Sterling edged higher and safe-haven dollar slipped on Monday

[Nat Quinn]

Sterling edged higher on Monday, with investors’ appetite for risky assets returning as they awaited a speech from Bank of England governor Andrew Bailey later in the day.

BRITISH POUND STERLING EDGED HIGHER ON MONDAY

News of a buyer being found for deposits and loans at Silicon Valley Bank in the U.S. cast an uneasy calm over markets on Monday, which have been shaken recently by fears of a credit crunch and systemic bank stress. ING analysts said Bailey’s words would be weighed very carefully by markets given that the March BoE meeting did not include a press conference. Sterling rose 0.16% against the euro to 87.85 pence per euro and 0.2% versus the dollar to $1.2252. The greenback was steady on Monday, while the yen hovered near a seven-week peak as traders assessed authorities’ moves to respond to concerns over the global banking system. The British central bank raised interest rates last week but said a surprise resurgence in inflation would fade fast, prompting speculation it had ended its run of hikes.

Britain’s fiscal policy concerns are no longer an issue after British Prime Minister Rishi Sunak restored confidence among investors. Still, markets remained cautious about the pound in the face of a dovish BoE. Most analysts see the BoE pausing in May, but some expect additional tightening to be required as the central bank’s priority remains controlling inflation over banking uncertainty. “On balance, we retain our existing BoE view: rates on hold for around a year before 75bp of cuts around the middle of 2024, with leading rates back down to 3.50% at that point,” said George Buckley, an economist at Nomura. Buckley added there were plenty of reasons to think that the hike the BoE delivered in February was the last one, including financial sector uncertainty, slowing wage growth, weak UK GDP relative to other countries, and the BoE’s forecasts for sharp falls in inflation.

He also mentioned upside risks such as no dovish tilt from the BoE, 4.25% being a low peak, a tight labour market, sticky core inflation, and Bailey saying to the BBC, “if we get inflation embedded, interest rates will have to go up further.” Financial markets still price in one more quarter-point rate rise for May or June. Supporting the case of a further rate hike, the central bank last week upgraded the outlook for Britain’s economy and didn’t call for a technical recession this year. Bailey delivers a speech at the London School of Economics today at 1700 GMT and tomorrow at a Treasury Select Committee hearing on Silicon Valley Bank. Bank of England policymaker Catherine Mann said on Friday that she voted for a quarter percentage-point interest rate rise this week rather than a bigger increase because she saw signs that inflation expectations were now falling.

US DOLLAR

Reuters: The U.S. dollar slid for a second day against major peers on Tuesday as receding fears of a full-blown banking crisis sapped demand for the safest assets. The yen, despite traditionally also being a safe haven, rebounded strongly from overnight losses, with analysts pointing to flows related to the end of the country’s fiscal year on Friday. The risk-sensitive Australian and New Zealand dollars also jumped, with the Aussie getting an additional boost from better-than-expected retail sales data. The U.S. dollar index – which gauges the currency against six peers, including the yen – declined 0.16% to 102.59 during Asian trading, extending Monday’s 0.35% drop. The greenback plunged as low as 130.505 yen at one point, and was last off 0.71% at 130.64, undoing the previous session’s 0.64% jump, when it tracked a 15-basis point surge in long-term Treasury yields , the biggest in six months. The 10-year yield was little changed in Tokyo trading on Tuesday at around 3.51%.

“The time of the year – the Japanese fiscal end – I think there are some flows from Japanese repatriating,” said Bart Wakabayashi, branch manager at State Street in Tokyo. “If that’s it, it’s pretty much a one-off, and then we’ll get back to basics, which is essentially following yields.” Kristina Clifton, an analyst at Commonwealth Bank of Australia, wrote in a client note that Japanese banks may seek U.S. dollar funding ahead of Friday. “USD/JPY can be volatile this week,” she said. Meanwhile, the euro was 0.1% stronger at $1.0809, while sterling added 0.23% to $1.2315. The Aussie rallied 0.53% to $0.6686. New Zealand’s kiwi dollar rose 0.49% to $0.62265. While the market is taking some solace from regional U.S. lender First Citizens BancShares’ agreement to buy all of Silicon Valley Bank’s deposits and loans, Wakabayashi says no one is being complacent. “There is a big cloud – I won’t say dark cloud, but definitely a cloud – and I think people are at least positioning for what they need to do if this thing moves in the wrong direction,” he said.

“For the moment, dollar is king – dollar is paying interest rates, dollar is safe. Even if it gets sold off, it won’t be huge, and it will bounce back.”Elsewhere, bitcoin edged down to around $27,000, remaining on the back foot after a 3% slide on Monday, amid problems at the world’s biggest cryptocurrency exchange, Binance. The company and its founder have been sued by the U.S. Commodity Futures Trading Commission for operating what the regulator alleged were an “illegal” exchange and a “sham” compliance program. The exchange also suffered a technical glitch on Monday that forced it to temporarily suspend some operations.

SOUTH AFRICAN RAND

Reuters: South Africa’s rand weakened against a stronger dollar on Monday, as investors awaited a central bank decision on monetary policy later this week. At 0635 GMT, the rand traded at 18.2050 against the dollar, 0.26% weaker than its previous close. The dollar index , which measures the currency against six major rivals, was up more than 0.2% at 103.20. “Volatility in the rand remains the order of the day, although the local unit did perform a little better last week, at least against the dollar,” ETM Analytics said in a research note.

The South African Reserve Bank will announce its rate decision on Thursday, with markets expecting a 25-basis-point hike. The government’s benchmark 2030 bond was slightly stronger in early deals, with the yield down 1 basis points to 9.925%.

GLOBAL MARKETS

Reuters: Global stocks rose and the dollar softened on Tuesday, as a deal backed by the U.S. regulator for First Citizens BancShares to buy failed Silicon Valley Bank soothed wider worries about problems in the sector. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.6% by early afternoon Hong Kong time. U.S. stock futures, the S&P 500 e-minis , rose 0.1%. Australian shares jumped around 1%, as lithium and commodity stocks rallied sharply after battery metals explorer Liontown Resources rejected a $3.7 billion buyout bid from Albemarle Corp. Top U.S. banking regulators said on Monday they planned to tell Congress that the overall financial system remains on solid footing after recent bank failures, but will comprehensively review their policies in a bid to prevent future collapses. As fears eased, so did demand for the safest assets with the U.S. dollar index – which gauges the currency against six peers – off 0.14% to 102.6 during Asian trading, extending Monday’s 0.35% drop. Asian currencies broadly firmed, with the Malaysian ringgit hitting a five-week high.

The concerns, however, haven’t completely gone away as Federal Reserve Governor Philip Jefferson said on Monday that stress among small banks could hit small businesses hardest. “This round of uncertainty that we’re seeing, it will likely continue for some more time,” said Manishi Raychaudhuri, Asia-Pacific head of equity research at BNP Paribas. “We haven’t seen the end of it.” He expects continued volatility for global markets going forward for at least one or two quarters. In addition to concerns about any contagion caused by developed market banking woes, markets have also been jostled by wild shifts in expectations about what central banks in the United States and Europe might do next, Raychaudhuri said. “On one day, the market expects maybe a 25 basis points or maybe a 50 basis points rate hike. Just in a matter of one or two days, that outlook is changed to 50 basis points rate cuts in the second half of the year,” he said. In China, the benchmark founder Jack Ma on Monday helped to quell some concerns of its private sector after a bruising two-year regulatory crackdown. “Ma’s return to business would be a strongly positive sign for China’s tech industry,” said Brock Silvers, chief investment officer at private equity firm Kaiyuan Capital. “But the reason behind Ma’s reappearance isn’t yet clear… Market watchers will quickly deduce whether Ma’s visit was a one-off event or perhaps something more,” he said.

In early European trade, the pan-region Euro Stoxx 50 futures rose 0.32% and German DAX futures and FTSE futures both added around 0.3%. On Monday, the S&P 500 ended slightly higher as a deal for Silicon Valley Bank’s assets helped to boost bank shares, while technology-related stocks dipped amid profit taking after a strong quarter. U.S. Treasury notes nursed some losses by Monday early afternoon. Yields rose overnight on optimism that stress in the banking sector could be contained and as the Treasury Department saw soft demand for a sale of two-year notes. Benchmark 10-year yields slipped to 3.5129%, down from its U.S. close of 3.528% on Monday. Two-year yields slipped to 3.9324%. They are higher than the six-month low of 3.555% hit on Friday but well below the almost 16-year high of 5.084% hit on March 8. By Tuesday afternoon, oil prices softened with U.S. crude dipping 0.08% to $72.75 a barrel. Brent crude fell to $77.79 per barrel. Overnight, oil prices rose more than $3 on Monday as a halt to some exports from Iraq’s Kurdistan region added to worries about oil supplies while a U.S. banking acquisition eased worries that financial turmoil could hurt the economy and curtail fuel demand. Gold was slightly higher. Spot gold was traded at $1,958.13 per ounce.

 

source:Sterling edged higher and safe-haven dollar slipped on Monday (thesouthafrican.com)

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