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Fed taper talk lifts dollar ahead of inflation test

The dollar hovered near a four-month high against the euro and scaled a five-week peak on the Japanese yen. This is as the traders awaited U.S. inflation data and wagered a high reading could pressure the Federal Reserve to wind back policy support. The greenback has already caught a boost from the U.S. jobs data and from recent remarks by Fed officials. These hinted that asset purchase tapering is on the cards. Hot inflation could also add to expectations for rate hikes next year. Six straight sessions of gains against the euro sent the common currency to its lowest since late March. At $1.1720 in early Asia trade, the year’s low of $1.1704 is within range.

The yen has dropped for five consecutive sessions against the dollar. This fell marginally to 110.65 per dollar in early trade, its lowest since mid-July. The greenback also touched a two-week high against the British pound overnight at $1.3827. Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group said that with what they have in hand now, they would expect this pattern to continue. And that is with the inflation data offering another possible nudge. He added that another set of extremely high numbers, well above the Fed’s objective of 2%, could add to the view that the surge in inflation may not be transitory. And thereby, this increases further the chances for an earlier normalization by the Fed.

Fed chair Jerome Powell has repeatedly said that the inflationary pressures are likely to be transitory and linked to economic re-opening. Two Federal Reserve officials said that inflation is already at a level that could satisfy one leg of a test for the beginning of interest rate hikes.

Besides the inflation data, Federal Reserve Bank of Kansas City President Esther George will be closely watched, as will the troubling global spread of the Delta coronavirus variant. South Korea reported a record number of COVID cases, and on the other side outbreaks in China, through Southeast Asia and in Australia grow steadily. Hospitals in Texas and Florida are filling up with patients. The Chinese yuan and South Korean won both touched two-week lows early in the Asia session, with the yuan hitting 6.4902 per dollar in offshore trade and the won touching 1,155.28 per dollar.

The Australian dollar last bought $0.7335, while the New Zealand dollar sat at $0.69970. Rabobank analyst Jane Foley said that the investors have to take on board the possibility of news on Fed tapering at a time when COVID is still very apparent in various parts of the world. She added that the consequence of this is likely to be a firmer dollar, especially if the euro breaches its 2021 low.

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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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