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Yen sinks, Aussie climbs as Evergrande contagion fears recede

The safe-haven yen sank to its lowest in nearly three months. From a one month low, the Australian dollar continued to recover. The fears of widespread contagion from China Evergrande Group receded is the main reason for this. The yen also fell as higher U.S. yields attracted Japanese investor money. From July, the U.S. yields climbed to their highest. This is in anticipation of tighter U.S. monetary policy.

The euro traded little changed at $1.1724. They ignored developments in German elections, with the Social Democrats projected to narrowly defeat the CDU/CSU conservative bloc. The Federal Reserve announced that it will begin to trim its monthly bond purchases soon. The flagged interest rate increases may follow sooner than expected. Half of Federal Open Market Committee members projecting a hike next year. Commonwealth Bank of Australia analysts wrote in a client note that USD is likely to remain caught in the cross-currents of a more hawkish FOMC. Nevertheless, the risks are skewed to a firmer USD.

Concerns over Evergrande could default on its $305 billion of debt has overshadowed trade. The People’s Bank of China injected a net 100 billion yuan into the financial system. Several local governments in China have set up special custodian accounts for Evergrande property projects. This is for protecting the funds. The yen weakened as far as 110.81 per dollar. Chris Weston, head of research at brokerage Pepperstone in Melbourne, stated that the correlation between U.S. bonds yields and USDJPY has picked up. USDJPY looks a little stretched, so he would be wary to chase here. But he will be looking for a re-test of 110.50 as a potential support zone within what is a progressively bullish trend. The Aussie climbed 0.37% to $0.7282. The Norwegian crown gained about 0.4% and touched 8.5537 per dollar.

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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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