The dollar fell against most currencies on Wednesday amid some speculation the U.S. Federal Reserve could take steps to curb a recent rise in bond yields in a policy decision later in the day.
The main focus is a Fed policy meeting later on Wednesday. While no major changes are expected, recent rises in yields have pushed up the dollar due to increasing signs that the U.S. economy is slowly rebounding from the health crisis shock, though a full-fledged recovery is still distant.
Some analysts are playing down the chance the Fed will adopt yield curve control to guide 10-year Treasury yields lower, but uncertainty about the outcome of the Fed meeting could keep the dollar under pressure.
The dollar fell to 107.54 yen JPY=EBBS on Wednesday following a 0.6% decline in the previous session.
Against the British pound GBP=D3, the greenback fell to $1.2760, the lowest since March 12.
The yield on benchmark 10-year Treasury notes US10YT=RJR was little changed at 0.8271% on Wednesday. Long-term Treasury yields fell on Tuesday and the yield curve US2US10=TWEB flattened slightly as traders adjusted positions before the Fed meeting.
U.S. central bankers on Wednesday will also publish their first economic projections since the coronavirus pandemic plunged the country into recession.
Estimates are expected to signal a collapse in output this year and near-zero interest rates for the next few years.
The euro EUR=D3 rose 0.22% to $1.1364.
Concerns about progress in trade talks between Britain and the European Union continue to hamper both the euro and the pound.
The EU’s chief Brexit negotiator, Michel Barnier, is scheduled to speak later on Wednesday, which may yield details that will help determine whether market sentiment will improve.
· With crisis response in place, Fed looks to long term
The Federal Reserve completes its latest policy meeting on Wednesday with attention turning from its massive response to the coronavirus pandemic and toward its still-developing plans to strengthen and lengthen a nascent economic recovery.
An employment report showing 2.5 million jobs were created in May surprised economists with the speed at which firms started rehiring workers laid off en masse as virus-containment efforts forced businesses to close and consumers to stay home.
While a source for some optimism, Fed officials have been uniform in saying economic statistics for now are less important than progress in the health crisis. The economy is officially in a recession that began in February, and policymakers agree risks will remain high until it is clear a second wave of infections won’t force people back indoors.
“The economic outlook should remain cautious despite an encouraging turn in high-frequency data and initial signs of rehiring,” wrote Kathy Bostjancic, chief U.S. financial economist for Oxford Economics. The unemployment rate is expected to remain high and inflation below the Fed’s 2% inflation goal through at least next year “even with a robust rebound ... and there is still the risk of a second wave.”
The Fed’s perceptions about the future will be provided in policymakers’ economic projections updated for the first time since December, before the pandemic torpedoed a decade-long expansion.
The projections and the Fed’s policy statement will be released at 2 p.m. (1800 GMT), followed by a press conference with Fed Chair Jerome Powell.
· “The Fed can afford to wait and see on yield curve control because the U.S. economy has gotten past the crisis phase and only just entered the healing phase,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“The markets got overly optimistic and are adjusting lower, but this is a good chance to buy the dollar on the dip.”
· ECB prepares 'bad bank' plan for wave of coronavirus toxic debt - sources
European Central Bank officials are drawing up a scheme to cope with potentially hundreds of billions of euros of unpaid loans in the wake of the coronavirus outbreak, two people familiar with the matter told Reuters.
The project, which comes as Europe mobilises trillions of euros to bolster the region’s economy, is aimed at shielding commercial banks from any second fallout from the crisis, if rising unemployment chokes off the income needed to repay loans
· Mexican economy likely shrank 17% in April, says finance minister
The Mexican economy most likely shrunk 17% in April and will probably shrink “a little less” in May, the finance minister told local radio on Tuesday, as officials push a re-opening after more than two months of lockdown.
Latin America’s second-biggest economy contracted 1.2% during the first three months of the year, according to the latest official data.
The January to March slowdown marked the fourth straight quarterly slide in Mexico’s gross domestic product and its most anemic performance in more than a decade.
· China factory gate deflation deepens on global demand slump
China’s producer prices fell by the sharpest rate in more than four years, underscoring pressure on the manufacturing sector as the COVID-19 pandemic reduces trade flows and global demand.
The coronavirus crisis has disrupted trade to China’s key export markets including the United States and Europe, heaping further pressure on the outlook for manufacturing investment and jobs in the world’s second-largest economy.
The producer price index (PPI) in May fell 3.7% from a year earlier, the National Bureau of Statistics (NBS) said in a statement on Wednesday, the sharpest decline since March 2016. That compared with a 3.3% drop tipped by a Reuters poll of analysts and a 3.1% fall in April.
· Chinese companies put U.S. listing plans on ice as tensions mount
Chinese companies are putting off plans for U.S. listings as tensions between the world’s top two economies rise, lawyers, bankers, accountants and regulators involved in what has been a major capital-raising route told Reuters.
The drop in interest, especially from those in the early stages of planning, is the result of a proposed U.S. legislation that would make it harder for some Chinese firms to debut in America and mounting scrutiny following an accounting scandal at Chinese Starbucks rival Luckin Coffee (LK.O).
“We have seen clients putting their U.S. IPO plans on hold for now,” said Stephen Chan, a partner at law firm Dechert LLP in Hong Kong. “The underlying reason for the slowdown is the relationship between the U.S. and China,” he added.
“If tensions between the two nations remain, we would expect the slowdown to continue,” Chan said.
· Oil down as rising U.S. inventories reawaken supply anxiety
Oil prices fell on Wednesday after a rise in crude and fuel stockpiles in the United States revived fears about oversupply and falling fuel demand in the world’s largest crude consumer amid the coronavirus outbreak.
Brent crude futures LCOc1 fell 67 cents, or 1.6%, to $40.51 a barrel by 0636 GMT after gaining nearly 1% on Tuesday.
West Texas Intermediate (WTI) futures dropped 80 cents, or 2.1%, to $38.14 a barrel, having risen about 2% in the previous session.
The oil benchmarks rose to their highest in three months on Monday but some analysts think the market has risen too far, too fast as the coronavirus pandemic sweeps across the world with new infections posting daily highs.
U.S. oil stocks climbed 8.4 million barrels in the week to June 5, API data showed, while a Reuters poll of analysts had indicated a draw of 1.7 million barrels. [API/S]
Distillate fuel stockpiles, including diesel fuel and heating oil, rose by 4.3 million barrels, outpacing expectations for a 3 million barrel increase.
Official government figures on stockpiles from the Energy Information Administration are due later on Wednesday.
· North Korean leader's sister emerges as policymaker in spat with South Korea
The sister of North Korean leader Kim Jong Un is taking a leading role in a new, more hard-line pressure campaign against South Korea, highlighting what analysts say is a substantive policy role that goes beyond being her brother’s assistant.
Reference: CNBC, Reuters
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