The dollar fell from almost a four-year high after minutes from the Federal Reserve’s last meeting showed officials are concerned that the global slowdown and a stronger currency pose risks to the U.S. economic outlook. The greenback weakened for a third day as futures traders lowered bets the Fed will lift interest rates after the release of the minutes from the Sept. 16-17 meeting. South Africa’s rand rose as a gauge of emerging-market currencies erased a drop.
“It kind of looks like the Fed will take any excuse not to normalize rates in the near term,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “What we’re seeing is consolidation and probably a brief period of stability. Overall, the bull rally on the dollar is still intact.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.4 percent to 1,062.71 as of 2:53 p.m. New York time after earlier rising 0.3 percent. An index of 20 major developing-nation exchange rates rose 0.1 percent to 87.6079 after an earlier decline. The rand added 1.2 percent to 11.0475 per dollar.
The dollar dropped as a number of FOMC participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released today in Washington.
‘Considerable Time’
The FOMC last month retained a pledge to keep interest rates near zero for a “considerable time” after it concludes an asset purchase program that’s due to end after its October meeting. “There was some wording that the strong dollar in the last month or so has put a damper on inflation,” said Sweeting. “That kind of outlook or forward guidance would have been most of the reasoning behind why the market’s reacted the way it has.”
Futures trading showed about a 59 percent likelihood that the central bank will increase borrowing costs to 0.5 percent or higher next September, down from 68 percent before the release. The target rate has been at zero to 0.25 percent since December 2008 to support the economy. The Fed, which next meets Oct. 28-29, is on track to end a program of stimulatory bond purchases this month.
Pain From Putin Sanctions Deepens as Ruble to Auction Suffer
Russian President Vladimir Putin’s policy makers are in damage-control mode to confront mounting economic pain from U.S. and European sanctions over Ukraine.
The central bank said today it sold $420 million of foreign currency on Oct. 6 in its third day of interventions this month to slow a decline in the ruble that’s made it the world’s worst performer since June. The government raised less than half the amount offered in a bond sale, while people with knowledge of the matter said OAO Lukoil is seeking a dollar loan to bypass the sanctions. All this while oil, the source of half of Russia’s revenue with natural gas, dropped to a 27-month low.
“The ruble is in the middle of a perfect storm,” Vladimir Osakovskiy, the chief economist for Russia and the Commonwealth of Independent States at Bank of America Merrill Lynch, said by phone from Moscow. “The spike in political risk, the impact of sanctions as well as seasonality and the steep drop in oil prices came all at once.” urrency sales, set to top $2 billion once interventions in the past two days are factored in, underscore the price Putin is paying for his country’s annexation of Crimea and alleged support for rebels in eastern Ukraine. The U.S. and European Union have imposed penalties that curbed access of Russian companies to overseas financing and fueled an exodus of foreign capital just as a drop in the price of crude saps export revenue.
Under Pressure
The Bank of Russia is dipping into $456.8 billion of reserves to prop up the ruble, which slid past 40 per dollar today. The monetary authority has spent more than $1.4 billion defending the currency this month, according to central bank data that exclude figures for yesterday and today. The interventions come as shelling killed six people and wounded more in Ukraine’s eastern regions, marring the government’s attempt to halt firing and open the way for a buffer zone agreed in a truce deal with rebels last month.
The currency’s drop below 40 per dollar “is an important psychological threshold for the Russians, so the central bank is forced to intervene at this level,” Anvar Gilyazitdinov, who manages $10 million at Rye, Man & Gor in Moscow, said by phone.
The bank steps into the currency market each time the ruble crosses the upper limit of its trading band, which has happened every day this week. It shifted that boundary by 5 kopeks to 44.65 versus its dollar-euro basket yesterday, and since then the currency fell to 44.8521 by 6 p.m. in Moscow, when the central bank stops market operations.
The ruble slipped 0.5 percent against the dollar to 40.1472 at 2.41 p.m. in New York. It was at 44.9544 against the currency basket after hitting 45.0182 earlier.
According to official guidelines, the authority sells $350 million when the ruble crosses the upper boundary before shifting it by 5 kopeks.
Debt Appetite
Brent dropped as much as 1.5 percent to $90.76 per barrel in London today, down from this year’s peak of $115 a barrel in June. That’s curtailing Russia’s export earnings, while the nation’s foreign reserves have fallen for six straight weeks to the lowest level since 2010.
The ruble’s slide is exacerbating Russia’s struggle with inflation, which soared to a three-year high of 8 percent last month even as the economy teeters near recession. Appetite for ruble debt, meanwhile, is dwindling, with the government selling 4.5 billion rubles ($112 million) of bonds due in August 2023 today as yields climbed 26 basis points from a sale two weeks ago. It offered 10 billion rubles.
Cash Crunch
Companies are scrambling for dollars and euros as they contend with $54.7 billion of debt repayments in the next three months, according to central bank estimates. Lukoil has asked lenders for a pre-export finance facility denominated in dollars, according to three people with knowledge of the matter.
Corporate borrowers will need to find at least $90 billion domestically by the end of 2015 to refinance debt, Economy Minister Alexei Ulyukayev told lawmakers in Moscow today.
The central bank announced a plan last week to offer foreign-currency repurchase agreements within “several weeks” to help ease the crunch that has sent the premium traders are willing to pay to swap rubles into dollars to a record. Russia, which spent $40 billion defending the ruble this year excluding this month’s interventions, will probably need to sell another $30 billion by year-end, according to Uralsib Capital estimates.
Repos could have alleviated the cash shortage, according to Konstantin Artemov, a money manager at Raiffeisen Capital in Moscow. “Instead of selling lots of dollars, you could’ve just lent some, with the same effect,” he said.
Brazil’s Real Rises on Speculation Fed Won’t Rush to Raise Rates
Brazil’s real gained for a fourth straight day after the publication of Federal Reserve minutes added to speculation that U.S. policy makers won’t be in a hurry to raise interest rates.
The currency climbed 0.4 percent to 2.3867 per dollar at 4:03 p.m. in Sao Paulo after falling 1.4 percent earlier today. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, rose five basis points, or 0.05 percentage point, to 11.83 percent on the contract due in January 2016.
The real erased its decline as minutes published today show Fed policy makers said at their Sept. 16-17 meeting that a global slowdown and a stronger dollar posed potential risks to the U.S. economic outlook. Projected swings between the Brazilian currency’s gains and losses mounted before the Oct. 26 election runoff, with one-month implied volatility on options for the real increasing today to 22 percent, the highest among developing nations.
“The real is all over the place,” Win Thin, the global head of emerging-market strategy at Brown Brothers Harriman & Co. in New York, said by phone. “There is the whole election drama, and there is the Fed, the 800-pound gorilla.” The currency rallied at the opening of trading on speculation faster inflation will dim President Dilma Rousseff’s prospects in the runoff. The real then dropped as Chicago Fed President Charles Evans said the U.S. central bank will raise rates sooner if inflation accelerates.
Brazil’s consumer prices increased 6.75 percent in the 12 months through September, the fastest pace since October 2011, the national statistics agency reported. The official target is 4.5 percent plus or minus 2 percentage points.
Vote Tally
In the Oct. 5 election, Rousseff had 42 percent of the vote, followed by Aecio Neves with 34 percent and Marina Silva 21 percent. Neves received more backing than the 26 percent support he garnered in a Datafolha poll published Oct. 4. New surveys by Ibope and Datafolha may be published tomorrow.
Brazil’s credit standing “will depend not on who is elected as president, but on how successful the policies of the next government are in reversing the deterioration that has been observed in economic, fiscal and debt metrics,” Moody’s Investors Service said in a report. Last month Moody’s changed the outlook on the Latin American nation’s Baa2 rating, the second-lowest level of investment grade, to negative after Standard & Poor’s lowered Brazil in March to one level above junk.
To support the currency, Brazil sold today $197.6 million of foreign-exchange swaps as part of an intervention program and rolled over contracts worth $393.9 million.
source: Bloomberg
“It kind of looks like the Fed will take any excuse not to normalize rates in the near term,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “What we’re seeing is consolidation and probably a brief period of stability. Overall, the bull rally on the dollar is still intact.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.4 percent to 1,062.71 as of 2:53 p.m. New York time after earlier rising 0.3 percent. An index of 20 major developing-nation exchange rates rose 0.1 percent to 87.6079 after an earlier decline. The rand added 1.2 percent to 11.0475 per dollar.
The dollar dropped as a number of FOMC participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released today in Washington.
‘Considerable Time’
The FOMC last month retained a pledge to keep interest rates near zero for a “considerable time” after it concludes an asset purchase program that’s due to end after its October meeting. “There was some wording that the strong dollar in the last month or so has put a damper on inflation,” said Sweeting. “That kind of outlook or forward guidance would have been most of the reasoning behind why the market’s reacted the way it has.”
Futures trading showed about a 59 percent likelihood that the central bank will increase borrowing costs to 0.5 percent or higher next September, down from 68 percent before the release. The target rate has been at zero to 0.25 percent since December 2008 to support the economy. The Fed, which next meets Oct. 28-29, is on track to end a program of stimulatory bond purchases this month.
Pain From Putin Sanctions Deepens as Ruble to Auction Suffer
Russian President Vladimir Putin’s policy makers are in damage-control mode to confront mounting economic pain from U.S. and European sanctions over Ukraine.
The central bank said today it sold $420 million of foreign currency on Oct. 6 in its third day of interventions this month to slow a decline in the ruble that’s made it the world’s worst performer since June. The government raised less than half the amount offered in a bond sale, while people with knowledge of the matter said OAO Lukoil is seeking a dollar loan to bypass the sanctions. All this while oil, the source of half of Russia’s revenue with natural gas, dropped to a 27-month low.
“The ruble is in the middle of a perfect storm,” Vladimir Osakovskiy, the chief economist for Russia and the Commonwealth of Independent States at Bank of America Merrill Lynch, said by phone from Moscow. “The spike in political risk, the impact of sanctions as well as seasonality and the steep drop in oil prices came all at once.” urrency sales, set to top $2 billion once interventions in the past two days are factored in, underscore the price Putin is paying for his country’s annexation of Crimea and alleged support for rebels in eastern Ukraine. The U.S. and European Union have imposed penalties that curbed access of Russian companies to overseas financing and fueled an exodus of foreign capital just as a drop in the price of crude saps export revenue.
Under Pressure
The Bank of Russia is dipping into $456.8 billion of reserves to prop up the ruble, which slid past 40 per dollar today. The monetary authority has spent more than $1.4 billion defending the currency this month, according to central bank data that exclude figures for yesterday and today. The interventions come as shelling killed six people and wounded more in Ukraine’s eastern regions, marring the government’s attempt to halt firing and open the way for a buffer zone agreed in a truce deal with rebels last month.
The currency’s drop below 40 per dollar “is an important psychological threshold for the Russians, so the central bank is forced to intervene at this level,” Anvar Gilyazitdinov, who manages $10 million at Rye, Man & Gor in Moscow, said by phone.
The bank steps into the currency market each time the ruble crosses the upper limit of its trading band, which has happened every day this week. It shifted that boundary by 5 kopeks to 44.65 versus its dollar-euro basket yesterday, and since then the currency fell to 44.8521 by 6 p.m. in Moscow, when the central bank stops market operations.
The ruble slipped 0.5 percent against the dollar to 40.1472 at 2.41 p.m. in New York. It was at 44.9544 against the currency basket after hitting 45.0182 earlier.
According to official guidelines, the authority sells $350 million when the ruble crosses the upper boundary before shifting it by 5 kopeks.
Debt Appetite
Brent dropped as much as 1.5 percent to $90.76 per barrel in London today, down from this year’s peak of $115 a barrel in June. That’s curtailing Russia’s export earnings, while the nation’s foreign reserves have fallen for six straight weeks to the lowest level since 2010.
The ruble’s slide is exacerbating Russia’s struggle with inflation, which soared to a three-year high of 8 percent last month even as the economy teeters near recession. Appetite for ruble debt, meanwhile, is dwindling, with the government selling 4.5 billion rubles ($112 million) of bonds due in August 2023 today as yields climbed 26 basis points from a sale two weeks ago. It offered 10 billion rubles.
Cash Crunch
Companies are scrambling for dollars and euros as they contend with $54.7 billion of debt repayments in the next three months, according to central bank estimates. Lukoil has asked lenders for a pre-export finance facility denominated in dollars, according to three people with knowledge of the matter.
Corporate borrowers will need to find at least $90 billion domestically by the end of 2015 to refinance debt, Economy Minister Alexei Ulyukayev told lawmakers in Moscow today.
The central bank announced a plan last week to offer foreign-currency repurchase agreements within “several weeks” to help ease the crunch that has sent the premium traders are willing to pay to swap rubles into dollars to a record. Russia, which spent $40 billion defending the ruble this year excluding this month’s interventions, will probably need to sell another $30 billion by year-end, according to Uralsib Capital estimates.
Repos could have alleviated the cash shortage, according to Konstantin Artemov, a money manager at Raiffeisen Capital in Moscow. “Instead of selling lots of dollars, you could’ve just lent some, with the same effect,” he said.
Brazil’s Real Rises on Speculation Fed Won’t Rush to Raise Rates
Brazil’s real gained for a fourth straight day after the publication of Federal Reserve minutes added to speculation that U.S. policy makers won’t be in a hurry to raise interest rates.
The currency climbed 0.4 percent to 2.3867 per dollar at 4:03 p.m. in Sao Paulo after falling 1.4 percent earlier today. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, rose five basis points, or 0.05 percentage point, to 11.83 percent on the contract due in January 2016.
The real erased its decline as minutes published today show Fed policy makers said at their Sept. 16-17 meeting that a global slowdown and a stronger dollar posed potential risks to the U.S. economic outlook. Projected swings between the Brazilian currency’s gains and losses mounted before the Oct. 26 election runoff, with one-month implied volatility on options for the real increasing today to 22 percent, the highest among developing nations.
“The real is all over the place,” Win Thin, the global head of emerging-market strategy at Brown Brothers Harriman & Co. in New York, said by phone. “There is the whole election drama, and there is the Fed, the 800-pound gorilla.” The currency rallied at the opening of trading on speculation faster inflation will dim President Dilma Rousseff’s prospects in the runoff. The real then dropped as Chicago Fed President Charles Evans said the U.S. central bank will raise rates sooner if inflation accelerates.
Brazil’s consumer prices increased 6.75 percent in the 12 months through September, the fastest pace since October 2011, the national statistics agency reported. The official target is 4.5 percent plus or minus 2 percentage points.
Vote Tally
In the Oct. 5 election, Rousseff had 42 percent of the vote, followed by Aecio Neves with 34 percent and Marina Silva 21 percent. Neves received more backing than the 26 percent support he garnered in a Datafolha poll published Oct. 4. New surveys by Ibope and Datafolha may be published tomorrow.
Brazil’s credit standing “will depend not on who is elected as president, but on how successful the policies of the next government are in reversing the deterioration that has been observed in economic, fiscal and debt metrics,” Moody’s Investors Service said in a report. Last month Moody’s changed the outlook on the Latin American nation’s Baa2 rating, the second-lowest level of investment grade, to negative after Standard & Poor’s lowered Brazil in March to one level above junk.
To support the currency, Brazil sold today $197.6 million of foreign-exchange swaps as part of an intervention program and rolled over contracts worth $393.9 million.
source: Bloomberg