive 50bp rate cut. So far, equity markets like what they see and interest rate-sensitive growth stocks have performed well. It seems obvious now that US labour market data will be the key macro driver of the dollar story into ...

Analysts remained bullish on most Asian currencies despite marginally dialling back some bets, a Reuters poll showed on Thursday, as a defensive U.S. dollar driven by a dovish Federal Reserve enhanced the appeal of risk-sensitive assets. Long bets were the highest on the Malaysian ringgit MYR= and the Thai baht THB=TH, with those on the latter at their peak since January 2023, driven by strong growth fundamentals and stabilising politics. Responses to the fortnightly poll of 10 economists and analysts were received before the U.S. Federal Reserve’s half-point rate cut ...

The Bank of England kept interest rates at 5.0% on Thursday, saying it would be careful about future cuts, and also held off from running down its bond holdings at a faster pace, avoiding extra budget strains for finance minister Rachel Reeves. The Monetary Policy Committee voted 8-1 to keep rates on hold. Only external member Swati Dhingra voted for a further quarter-point rate cut after the BoE last month delivered its first reduction to borrowing costs since 2020. Economists polled by Reuters had forecast a 7-2 vote for a ...

USD: Dollar looking vulnerable after outsized cut The Fed cut rates by 50bp yesterday, which came more as a surprise to economists’ consensus than for markets, which had priced around a 65% probability of a half-point move. As discussed in our Fed review note, there was a substantial revision in the Dot Plot projections too. The median Dot Plot is now signalling an extra 50bp of cuts this year, followed by 100bp next year, and 50bp in 2026, with a terminal rate projected at 3.0%. The initial reaction in the ...

The U.S. dollar edged lower against major currencies on Wednesday, giving up some of its overnight gains, as traders braced for the Federal Reserve’s much-anticipated decision to cut interest rates. The U.S. central bank is expected to deliver its first interest rate cut in more than four years at 1800 GMT, with markets pricing a 61% probability of a 50 basis point cut and 39% chance of a 25 basis point cut. Chair Jerome Powell will hold a press conference shortly after the announcement. “What we’ve seen so far this ...

USD: We expect a dovish 25bp cut today Today’s Fed rate decision (1900 BST) is as close as it gets. Markets have recently leaned narrowly in favour (65%-35% implied probability) of a 50bp cut rather than 25bp. Our full preview of the September FOMC explains why we called for 25bp last week. Admittedly, after recent media reports and the market pricing in a greater chance of 50bp, this is now an exceptionally close call. We discussed in yesterday’s FX Daily how a 50bp cut may well be the consequence of ...

A total of 134 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half at an advanced stage and pioneers like China, the Bahamas and Nigeria starting to see a pick up in usage. The research by the U.S.-based Atlantic Council think-tank published on Tuesday showed that all G20 nations are now looking into central bank digital currencies (CBDCs) as they are known and that 44 countries in total are piloting them. That is up from 36 a year ago and is ...

The British pound held firm against the dollar on Tuesday, maintaining Monday’s gains, as traders geared up for UK inflation data, a Bank of England meeting and an expected start to a U.S. easing cycle this week. Sterling hovered slightly in positive territory on the day at $1.3224, having risen 0.7% a day earlier. The pound is up 3.85% versus the dollar so far this year, on track for a second consecutive year of gains. “Signs of a bolder Fed easing path could cause that trend to go further, at ...

The dollar traded near its lowest levels of the year on Tuesday, on the eve of the expected start to a U.S. easing cycle that markets are betting may begin with an outsized rate cut. The euro EUR=EBS hovered around $1.1123 in the Asia session, not far from the year’s high of $1.1201. The yen JPY=EBS made a jaunt to the stronger side of 140 during holiday thinned trade on Monday, and had eased back to 140.77 as dealers returned to their desks in Tokyo. It has fallen the most ...

The U.S. dollar fell to a more than one-year low versus the yen on Monday, as expectations increased that the Federal Reserve could deliver a supersized cut to interest rates later this week. The Fed had been widely expected to announce at least a 25-basis-point cut to interest rates at the conclusion of its Sept. 17-18 meeting. But reports by the Wall Street Journal and Financial Times last week sparked speculation among traders that the central bank could deliver a more aggressive 50 bp cut. Futures markets are pricing in ...

USD: Investors shifting to the front-loaded scenario Despite a mixed batch of US data last week, investors seem to be favouring a ‘front-loaded’ scenario for the Federal Reserve’s easing cycle. This is premised on the view that if the Fed has decided that the time has come for rate cuts, then why not get rates back to some kind of neutral level as quickly as possible without sparking a panic? Currently, the market seems to be pricing a 41bp cut this Wednesday and has also brought forward and lowered the ...

When the West imposed sanctions on Russia over its full-scale invasion of Ukraine, it choked off the Kremlin’s ability to trade in US dollars, euros and other currencies. Russian banks were blocked from the SWIFT international payment-messaging system and the central bank’s foreign currency reserves were frozen. That forced Moscow to shift its remaining reserves to currencies not controlled by the West, including the Chinese renminbi (RMB) of which its principal unit of measurement is called the yuan. The Kremlin’s energy deals with China, to offset the income loss from ...