· The dollar rose to a five-month high against a basket of major currencies on Friday, helped by weakness in the euro as investors fretted about political uncertainty in Italy.
The dollar index has climbed for five straight sessions, posting a 1.2 percent weekly gain. It has risen 5 percent since mid-February, with investors betting U.S. interest rates will need to rise further to curb inflation.
The dollar index, meanwhile, rose to 93.83 on Friday, the highest since mid-March.
· The euro on Friday tracked its fifth successive weekly decline versus the dollar, its first such fall since 2015.
Europe’s single currency has dropped about seven cents in three weeks amid a sharp dollar rally.
Concerns have also mounted about the agreement between Italy’s far-right League and 5-Star Movement on a governing accord that would slash taxes and ramp up welfare spending.
In late trading, the euro fell to a five-month low of $1.1753. It has declined nearly 1.2 percent versus the dollar this week.
· Piotr Matys, FX strategist at Rabobank in London, said based on technical analysis it is possible that the dollar index had a “valid bullish breakout.”
“It is reasonable to assume that the U.S. dollar index is likely to revisit the next important tops at 94.219 and 95.149 in the coming weeks,” Matys said. “A close above these levels would strengthen the upside bias.”
· U.S. 10-year Treasury yields declined from a near seven-year high as buyers emerged following a bond market selloff earlier this week spurred by worries about growing inflation and government borrowing.
Benchmark 10-year notes last rose 13/32 in price to yield 3.0633 percent, from 3.109 percent late on Thursday.
· A Federal Reserve governor said Friday U.S. regulators are keen to update long-standing rules on lending in lower-income communities, saying the requirements could be modernized and streamlined.
· Here are some of the key quotes from Cleveland Fed President Loretta Mester's scheduled speech about monetary policy at the ECB macroprudential policy and research conference, in Frankfurt.
- Current outlook is one of the most favourable in a long time.
- Rate hikes can be a possible defense against financial stability risks.
- Financial system resilience is the first line of defense.
- May need monetary policy to ensure financial stability.
- US economy performance is near Fed's policy goals.
· China is “meeting many” Trump administration demands to cut its trade surplus with the United States, but a definitive deal to resolve deep trade differences could take a while to develop, White House economic adviser Larry Kudlow said on Friday.
· China has agreed to significantly increase its purchases of U.S. goods and services, the two countries said on Saturday, but made no mention of a $200 billion target the White House had touted earlier.
Beijing and Washington agreed they would keep talking about measures under which China would import more energy and agricultural commodities from the United States to close the$335 billion annual U.S. goods and services trade deficit with China.
· The U.S. trade war with China is “on hold” after the world’s largest economies agreed to drop their tariff threats while they work on a wider trade agreement, U.S. Treasury Secretary Steven Mnuchin said on Sunday.
Mnuchin and U.S. President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday set up a framework for addressing trade imbalances in the future.
“We are putting the trade war on hold. Right now, we have agreed to put the tariffs on hold while we try to execute the framework,” Mnuchin said in a television interview on “Fox News Sunday.”
· The U.S. House of Representatives rejected a sweeping $867 billion farm bill on Friday after Republican leaders failed to appease conservative lawmakers who had asked them not to hold the vote until they were given the chance to consider a bill to clamp down on immigration.
Freedom Caucus lawmakers warned Republican leaders on Thursday that they should delay the farm bill vote until they were given the chance to debate and vote on a conservative immigration bill.
· The Five Star Movement and the League, which are in talks to form a government, were considering asking the ECB to forgive €250bn of the country’s debt, according to a leaked version of their draft coalition agreement that emerged on Tuesday evening, something they have denied.
The draft text of the budding deal between the anti-establishment Five Star Movement and the far-right League, published yesterday by Huffington Post Italia, also called for the creation of a mechanism to exit the euro and a renegotiation of Italy’s budget contributions to the European Union, as well as an end to sanctions against Russia.
· The European Commission is proposing that EU governments make direct money transfers to Iran’s central bank to avoid U.S. penalties, an EU official said, in what would be the most forthright challenge to Washington’s newly reimposed sanctions.
The step, which would seek to bypass the U.S. financial system, would allow European companies to repay Iran for oil exports and repatriate Iranian funds in Europe, a senior EU official said, although the details were still to be worked out.
· Bundesbank President Jens Weidmann kept the door open for a run at the European Central Bank’s top job next year and argued that ECB policymakers should soon announce the end of lavish bond buys known as quantitative easing.
Speaking to German media group Funke, Weidmann said inflation was well on its way to meeting the ECB’s target, taking a more lenient view on price stability than ECB President Mario Draghi, and exposing a rift in the Governing Council in interpreting the ECB’s mandate.
With inflation slowly rising, ECB policymakers are now debating whether to end its 2.55 trillion euro bond purchase scheme after September, taking a step in phasing out unconventional monetary policy as the 19-member currency bloc enjoys its best economic boom in a decade.
· Global insurers are taking stock of how the U.S. withdrawal from an international agreement to deny Tehran nuclear weapons, and threatened sanctions against companies that do business with Iran, could affect them.
· German companies are concerned that U.S. President Donald Trump is increasingly thinking only of America rather than just putting his country first, the head of Germany’s DIHK Chambers of Commerce told media.
The United States has pulled out of the 2015 Iran nuclear deal and Germany has acknowledged it could be hard to protect companies doing business with Iran, as a senior U.S. official renewed a threat of sanctions against European firms.
German companies also face the prospect of possible extra levies — Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum in March but the European Union has been granted exemptions until June 1.
· Mexico’s Economy Minister Ildefonso Guajardo said on Friday that U.S. Trade Representative Robert Lighthizer was right that many issues must still be resolved in current trade negotiations, but added they were not technically complicated.
Talks to reach a deal on reworking the 24-year-old accord have intensified in recent weeks, pressed by U.S. congressional deadlines and Mexico’s July 1 presidential election.
However, the three countries have yet to broker a compromise on key U.S. demands, including boosting the amount of automotive content sourced from North America, as well as proposed changes to dispute resolution mechanisms in the trade bloc.
· Costs for hiring bankers, accountants and lawyers from outside Britain will soar after Brexit and threaten London’s standing as a global financial center unless the immigration system is urgently reformed, a report said on Monday.
The report from TheCityUK, which promotes Britain as a financial center, and consultancy EY, said that attracting and retaining the best people is a top priority.
· China’s financial services market should be opened further to foreign competition, but liberalization of cross-border capital flows should be done more cautiously, an adviser to China’s central bank said at a forum on Sunday.
· South Korean President Moon Jae-in and U.S. President Donald Trump held discussions on Sunday to ensure that the North Korea-U.S. summit remains on track after North Korea threatened to pull out of the high-level talks.
Moon and Trump spoke over the phone for about 20 minutes, and exchanged their views on North Korea’s recent reactions, South Korea’s presidential office said without elaborating.
“The two leaders will work closely and unwaveringly for the successful hosting of the North Korea- U.S. summit set on June 12, including the upcoming South Korea-U.S. summit,” the presidential official said.
Moon and Trump are set to meet on Tuesday in Washington before North Korean leader Kim Jong Un meets with Trump on June 12 in Singapore.
· Oil prices fell on Friday, but Brent crude was on track for a sixth straight week of gains, boosted by plummeting Venezuelan production, strong global demand and looming U.S. sanctions on Iran.
Brent futures LCOc1 for July delivery fell 26 cents, 0.3 percent, to $79.04 a barrel, by 1:08 p.m. EDT (1708 GMT). The global benchmark on Thursday broke through $80 for the first time since November 2014, and investors anticipate more gains due to supply concerns, at least in the short-term. Brent has gained about 20 percent since the start of the year.
U.S. West Texas Intermediate (WTI) crude futures CLc1 for June delivery dropped 21 cents to $71.28 a barrel, a 0.3 percent loss. The contract was on track for a third straight week of gains.
Reference: Reuters, FXStreet
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