Reuters: The U.S. dollar fell against a basket of currencies on Monday, tracking a retreat in U.S. Treasury yields from the 5% level hit earlier in the session, and as traders awaited fresh U.S. economic data due later this week.
U.S. Dollar fell
The yield on the benchmark 10-year U.S. Treasury note declined on Monday after briefly rising above 5.0%, hitting the July 2007 milestone that it briefly attempted to scale last week and further threatening an economic slowdown on higher borrowing costs. Traders are on watch for several events this week, including a European Central Bank meeting, and the release of U.S. GDP data and the Federal Reserve’s preferred inflation gauge.
“A big week of data with eyes on U.S. GDP on Thursday, plus BoC and ECB in the mix, and of course geopolitical risk remaining incredibly elevated is really denting traders’ desire to do much as the week gets underway,” said Michael Brown, market analyst at Trader X in London. But the main news on Monday was the yield on 10-year U.S. Treasuries reaching as high as 5.021%, the latest stage of a relentless sell-off in government bond markets, driven by investors accepting central banks will keep rates persistently high, particularly in the United States, an increase in supply of bonds and widening term premia.
The 10-year yield was last at 4.8375%. Besides that, the risk of Israel’s war with the Islamist group Hamas becoming a wider regional conflict is keeping markets on edge, as Israeli air strikes battered Gaza early on Monday, and the United States dispatched more military assets to the region. The dollar index, which measures the currency’s strength against a basket of six rivals, was 0.6% lower at 105.56. The index had risen as high as 106.33 earlier in the session.
ALSO READ: Fuel price LATEST: Petrol, diesel news remains GOOD for November
The surge in U.S. Treasury yields since mid-July has boosted the U.S. dollar’s appeal relative to other currencies and helped lift the U.S. dollar index more than 6%, but the index has made little headway since early October. “It’s definitely interesting and surprising that neither the sell-off in long bonds nor the Middle East situation and subsequent haven demand have managed to spark much demand,” Trader X’s Brown said. “I remain bullish, however, with the core U.S. economic outperformance theme continuing to ring true against G10 peers, as this week’s GDP figures should prove,” he said.
Barclays analysts were less sure the dollar had much further to go, however, pointing to stretched long dollar positioning and a smaller likelihood of further rises in long-dated yields without a reassessment of the Fed’s rate outlook. The Japanese yen last traded at 149.625 per dollar, after slipping as low as 150.14, a level last seen on Oct. 3. Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, said it seemed like a set of investors were betting the BOJ would defend the 150 level, even as others saw rising U.S. yields as a reason to keep pushing the dollar up.
The ECB meets on Thursday, and a poll by Reuters shows while it is done raising rates it won’t begin easing until at least July 2024. It raised its key interest rates by 25 basis points in September. The euro was up 0.73% on the day. The Canadian dollar rose 0.3% against the greenback on Monday, ahead of Wednesday’s Bank of Canada interest rate announcement. The central bank is probably done raising interest rates and will hold them at 5.00% for at least six months, according to a Reuters poll of economists that found a majority expecting a reduction in the second quarter of 2024 as the economy slows. In cryptocurrencies, bitcoin was up 2.9% on the day at $30,859, a fresh 3-month high, amid investor enthusiasm about the possibility of a spot bitcoin exchange-traded fund.
ALSO READ: Who is the richest person in the world today? Top 10 list – 24 October 2023
South African Rand
Reuters: The South African rand strengthened on Monday, with analysts saying global drivers including the Israel-Hamas conflict and U.S. economic data were likely to set the tone for trading this week. At 1554 GMT, the rand traded at 18.9225 against the dollar, about 0.6% firmer than its previous close. The dollar index was last trading down about 0.4% against a basket of currencies as U.S. Treasury yields retreated after briefly breaching the 5% level. Rand Merchant Bank said earlier that the exchange rate had looked comfortable around 19 rand to the dollar but that rising U.S. Treasury yields risked pressuring the rand.
ETM Analytics said in a research note that investor concern that the conflict in the Middle East could spread was boosting demand for safe-haven assets. “This means that the rand will be a price taker, with none of the domestic data scheduled important enough to override these international developments,” ETM Analytics said. Domestic data releases this week include a leading central bank indicator on Tuesday and producer inflation on Thursday, while global focus will be on the U.S. GDP data and the Federal Reserve’s preferred inflation gauge.
Shares on the Johannesburg Stock Exchange fell, with the blue-chip Top-40 index closing about 0.4% lower. South Africa’s benchmark 2030 government bond was weaker, the yield up 2.5 basis points to 10.825%.
ALSO READ: SASSA and four DANGEROUS scams to watch out for
British Pound
FXStreet: GBP/USD continues the winning streak that began on Thursday, trading higher near 1.2270 during the Asian session on Tuesday. The pair receives upward support due to the correction in the US Dollar, coupled with improved risk sentiment. United Kingdom gears up for the release of Employment and S&P Global PMI data. Economists anticipate a decline in employment levels for the three months leading to August, signaling that companies are scaling back their workforces in response to a gloomy demand outlook. The downturn in Retail Sales reflects the financial strain on households, driven by high inflation and increased borrowing costs. The substantial decrease in consumer spending is likely to have a notable impact on consumer inflation expectations.
Consequently, there is speculation that the Bank of England might lean towards maintaining the current interest rates at 5.25% during November’s policy meeting, in response to the weakening spending dynamics. The GBP/USD pair might have encountered obstacles due to geopolitical tensions between Israel and Hamas. However, the improved risk profile is lending support to the Pound Sterling. Diplomatic initiatives aimed at easing tensions in the Israel-Hamas Gaza Strip have lessened market risk aversion, buoying investors’ risk appetite. The US Dollar Index prolongs its four-day losing streak, potentially influenced by subdued US Treasury yields.
The current spot price hovers around 105.40 as of now. The 10-year Treasury yield surged to 5.02%, reaching its highest point since 2007. However, it swiftly reversed course, dropping to 4.85% by the latest update. Atlanta Federal Reserve President Raphael Bostic expressed doubt regarding a US central bank rate cut before the middle of next year. Fed Philadelphia President Patrick Harker voiced a preference for maintaining existing interest rates, while Fed Cleveland President Loretta Mester suggested that the US central bank is either at or very close to the peak of the rate hike cycle.
Market observers are gearing up for a data-packed week. Tuesday will see scrutiny of the US S&P Global PMI, followed by a close watch on Thursday for Q3 Gross Domestic Product figures. The week concludes with a spotlight on the Core Personal Consumption Expenditures on Friday.
ALSO READ: Elon Musk offers Wikipedia $1 billion to change their name to THIS
Global Markets
Reuters: Asian equities slipped to their lowest in more than 11 months on Tuesday, while the dollar wobbled in cautious trading ahead of a slew of economic data that will provide clues to the next steps from the U.S. Federal Reserve. Oil prices recovered some of the previous day’s losses in early Asia trade as nervousness prevailed in the market amid worries that the Israel-Hamas war could escalate into a wider conflict in the oil-exporting region. MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.28% lower at 473.37, having touched 472.73 – the lowest since November 2022. The index is down 3% for the month and set for its third consecutive month in the red. Japan’s Nikkei fell nearly 1%.
China shares remained under pressure, with the Shanghai Composite Index 0.32% higher, while Hong Kong’s Hang Seng Index slid 0.5%. China’s blue-chip CSI300 Index was 0.2% higher after closing at its lowest level in 4-1/2 years on Monday. “The looming spectre of inflation grows even more imposing, especially considering the recent sharp ascent in oil prices,” said Dalma Capital Chief Investment Officer Gary Dugan. “If oil prices persist at this level throughout the rest of 2023 and into 2024, this could potentially inject another bout of inflation into the global economy.”
Overnight, U.S. stocks wavered to a mixed close on Monday, with investors shifting their focus to this week’s high profile earnings, including Microsoft, Facebook-parent Meta Platforms and Amazon. Beyond earnings, the spotlight will also be on a slate of economic data this week ahead of the Fed’s meeting on Oct. 31 – Nov. 1. The U.S. Commerce Department on Thursday will announce third-quarter gross domestic product, which is seen accelerating to 4.3%. Its wide-ranging Personal Consumption Expenditures report, due on Friday, is expected to show annual headline and core inflation cooling down to 3.4% and 3.7%, respectively.
ALSO READ: Newspaper front pages from around the world, 24 October 2023
But before that investors will parse through the flash purchasing managers’ index data from Britain, France, the Euro zone and the United States due later on Tuesday. The yield on the benchmark 10-year U.S. Treasury note briefly rose above 5.0% on Monday before quickly declining. In Asian hours, the yield was up 1 basis point to 4.848% on Tuesday. The run-up in yields on the 10-year Treasury note, seen as a safe haven in times of economic uncertainty and a benchmark for borrowing costs around the world, has been driven by investors pricing in stronger U.S. growth as well as the need for more bonds to be issued to fund higher government spending.
In the currency market, the dollar was soft against a basket of currencies, having dropped 0.5% on Monday. The dollar index was 0.038% lower at 105.56. The yen remained under pressure but found some relief due to dollar’s retreat. The Japanese currency was last at 149.62 per dollar, having hit the symbolic 150 level on both Friday and Monday. In cryptocurrencies, bitcoin was back in vogue as speculation about the possibility of a bitcoin exchange-traded fund drove enthusiasm about the sector and prompted short-sellers to exit positions.
The world’s biggest cryptocurrency traded as high as $34,283, an 18-month peak, on Monday. It was last up 3% at $34,176 in Asian hours. “There is every reason to feel the market has largely discounted a positive decision on a spot ETF,” said Chris Weston, head of research at Pepperstone. “However, as we’ve seen over the years there are few markets that promote FOMO and traders chasing than Bitcoin and that could drive price towards $35k and beyond.” In commodities, U.S. West Texas Intermediate crude futures rose 0.61% to $86.01 per barrel and Brent futures were at $90.41, up 0.65% on the day. Spot gold added 0.2% to $1,975.59 an ounce.
ALSO READ: Is load shedding ending soon? Here’s what we know
Published by the Mercury Team on 23 October 2023
For more news on global and local market performance, follow our business and finance page.