· Dollar slips as yuan fixing lifts riskier currencies
The dollar fell against major peers on Tuesday as China set the official yuan exchange rate at the strongest since abandoning its peg in 2005, which helped support demand for other units.
The Australian dollar led gains in major currencies as the move by the People’s Bank of China (PBOC) encouraged broad dollar selling.
Earlier, the greenback had found support as concerns about surging Covid-19 cases and uncertainty about U.S. runoff elections in Georgia spurred a retreat in U.S. stocks from record highs to start the year and kindled demand for safer assets.
While investor caution about the yuan’s heady rally prompted some later selling in the Chinese currency on Tuesday, the PBOC’s action nonetheless lifted risk sentiment in currency markets.
“If the Chinese currency is going up, it’s providing a degree of support for Asian currencies in general, and I suspect that’s why the U.S. dollar is partially reversing the gains that we saw from Wall Street time,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
“It’s a very big move by any historical yardstick, and I don’t think you can ignore that.”
The PBOC set the official yuan midpoint at 6.4760 per dollar prior to the market open, 1% firmer than the previous fix, also the biggest change since 2005.
In the offshore market, the yuan strengthened as far as 6.4419 for the first time since June 2018. It started the week at 6.4944.
The Aussie dollar, a barometer of risk appetite that also tends to follow the yuan, jumped 0.5% to 77.022 U.S. cents in the Asian session, approaching the 2-1/2-year high of 77.43 touched on the final day of 2020.
The dollar index weakened 0.2% to 89.731. It dropped as low as 89.415 on Monday for the first time since April 2018, but ended the day with a 0.1% gain after U.S. stocks slid.
“Until the vaccines are rolled out globally, the market will continue to be driven by COVID headlines, so it’s a bit of a volatile time,” said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.
“But generally positive risk sentiment should continue this year, and with that, dollar continues to weaken against riskier currencies. We expect Chinese yuan to be one of the outperformers.”
The dollar fell 0.1% to 103.010 yen. It dropped as low as 102.715 on Monday for the first time since March.
The euro rose 0.1% to $1.22690 after reaching $1.231 on Monday, a level not seen since April 2018.
The British pound gained 0.1% to $1.3583.
Sterling has been swung by a surge in infections of a fast-spreading new coronavirus strain in the UK, with Prime Minister Boris Johnson ordering a nationwide lockdown.
It slid 0.73% on Monday, the most since Dec. 10, after earlier rising to $1.3703, a level not seen since May 2018.
Bitcoin traded at $31,407 following a roller-coaster ride to start the new year that took it to a record high of $34,800 on Sunday, followed by a tumble to as low as $27,734 the following session.
· The Brexit deal leaves the future uncertain for financial service
Britain formally left the European Union’s trade bloc on Dec. 31, marking a new era for the U.K.-EU relationship.
After months of wrangling, new rules for trade were finally agreed just days before the year-end deadline. But in a document spanning over 1,200 pages, there was very little mention of financial services: a sector which accounts for 7% of the U.K.’s economy and 10% of its tax receipts.
One particular issue that arises is the clearing of euro-denominated derivatives.
Leaving it up to each individual regulator to make arrangements has also complicated the setup on the ground. Many U.K-based banks have moved personnel covering the Dutch, French, Spanish and German markets to the continent, while those covering Italian and Scandinavian markets have been able to remain in the U.K.
The loss of “passporting” — or the ability to trade freely — post-Brexit also means that the days of financial advisors being able to fly in and out of Europe to operate have come to an end. This has prompted many senior staff to relocate to other European hubs such Frankfurt and Paris, the latter being attractive because of the prospect of lower income taxes.
Long term, industry players are still positive on London’s fortunes as a global financial hub, with one hedge fund manager telling CNBC that he would still be willing to back the U.K. as “our business is largely immune to the changes and most aspects of the City are very reliant on talent, knowledge and relationships and for a lot of reasons this is embedded in the U.K.”
Former trade minister and Senior Advisor at Covington, Francis Maude, agreed. “London is not just a European financial center but a global center. I hope this will be dealt with in a pragmatic way with regulators operating in a non-political”, he told CNBC last week, concluding that, “this is not the end of a story, it’s the beginning of a different story.”
· Covid variant in South Africa is ‘more of a problem’ than the one in UK, official says
A variant of the coronavirus identified in South Africa is more problematic than the mutation found in the U.K., Britain’s health minister said Monday, as both strains spread rapidly.
Health Secretary Matt Hancock told the BBC the variant found in South Africa was especially concerning.
Experts note that while the new variant spreads more easily, it does not appear to make it deadlier. Nonetheless, the U.K.’s hospitals are under pressure from a dramatic rise in infections and admissions.
In South Africa, over 1.1 million cases have been recorded, and almost 30,000 deaths. The new strain has become dominant in the Western Cape, Eastern Cape and KwaZulu-Natal.
· Chinese cities reportedly go dark as country faces shortage of coal, a major Australian export
· The Japanese yen is ‘too strong,’ says economist
Martin Schulz of Fujitsu says the Bank of Japan will need to “think very hard” about how to keep the yen above 100 against the dollar.
· Japan expresses concern over Iran’s uranium enrichment
Japan’s top government spokesman on Tuesday said the country was deeply concerned about Iran’s latest announcement of a resumption of 20 percent uranium enrichment.
“The government has strong concerns about this move, which is a breach of a nuclear agreement,” Chief Cabinet Secretary Katsunobu Kato told reporters.
· South Korea coronavirus death toll passes 1,000, gyms protest distancing rules
The number of deaths linked to the coronavirus in South Korea passed 1,000 on Tuesday, while an increasing number of gym owners said they would reopen in protest against strict social distancing rules.
After using aggressive testing and tracing to blunt several earlier waves of the coronavirus without widespread lockdowns, South Korea has imposed increasingly strident social distancing rules as it struggles to stop its largest wave yet.
The Korea Disease Control and Prevention Agency (KDCA) reported 28 new deaths and 715 new cases, for a total of 1,007 deaths and 64,979 cases overall.
· South Korea says reviewing planned diplomat visit to Tehran after Iran seizes tanker
South Korea's foreign ministry is reviewing whether a senior diplomat would be visiting Tehran on Sunday as planned, an official said, after Iranian forces seized a South Korean-flagged chemical tanker in Gulf waters and detained its crew.
The incident comes amid tensions between Tehran and Seoul over Iranian funds frozen in South Korean banks due to U.S. sanctions. Iranian state TV cited a Tehran government official as saying Vice Foreign Minister Choi Jong-kun had been due to discuss Iran's demand that $7 billion in frozen funds be released.
In Seoul a foreign ministry official told Reuters "the plan is unclear as of now" regarding Choi's visit.
· Saudi Arabia and Qatar agree to reopen airspace and maritime borders
Saudi Arabia and Qatar have agreed to reopen their airspace and maritime borders starting Monday, after a years long freeze on relations, Kuwaiti officials have announced.
Kuwaiti Foreign Minister Ahmad Nasser Mohammed al Sabah said Monday on state television that "based on the recommendation of his highness Sheikh Nawaf al Ahmad al Sabah, the Emir of Kuwait God protect him, it was agreed to open the air and maritime borders starting today (Monday) between Saudi Arabia and Qatar."
· China urges calm and restraint after Iran enrichment announcement
BEIJING (Reuters) -China urged calm and restraint on Tuesday after Iran said it had resumed 20% uranium enrichment at an underground nuclear facility, which breaches a 2015 nuclear pact with major powers, including China.
The enrichment decision, Iran’s latest contravention of the accord, coincides with increasing tension between Iran and the United States in the last days of President Donald Trump’s administration.
Iran started violating the accord in 2019 in a step-by-step response to Trump’s withdrawal from it the previous year and the reimposition of U.S. sanctions, which had been lifted under the deal.
· Oil prices slip before OPEC+ resumes meeting on Feb output levels
Oil prices edged down on Tuesday before deadlocked talks between major producers about potential changes in February output are set to continue later in the day while fuel demand concerns lingered amid new Covid-19 lockdowns.
Brent crude futures for March fell 12 cents, or 0.2%, to $50.97 a barrel by 0437 GMT, while U.S. West Texas Intermediate crude for February was at $47.56 a barrel, down 6 cents, or 0.1%.
Both contracts fell more than 1% on Monday after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, failed to agree on changes to February’s oil output.
Saudi Arabia argued against pumping more because of new lockdowns while Russia led calls for higher production, citing recovering demand.
OPEC+ will resume the talks later on Tuesday.
Reference: Reuters, CNBC
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