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Dollar near one year high, Fed tightening in focus

The dollar hovered near a one-year high versus major peers, following a two-day surge. This is in the middle of expectations for a tapering of Federal Reserve stimulus from November and a possible interest rate hike in late 2022. The safe-haven greenback also saw a bid on worries the Fed could start to tighten into a period of slowing global growth. Perversely they did well amidst an impasse in Washington over the U.S. debt ceiling.

The dollar index that measures the currency against a basket of six rivals, stood at 94.336. The dollar bought 111.86 yen, easing slightly after reaching 112.05 overnight. The euro was little changed at $1.1602. Chris Weston is the head of research at brokerage Pepperstone in Melbourne. He wrote in a client note that King USD is in the house: it doesn’t matter the currency, just buy USDs has been the vibe. They are effectively seeing both the left and right side of the USD ‘smile’ theory. This is working with stagflation concerns. Weston said that Fed has made it clear that it will taper from November. The smile theory postulates that the dollar does well in good times or bad times for the U.S. economy, but not in between.

Speaking at a European Central Bank forum, Fed Chair Jerome Powell, ECB President Christine Lagarde and Bank of England Governor Andrew Bailey said that they were keeping a close eye on inflation. This is even amidst the surge in energy prices and the persistence of production bottlenecks. U.S. Senate Republicans had blocked a bid by President Joe Biden’s Democrats to head off a potentially crippling U.S. credit default. Sterling edged up 0.1%. The Australian dollar rose 0.15%.

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Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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