The Bloomberg Dollar Spot Index fell for a third day after orders for U.S. durable goods unexpectedly declined as the Federal Open Market Committee begins a two-day policy meeting.
The Swedish krona tumbled to its weakest level in four years as the central bank’s decision to cut its main interest rate to zero damped demand for the Nordic currency. Russia’s ruble plunged on speculation the nation will move closer to adopting a free float. Brazil’s real reversed yesterday’s slide. Traders have pushed back bets on when the Federal Open Market Committee will raise interest rates.
Durable goods “tends to be one of your leading indicators, so I think that’s probably where a good portion of the pressure’s coming from today,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “If the FOMC statement more than acknowledges the recent weakness in data, then I think that could put downward pressure on the dollar.”
Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.3 percent to 1,063.55 at 3:29 p.m. New York time and has declined 0.6 percent in three days. It touched 1,062.65, the least since Oct. 21. The dollar dropped 0.3 percent to $1.2738 per euro for a third straight decline. It rose 0.3 percent to 108.14 yen. Japan’s currency fell 0.6 percent to 137.75 per euro.
Ruble Float
The ruble fell for the fifth day on concern Russia will quicken its move to a free float after more than $20 billion of interventions this month failed to halt the depreciation.
Sanctions over the Ukraine conflict and dropping oil prices have exacerbated a dollar shortage, and the ruble’s decline is stoking speculation the central bank will decide to abandon interventions as early as Oct. 31, when policy makers meet to decide on interest rates, according to Sberbank CIB.
The currency weakened 0.6 percent to 47.6765 against the central bank’s target dollar-euro basket, bringing this year’s decline to 23 percent. Australia’s dollar advanced for a third day, climbing 0.7 percent to 88.61 U.S. cents, as the country’s interest rates attract investors. The nation’s main interest rate is at 2.5 percent, compared with zero or near-zero rates in the U.S., euro area, Japan and Sweden. Brazil’s real advanced against all of its 31 top peers, gaining 2 percent to 2.4707 per dollar after plunging 1.9 percent yesterday in the wake of Brazilian President Dilma Rousseff’s re-election.
‘Slash, Burn’
The krona slumped versus all of its 16 major peers as the Riksbank delayed tightening plans into 2016 in a bid to fight deflation.
“People were anticipating a fairly decisive action, but weren’t necessarily considering that they were going to go all the way to slash and burn and get us down to zero,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “That’s obviously the slight surprise.”
A weaker currency may improve the competitiveness of Sweden’s exports, which account for half the nation’s economy, and help tackle deflation. Swedish consumer prices tumbled 0.4 percent in September from a year earlier, an Oct. 14 report showed. At the same time, lower borrowing rates may add to the nation’s record consumer-debt burden Sweden’s currency slid 0.5 percent to 7.3313 per dollar, after depreciating to 7.3829, the weakest level since September 2010. It declined 0.9 percent to 9.3389 against the euro after plunging as much as 1.3 percent, its biggest drop since July 3.
Durable Goods
The greenback slid as bookings for goods meant to last at least three years decreased 1.3 percent after falling 18.3 percent in August, a Commerce Department report showed today in Washington.
While Bloomberg’s Dollar Spot Index has climbed 4.3 percent this year, it’s headed its first monthly drop since June as traders cut the probability the central bank will raise borrowing costs. The odds of rates going up by October 2015 are at 50 percent, from 85 percent on Sept. 30.
“There’s a question mark going into the FOMC tomorrow -- we have to see what hints the board gives on the outlook,” said Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc. The FOMC indicated at its September meeting that it planned to end its bond-purchase program this month. Policy makers have kept their key interest rate at zero to 0.25 percent since December 2008.
The dollar gained 6 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen added 3 percent. The krona dropped 8.3 percent, the biggest decline, while the euro fell 2.6 percent.
Ruble Weakens to Record on Concern Russia to Expedite Free Float
The ruble weakened to a record for the fifth day on concern Russia will quicken its move to a free float after more than $20 billion of interventions this month failed to halt the depreciation.
The currency slid 0.6 percent to 47.7112 against the central bank’s target dollar-euro basket by 6 p.m. in Moscow, bringing this year’s decline to 19 percent. Ten-year government bond yields approached five-year highs as the Finance Ministry said it was scrapping its third straight debt auction.
The Bank of Russia boosted foreign-currency sales this month, with the most recent data showing it sold $2.44 billion on Oct. 24, as it sought to slow the ruble’s decline. Sanctions over the Ukraine conflict and dropping oil prices have exacerbated a dollar shortage. The ruble’s retreat is stoking speculation that the central bank will decide to abandon interventions as early as Oct. 31, when policy makers meet to decide on interest rates, according to Sberbank CIB.
“Price action is being increasingly driven by the fear that the central bank could scrap entirely its defense of the ruble, allowing it to freely float and find a natural level,” Tom Levinson, the chief foreign-exchange and interest-rates strategist at Sberbank CIB in Moscow, said in an e-mailed note. The intervention policy “is failing to halt the ruble’s decline, but is also feeding currency weakness by raising concern over the pace at which foreign-currency reserves are being eroded.” The central bank should adopt a free float now as the current policy of intervening based on publicly known rules allows speculators to profit, Former Finance Minister Alexei Kudrin told Bloomberg News today.
Currency Interventions
Russia is moving toward adopting a free float by 2015. The central bank press office declined to comment on the exchange-rate policy speculation, saying in an e-mail today that it’s in a black-out period until the Oct. 31 meeting.
The country’s foreign-currency reserves declined $68 billion this year to $443.8 billion on Oct. 17, the lowest since 2010. One-month implied volatility for the ruble climbed to 16.2 percent, the highest level since June 2012. After yesterday’s 1 percent depreciation against the basket, the central bank lowered the floor on its trading band by 35 kopeks to 47.40, according to a statement on its website today. The ruble has weakened by more than 30 kopeks from this level today.
When the ruble falls past the boundary, the Bank of Russia spends $350 million to defend it before shifting the band by 5 kopeks, according to its guidelines. It repeats the process each time the currency falls by 5 kopeks. Investors wary the central bank will abandon interventions “prefer to stack up foreign currency before the central bank leaves the currency market completely,” Alexei Egorov, an analyst at Promsvyazbank in Moscow, said in an e-mailed note.
Russia’s 10-year yield climbed seven basis points to 9.95 percent today, two basis points away from a five-year high reached on Oct. 14. The Finance Ministry said it was pulling tomorrow’s sale due to “unfavorable market conditions.”
Brazil’s Real Climbs From Nine-Year Low as Rousseff Mulls Team
Brazil’s real rose from a nine-year low on speculation its drop yesterday after the re-election of President Dilma Rousseff was excessive as she considers changes to her economic team.
The real gained 1.2 percent to 2.4923 per dollar at 9:55 a.m. in Sao Paulo, the biggest increase among all of the world’s currencies tracked by Bloomberg. It closed yesterday at 2.5211 per dollar, the weakest level since April 2005. Swap rates, a gauge of expectations for changes in borrowing costs, fell five basis points, or 0.05 percentage point, to 11.78 percent on the contract due in January 2016.
“Given the overbought conditions, we see room for some downside correction in the short run,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said regarding the dollar in an e-mailed response to questions. Demand for real-denominated holdings depends “on how Rousseff’s new team manages to shift toward more economic liberalization. A political disappointment will clearly place the 2.60/2.75 zone on the radar.”
The real dropped 1.9 percent yesterday after Rousseff’s victory in the Oct. 26 runoff ended months of speculation that a new administration would be voted into office and implement policies to bolster growth. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the highest in the world after the Russian ruble today.
Riksbank Rejects Calls for QE After Resorting to Zero Rate
Sweden’s central bank rejected calls for unconventional policy measures after venturing into uncharted territory and cutting its main interest rate to zero.
“We think that will be enough,” Governor Stefan Ingves said today at a press conference in Stockholm. “But if the world turns out completely differently, then we have the tool box to do other things.” The world’s oldest central bank has come under attack from former board members, politicians and economists for being too quick to raise rates as the financial crisis eased in 2010, and then for waiting too long to fight the deflation that ensued. The missteps may hold lessons for policy makers elsewhere as the Federal Reserve times its exit from monetary stimulus and the European Central Bank fights disinflation.
Nobel Laureate Paul Krugman has said Sweden’s failure to prevent deflation was an example of “sadomonetarism” that risked lurching the Nordic country into a Japan-like syndrome.
Consumer prices in Sweden have dropped in seven of the past nine months and inflation has stayed below the Riksbank’s 2 percent target for almost three years. As well as delivering a bigger-than-estimated cut -- economists surveyed by Bloomberg had foreseen a reduction to 0.1 percent -- the Riksbank delayed tightening plans to mid-2016 from its previous guidance of end-2015. The bank said it won’t raise rates until “inflation clearly picks up.”
Krona’s Plunge
Today’s cut from 0.25 percent was the Riksbank’s third phase of easing in less than a year. The krona lost 1.3 percent against the euro and traded at 9.3826 as of 1:27 p.m. local time. The move was the day’s biggest decline among the world’s major currencies tracked by Bloomberg.
“This was more or less as aggressive as they could be,” said Knut Hallberg, an analyst at Swedbank AB. “More surprises on the downside will have to happen both in terms of growth and inflation for there to be any talk of further measures, so it’s not our main scenario that more will be needed.”
The Riksbank now predicts inflation will remain below its 2 percent target until July 2016. It lowered its estimate for growth next year to 2.7 percent from 3 percent and raised its forecast for 2016 to 3.3 percent from 3.1 percent. Analysts immediately questioned whether today’s rate cut will be enough.
‘Attack Plan’
“They should have presented a clear plan of attack,” said Roger Josefsson, chief economist at Danske Bank A/S in Stockholm. “This is what we might do and, for example, say, which measures would be first in line. Not just push back the repo rate path. Is it QE, is it a currency floor?”
Ingves, who’s also chairman of the Basel Committee on Banking Supervision, has been reluctant to lower rates out of fear of stoking a build-up in consumer debt. Now, Ingves is shaping Swedish policy to reflect moves elsewhere and bringing rates in line with those at the European Central Bank, whose benchmark is 0.05 percent, and the U.S. Federal Reserve, which has held its key rate close to zero since 2008. The ECB and Fed have also expanded their balance sheets through asset purchases to further stimulate growth.
Lars E. O. Svensson, who left the Riksbank in protest last year after failing to win support for deeper cuts, said last week the bank may also need to resort to unconventional measures such as asset purchases and possibly even a currency floor.
High Unemployment
Traders’ two-year inflation expectations were for 1.6 percent last month, while a survey from the National Institute for Economic Research showed consumers’ one-year inflation view sank to zero last month.
A coalition led by the Social Democrats last month ousted the government after accusing it of not doing enough to reduce Scandinavia’s highest unemployment. It has discussed forcing the Riksbank to include a jobs target amid criticism the bank has focused too much on Swedes’ record-high debt burdens. Swedish property prices have almost tripled since 1995, while consumer debt has nearly doubled to about 175 percent of disposable incomes. In a bid to avoid regulation, the Swedish Bankers’ Association recently proposed forcing homeowners to amortize all new mortgages worth more than 50 percent of their properties.
Swedish household borrowing growth accelerated at a faster-than-expected 5.7 percent last month, up from 5.1 percent at the beginning of this year, according to Statistics Sweden. The bank said today that it’s now “even more urgent” to manage risks from high household indebtedness.
source: Bloomberg
The Swedish krona tumbled to its weakest level in four years as the central bank’s decision to cut its main interest rate to zero damped demand for the Nordic currency. Russia’s ruble plunged on speculation the nation will move closer to adopting a free float. Brazil’s real reversed yesterday’s slide. Traders have pushed back bets on when the Federal Open Market Committee will raise interest rates.
Durable goods “tends to be one of your leading indicators, so I think that’s probably where a good portion of the pressure’s coming from today,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “If the FOMC statement more than acknowledges the recent weakness in data, then I think that could put downward pressure on the dollar.”
Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.3 percent to 1,063.55 at 3:29 p.m. New York time and has declined 0.6 percent in three days. It touched 1,062.65, the least since Oct. 21. The dollar dropped 0.3 percent to $1.2738 per euro for a third straight decline. It rose 0.3 percent to 108.14 yen. Japan’s currency fell 0.6 percent to 137.75 per euro.
Ruble Float
The ruble fell for the fifth day on concern Russia will quicken its move to a free float after more than $20 billion of interventions this month failed to halt the depreciation.
Sanctions over the Ukraine conflict and dropping oil prices have exacerbated a dollar shortage, and the ruble’s decline is stoking speculation the central bank will decide to abandon interventions as early as Oct. 31, when policy makers meet to decide on interest rates, according to Sberbank CIB.
The currency weakened 0.6 percent to 47.6765 against the central bank’s target dollar-euro basket, bringing this year’s decline to 23 percent. Australia’s dollar advanced for a third day, climbing 0.7 percent to 88.61 U.S. cents, as the country’s interest rates attract investors. The nation’s main interest rate is at 2.5 percent, compared with zero or near-zero rates in the U.S., euro area, Japan and Sweden. Brazil’s real advanced against all of its 31 top peers, gaining 2 percent to 2.4707 per dollar after plunging 1.9 percent yesterday in the wake of Brazilian President Dilma Rousseff’s re-election.
‘Slash, Burn’
The krona slumped versus all of its 16 major peers as the Riksbank delayed tightening plans into 2016 in a bid to fight deflation.
“People were anticipating a fairly decisive action, but weren’t necessarily considering that they were going to go all the way to slash and burn and get us down to zero,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “That’s obviously the slight surprise.”
A weaker currency may improve the competitiveness of Sweden’s exports, which account for half the nation’s economy, and help tackle deflation. Swedish consumer prices tumbled 0.4 percent in September from a year earlier, an Oct. 14 report showed. At the same time, lower borrowing rates may add to the nation’s record consumer-debt burden Sweden’s currency slid 0.5 percent to 7.3313 per dollar, after depreciating to 7.3829, the weakest level since September 2010. It declined 0.9 percent to 9.3389 against the euro after plunging as much as 1.3 percent, its biggest drop since July 3.
Durable Goods
The greenback slid as bookings for goods meant to last at least three years decreased 1.3 percent after falling 18.3 percent in August, a Commerce Department report showed today in Washington.
While Bloomberg’s Dollar Spot Index has climbed 4.3 percent this year, it’s headed its first monthly drop since June as traders cut the probability the central bank will raise borrowing costs. The odds of rates going up by October 2015 are at 50 percent, from 85 percent on Sept. 30.
“There’s a question mark going into the FOMC tomorrow -- we have to see what hints the board gives on the outlook,” said Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc. The FOMC indicated at its September meeting that it planned to end its bond-purchase program this month. Policy makers have kept their key interest rate at zero to 0.25 percent since December 2008.
The dollar gained 6 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen added 3 percent. The krona dropped 8.3 percent, the biggest decline, while the euro fell 2.6 percent.
Ruble Weakens to Record on Concern Russia to Expedite Free Float
The ruble weakened to a record for the fifth day on concern Russia will quicken its move to a free float after more than $20 billion of interventions this month failed to halt the depreciation.
The currency slid 0.6 percent to 47.7112 against the central bank’s target dollar-euro basket by 6 p.m. in Moscow, bringing this year’s decline to 19 percent. Ten-year government bond yields approached five-year highs as the Finance Ministry said it was scrapping its third straight debt auction.
The Bank of Russia boosted foreign-currency sales this month, with the most recent data showing it sold $2.44 billion on Oct. 24, as it sought to slow the ruble’s decline. Sanctions over the Ukraine conflict and dropping oil prices have exacerbated a dollar shortage. The ruble’s retreat is stoking speculation that the central bank will decide to abandon interventions as early as Oct. 31, when policy makers meet to decide on interest rates, according to Sberbank CIB.
“Price action is being increasingly driven by the fear that the central bank could scrap entirely its defense of the ruble, allowing it to freely float and find a natural level,” Tom Levinson, the chief foreign-exchange and interest-rates strategist at Sberbank CIB in Moscow, said in an e-mailed note. The intervention policy “is failing to halt the ruble’s decline, but is also feeding currency weakness by raising concern over the pace at which foreign-currency reserves are being eroded.” The central bank should adopt a free float now as the current policy of intervening based on publicly known rules allows speculators to profit, Former Finance Minister Alexei Kudrin told Bloomberg News today.
Currency Interventions
Russia is moving toward adopting a free float by 2015. The central bank press office declined to comment on the exchange-rate policy speculation, saying in an e-mail today that it’s in a black-out period until the Oct. 31 meeting.
The country’s foreign-currency reserves declined $68 billion this year to $443.8 billion on Oct. 17, the lowest since 2010. One-month implied volatility for the ruble climbed to 16.2 percent, the highest level since June 2012. After yesterday’s 1 percent depreciation against the basket, the central bank lowered the floor on its trading band by 35 kopeks to 47.40, according to a statement on its website today. The ruble has weakened by more than 30 kopeks from this level today.
When the ruble falls past the boundary, the Bank of Russia spends $350 million to defend it before shifting the band by 5 kopeks, according to its guidelines. It repeats the process each time the currency falls by 5 kopeks. Investors wary the central bank will abandon interventions “prefer to stack up foreign currency before the central bank leaves the currency market completely,” Alexei Egorov, an analyst at Promsvyazbank in Moscow, said in an e-mailed note.
Russia’s 10-year yield climbed seven basis points to 9.95 percent today, two basis points away from a five-year high reached on Oct. 14. The Finance Ministry said it was pulling tomorrow’s sale due to “unfavorable market conditions.”
Brazil’s Real Climbs From Nine-Year Low as Rousseff Mulls Team
Brazil’s real rose from a nine-year low on speculation its drop yesterday after the re-election of President Dilma Rousseff was excessive as she considers changes to her economic team.
The real gained 1.2 percent to 2.4923 per dollar at 9:55 a.m. in Sao Paulo, the biggest increase among all of the world’s currencies tracked by Bloomberg. It closed yesterday at 2.5211 per dollar, the weakest level since April 2005. Swap rates, a gauge of expectations for changes in borrowing costs, fell five basis points, or 0.05 percentage point, to 11.78 percent on the contract due in January 2016.
“Given the overbought conditions, we see room for some downside correction in the short run,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said regarding the dollar in an e-mailed response to questions. Demand for real-denominated holdings depends “on how Rousseff’s new team manages to shift toward more economic liberalization. A political disappointment will clearly place the 2.60/2.75 zone on the radar.”
The real dropped 1.9 percent yesterday after Rousseff’s victory in the Oct. 26 runoff ended months of speculation that a new administration would be voted into office and implement policies to bolster growth. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the highest in the world after the Russian ruble today.
Riksbank Rejects Calls for QE After Resorting to Zero Rate
Sweden’s central bank rejected calls for unconventional policy measures after venturing into uncharted territory and cutting its main interest rate to zero.
“We think that will be enough,” Governor Stefan Ingves said today at a press conference in Stockholm. “But if the world turns out completely differently, then we have the tool box to do other things.” The world’s oldest central bank has come under attack from former board members, politicians and economists for being too quick to raise rates as the financial crisis eased in 2010, and then for waiting too long to fight the deflation that ensued. The missteps may hold lessons for policy makers elsewhere as the Federal Reserve times its exit from monetary stimulus and the European Central Bank fights disinflation.
Nobel Laureate Paul Krugman has said Sweden’s failure to prevent deflation was an example of “sadomonetarism” that risked lurching the Nordic country into a Japan-like syndrome.
Consumer prices in Sweden have dropped in seven of the past nine months and inflation has stayed below the Riksbank’s 2 percent target for almost three years. As well as delivering a bigger-than-estimated cut -- economists surveyed by Bloomberg had foreseen a reduction to 0.1 percent -- the Riksbank delayed tightening plans to mid-2016 from its previous guidance of end-2015. The bank said it won’t raise rates until “inflation clearly picks up.”
Krona’s Plunge
Today’s cut from 0.25 percent was the Riksbank’s third phase of easing in less than a year. The krona lost 1.3 percent against the euro and traded at 9.3826 as of 1:27 p.m. local time. The move was the day’s biggest decline among the world’s major currencies tracked by Bloomberg.
“This was more or less as aggressive as they could be,” said Knut Hallberg, an analyst at Swedbank AB. “More surprises on the downside will have to happen both in terms of growth and inflation for there to be any talk of further measures, so it’s not our main scenario that more will be needed.”
The Riksbank now predicts inflation will remain below its 2 percent target until July 2016. It lowered its estimate for growth next year to 2.7 percent from 3 percent and raised its forecast for 2016 to 3.3 percent from 3.1 percent. Analysts immediately questioned whether today’s rate cut will be enough.
‘Attack Plan’
“They should have presented a clear plan of attack,” said Roger Josefsson, chief economist at Danske Bank A/S in Stockholm. “This is what we might do and, for example, say, which measures would be first in line. Not just push back the repo rate path. Is it QE, is it a currency floor?”
Ingves, who’s also chairman of the Basel Committee on Banking Supervision, has been reluctant to lower rates out of fear of stoking a build-up in consumer debt. Now, Ingves is shaping Swedish policy to reflect moves elsewhere and bringing rates in line with those at the European Central Bank, whose benchmark is 0.05 percent, and the U.S. Federal Reserve, which has held its key rate close to zero since 2008. The ECB and Fed have also expanded their balance sheets through asset purchases to further stimulate growth.
Lars E. O. Svensson, who left the Riksbank in protest last year after failing to win support for deeper cuts, said last week the bank may also need to resort to unconventional measures such as asset purchases and possibly even a currency floor.
High Unemployment
Traders’ two-year inflation expectations were for 1.6 percent last month, while a survey from the National Institute for Economic Research showed consumers’ one-year inflation view sank to zero last month.
A coalition led by the Social Democrats last month ousted the government after accusing it of not doing enough to reduce Scandinavia’s highest unemployment. It has discussed forcing the Riksbank to include a jobs target amid criticism the bank has focused too much on Swedes’ record-high debt burdens. Swedish property prices have almost tripled since 1995, while consumer debt has nearly doubled to about 175 percent of disposable incomes. In a bid to avoid regulation, the Swedish Bankers’ Association recently proposed forcing homeowners to amortize all new mortgages worth more than 50 percent of their properties.
Swedish household borrowing growth accelerated at a faster-than-expected 5.7 percent last month, up from 5.1 percent at the beginning of this year, according to Statistics Sweden. The bank said today that it’s now “even more urgent” to manage risks from high household indebtedness.
source: Bloomberg