Aurelia Butler

TOKYO/LONDON (Reuters) -The dollar touched an eight-week high above 159 yen on Friday and hit highest in nearly five weeks against sterling, with the Federal Reserve’s patient approach to cutting interest rates contrasting with more dovish stances elsewhere.The dollar index, which measures the currency against six others, spiked 0.41% overnight, erasing declines for the week, following a second successive rate cut at the Swiss National Bank and hints from the Bank of England of a reduction in August.Meanwhile, the yen remained under pressure after the Bank of Japan’s decision last week to hold off on reducing bond buying stimulus until its July meeting.”Traders punished the yen with renewed enthusiasm,” driving it past the closely watched 159 per dollar level on Friday, Tony Sycamore, market analyst at IG, said.The BOJ, at the behest of Japan’s finance ministry, spent some 9.8 trillion yen ($61.64 billion) to haul the currency back from a 34-year trough of 160.245 per dollar, reached on April 29.The U.S. Treasury on Thursday added Japan to a list of countries it is monitoring for potential labelling as a currency manipulator. China is among others on the list.The period covered by the report spans the four quarters to December 2023 and does not include April and May this year, when Japanese authorities are believed to have intervened to prop up the yen. Even so, Japan’s top currency diplomat Masato Kanda said on Friday that Tokyo stands ready to take further “resolute” action against “speculative, excessive volatility”.”The market is getting jittery once again, you can see that in the sell-off today. That’s not about the fundamentals of the market, that’s just the market being nervous about these levels,” City Index market strategist Fiona Cincotta said.”The concern is over if and when – and probably more likely ‘when’ at these levels – that the Japanese authorities will step in,” she said. The yen was last steady on the day at 158.97. It weakened to 159.12 earlier in the session.The dollar index was up 0.2% at 105.79, set for a flat finish to the week, following two straight weeks of gains.Sterling dipped to $1.2637, around its lowest since mid-May. The BoE kept rates on hold this week, but some policy makers said the decision not to cut was “finely balanced”.Data on Friday showed UK retail sales rose by more than expected in May, in large part because of milder weather.A separate report showed British business growth slowed to a seven-month low in June, weighed down by nerves about the July 4 general election.The euro eased 0.1% to $1.0686 after a series of preliminary surveys for June showed service sector activity in France contracted this month, while activity across the German economy slowed. Fed officials left policy unchanged at their June meeting, and shaved previous projections for three quarter-point cuts this year to one, even as inflation has cooled and the labour market has eased.”The resilience of the U.S. economy has afforded the Federal Reserve a unique position, enabling the U.S. central bank to employ higher interest rates as a tool to combat inflation more swiftly than it otherwise could,” said James Kniveton, senior corporate FX dealer at Convera.”With other major central banks adopting more dovish stances, this has the potential to continue to bolster the dollar over the short to medium term.”($1 = 158.9900 yen) More

(Reuters) – Euro zone government bond yields dropped on Friday after French and German economic survey data came in weaker than expected, supporting expectations for policy rate cuts.Weak demand dragged dragged down France’s business activity as the country heads into a snap parliamentary election, while an upturn in Germany slowed in June. Euro area business growth decelerated sharply this month as demand fell for the first time since February. Surveys “suggest a solid recovery in the euro zone economy is not a done deal”, said Franziska Palmas, senior European economist at Capital Economics.”Meanwhile, aggregate price pressures continued to ease but remained strong in the services sector, which will keep ECB policymakers cautious,” she added.Money markets price in cumulative around 68 bps of European Central Bank rate cuts by year-end from 65 bps before PMI data, implying a further move and a 70% chance of a third cut in 2024. Bund yields were on track for a slight weekly rise, as hopes that France’s far right National Rally (RN) party will backtrack on fiscally expensive pledges stopped last week’s rush into safe-haven assets.German 10-year bond yields, the benchmark for the euro area, fell 4.5 basis points to 2.38% and were set to end the week 2 bps higher.The gap between French and German 10-year yields – a gauge of risk premium investors demand to hold French government bonds – was at 72 bps, after hitting 82.34 bps last Friday, its highest level since February 2017.”OATs (French government bonds) look priced for a hung parliament/RN-lead with a benign fiscal outcome but might widen sharply to 100 bps over Bunds on a more forceful far-right/left manifesto implementation, while tightening to 60 bps on a centrist coalition,” Citi analysts said.France’s 10-year yields fell 3.5 bps to 3.12%.RN is seen leading the first round of the country’s parliamentary elections with 35% of the votes, according to a survey released on Thursday. President Emmanuel Macron’s centrist camp was in third place with 20% of the votes.Market sentiment towards France and the euro area’s most indebted countries improved on Thursday as the market got through a French bond auction largely unscathed.However, on top of that, there were hopes of monetary easing ahead after the Swiss National Bank marginally surprised markets by cutting rates, and the Bank of England delivered a dovish message, analysts said.Italy’s 10-year yield remained at 3.916%, while the Italian-German yield gap stood at 152 bps. More

“No landing” refers to a scenario where the U.S. economy avoids both recession and significant slowdown, continuing to grow steadily despite concerns of potential economic downturns.“We assume the main factors that drove relative outperformance of the US economy in recent years continues, including strong growth in the labor force, the catch-up effect in employment, supportive fiscal policies, and the crowding in of domestic manufacturing investment,” they wrote.“That said, we expect the tailwind from these forces to gradually fade and US outperformance should narrow,” economists added.Furthermore, BofA foresees moderately restrictive financial conditions, tighter bank lending standards, diminishing wealth effects, and a strong dollar.The bank now expects a slowdown in real gross domestic product (GDP) growth from 3.1% in 2023 to 2.1% in 2024, 2.0% in 2025, and 1.8% in 2026. It attributes the temporarily faster potential growth of 2.2% to the rapid expansion of the labor force.However, economists also anticipate that immigration flows will slow, bringing trend growth back to pre-pandemic levels of approximately 1.8%. Despite the projected GDP growth slowdown, they expect it to remain at trend through 2026.With GDP growth expected to remain at trend over the next few years, economists believe the unemployment rate will stay low. After averaging 3.8% in the first quarter of 2024, they project the unemployment rate will peak at 4.2%.“We see risks in both directions: diminished immigration and still-elevated labor demand could push the unemployment rate down, while strong immigration flows and a slower hiring rate could push U3 higher,” they noted.BofA also reiterated its 2024 view, expecting inflation to decelerate but remain sticky due to the slow decline in services inflation.In terms of monetary policy path, the bank’s economists think the Federal Reserve will begin cutting rates in December quarterly to a terminal of 3.5- 3.75% in 2026.“The main risk, as we see it, is that inflation remains sticky enough to keep the Fed on hold for longer than we expect,” BofA cautioned. More

The Biden administration on Thursday said it would ban the sale of antivirus software made by Russia’s Kaspersky Lab in the United States, citing what it said was the Kremlin’s influence over the company which poses a significant security risk.Announcing the ban, U.S. Commerce Secretary Gina Raimondo told reporters that “Russia has shown it has the capacity and…the intent to exploit Russian companies like Kaspersky to collect and weaponize the personal information of Americans”.Kremlin spokesman Dmitry Peskov said that Kaspersky was a “very competitive” company on international markets and that Washington’s decision to restrict its sales was a “favourite technique of unfair competition from the United States.”Kaspersky, which has said it will pursue legal options to try to preserve its operations, has said it believes the U.S. decision was not based on “a comprehensive evaluation of the integrity of Kaspersky’s products and services” and that its activities did not threaten U.S. national security.The company has said it is privately managed and has no links to the Russian government. More

“It is impossible to rip out any individual segments from the general complex of accumulated problems, and we will not do this,” Kremlin spokesman Dmitry Peskov said when asked if Moscow was ready to talk to Washington about nuclear risks.”So we are open to dialogue, but to a broad comprehensive dialogue that covers all dimensions, including the current dimension related to the conflict around Ukraine, related to the direct involvement of the USA in this conflict,” Peskov told reporters.The United States rejects Russia’s contention that by arming Ukraine it has become a direct protagonist in a war aimed at inflicting a crushing “strategic defeat” on Moscow. The U.S. says any negotiations over the war are a matter for Ukraine.The Russian stance, as outlined by Peskov, is not new. But he told reporters that the list of topics that Russia and the United States needed to discuss was growing.”Overall, this dialogue is very much required,” Peskov said. “It is needed because problems are piling up, and there are a lot of problems associated with the global security architecture.”From Washington’s point of view, it is Putin who, in the third year of the war in Ukraine, is adding to the list of security concerns.This week he visited nuclear-armed North Korea, signed a mutual defence agreement with its leader Kim Jong Un and said he might supply Russian weapons to North Korea in response to the Western arming of Ukraine.Putin also reiterated on Thursday that he was considering reviewing Russia’s doctrine on the use of nuclear weapons. The last remaining arms control treaty that limits the number of strategic nuclear warheads that Russia and the United States can deploy is due to expire in 2026. More

LONDON (Reuters) -Global stocks traded cautiously on Friday as the dollar hit multi-week highs and markets awaited U.S. business surveys for clues to determine whether the world’s largest economy remains strong enough to withstand high interest rates. MSCI’s broad index of global stocks was down around 0.25% on the day, nudging off record highs hit a day earlier but still up around 2% for the month so far.Europe’s STOXX share index was down around 0.8%, following data that showed euro zone business growth slowed sharply this month. U.S. stock futures slipped and implied Wall Street’s S&P 500 would also drift down in early New York dealings. The mood was indecisive ahead of the release of S&P Global’s U.S. purchasing manager indices, viewed as real-time snapshots of business confidence and economic activity, later in the day. Economists polled by Reuters expect this month’s indices to produce readings above the level of 50, which show activity is expanding, but a slight drop since last month. A robust U.S. economy has propelled Wall Street stocks to record levels and dissuaded the Federal Reserve from cutting interest rates from its 23-year high of 5.25% to 5.5%. Markets are currently clinging to a narrative that the economy and inflation will decelerate just enough for the Fed to ease financial conditions gradually. But that ignores risks such as the lagged effects of tight monetary policy causing a hard slowdown, or further economic growth keeping rates high for longer, said Russell Investments global head of investment strategy Andrew Pease. “I’d be concerned about higher (market) volatility in coming months as the market oscillates between seeing the soft landing and worrying that maybe it’s not going to happen,” he said. INTERVENTION ZONEMeanwhile, relentless dollar strength pushed the Japanese yen towards the intervention zone. The yen dropped to around 159.12 per dollar, its weakest levels since late April when Japanese authorities intervened to stem the currency’s rapid decline. “The price action highlights that the impact of intervention by Japan to support the yen…has almost fully reversed,” said MUFG currency strategist Lee Hardman.”The yen has resumed its weakening trend even as yield spreads have been moving in its favour in recent months.” Data showed earlier on Friday that Japan’s demand-led inflation slowed in May. That complicated the outlook for how quickly the Bank of Japan might move towards rate hikes after ending negative rates in March in a landmark signal the nation might have ended a long era of deflation and demographic decline. BoJ deputy governor Shinichi Uchida said on Friday the central bank was willing to raise rates if the economy and prices move in line with its forecasts, but signs of weakness remained. The dollar also benefited from a growing divergence between Fed policy and that of central banks in Europe. On Thursday the Swiss National Bank cut rates for a second time, while the Bank of England opened the door to rate cuts in August or September. Sterling, the Swiss franc and the euro also weakened against the dollar on Friday. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6% on Friday, dragged lower by a pull-back in technology shares in a repeat of patterns on Wall Street in the previous session. In debt markets, U.S. Treasuries were set to end the week on the back foot as Fed rate cut doubts lowered the appeal of the fixed interest-paying securities. Two-year Treasury yields were last down around 2 basis points (bps) at 4.71%, but set for a weekly rise of 3 bps. Ten-year yields are up 2 bps for the week, trading at around 4.23%. Bond yields rise as prices fall. In Europe, bond yields fell following weaker-than-expected business activity data, with Germany’s 10-year Bund yield down 5 bps at 2.37%. HCOB’s preliminary composite Purchasing Managers’ Index, compiled by S&P Global, sank to 50.8 this month from May’s 52.2.UK 10-year gilt yields fell 2 bps to 4.04%, reflecting hopes of BoE rate cuts and as predictions of the opposition Labour Party winning next month’s UK election drew investors back to British markets. Brent crude futures dipped 0.1% to $85.61 a barrel after hitting seven-week highs earlier in the week. Gold was a touch lower at $2,363 per ounce. More

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