Dollar Bulls Await Yellen as Citigroup Says Pessimism May Reign

Dollar bulls are looking to Janet Yellen for salvation. They may be disappointed.

The greenback has dropped against 14 of 16 major counterparts so far this month as traders pared to 30 percent the odds of a Federal Reserve interest-rate increase this year. Analysts have started to examine the prospect of the U.S. following the euro area and Japan in adopting rates below zero if the economy deteriorates. 

The Fed chair in testimony before Congress Wednesday should “deflate” some of the enthusiasm around negative rates and that may boost U.S. yields and support the dollar, according to Citigroup Inc.

“Her hope would be to unwind some of the bearishness that has engulfed asset markets, and this would be supportive for U.S. dollar, rates and equities,” Steven Englander, Citigroup’s New York-based global head of Group-of-10 currency strategy, wrote in a note. 

“However, at times market pessimism is so deep seated that good news is viewed only as an opportunity to sell at better levels.”

The dollar dropped 0.1 percent to 115 yen as of 7:52 a.m. in London after falling to 114.21 Tuesday, the weakest level since November 2014. It gained 0.1 percent to $1.1281 per euro, after reaching $1.1338 on Tuesday which was its weakest in three months. 

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,220.80 and has lost 2.5 percent since Jan. 29.

Deutsche Bank Jumps as Lender Said to Consider Bond Buyback

Deutsche Bank AG jumped the most in more than four years as Germany’s biggest bank considers a bond buyback to help ease concerns about its funds, according to a person with knowledge of the matter.

While the bank has ample cash to make the purchases, no decision has been made and a buyback may yet be deemed unattractive, the person said, asking not to be identified because the talks are private. 

Such a move would focus on senior bonds and probably wouldn’t include the firm’s riskiest debt, known as CoCos, the Financial Times reported Tuesday. Renee Calabro, a spokeswoman for the Frankfurt-based bank, declined to comment.

Deutsche Bank co-Chief Executive Officer John Cryan has been seeking to reassure investors and staff that the bank is “rock solid” after the shares erased almost 2 billion euros ($2.3 billion) of the company’s market value on Monday. 

While the lender said on the same day that it has more-than-sufficient means to pay coupons on its riskiest debt both this year and next, the statement did little to reverse a selloff in credit markets.

The shares soared as much as 11 percent, the biggest intraday gain since October 2011, trading at 14.74 euros at 10:08 a.m. in Frankfurt. The bank has lost about 36 percent of its value this year.

Deutsche Bank has about 53.8 billion euros ($60.8 billion) of senior debt outstanding, according to data compiled by Bloomberg. The weighted average maturity of its 144 billion euros of debt is six years.

Dollar skids to lowest versus yen since Nov 2014

The dollar skidded to its lowest levels against the yen since November 2014 on Tuesday, as a sell-off in European and U.S. stocks continued into the Asian session and stoked demand for the perceived safe-haven Japanese currency.

The dollar was last at 114.85 yen JPY=, down 0.9 percent, after dropping as low as 114.205.

The flight to safety helped the yield on the benchmark 10-year Japanese government bond turn negative for the first time, sending it as low as minus 0.035 percent JP10YTN=JBTC.

JGBs have been on a bull run since the Bank of Japan adopted negative interest rates on Jan. 29, under which banks have to pay interest on certain deposits held at the BOJ. The central bank's announcement initially sent the dollar as high as 121.70 yen, before those gains unravelled.

"In terms of safety, the yen could actually be the most attractive currency right now, which I'm sure the policymakers don't want to hear," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

Three-month dollar/yen implied volatility - an indicator of how much currency movement is expected in coming months - jumped as high as 13.120 percent JPY3MO= on Tuesday, its highest since September 2013, as the yen soared.

Dollar Heads for Worst Week Since 2009 on Fed; Japan Bonds Rally

The dollar headed for its worst week since 2009 as traders boosted bets the Federal Reserve will keep interest rates on hold this year. Demand for government debt sent Japan’s 10-year bond yields to a record low.

Asia’s regional stock gauge resumed its decline, led by Japanese shares, as the yen headed for its biggest weekly gain in more than six years.

European and U.S. stock futures both declined. Japan’s 10-year yields extended a slide toward zero, fueled by the central bank’s move to negative interest rates. The Bloomberg Dollar Spot Index has fallen 2.4 percent this week as economists forecast U.S.

government data on Friday will show jobs growth in January was the weakest since September.
Patchy U.S. data ignited the dollar’s retreat this week, while concern the American economy is vulnerable to global headwinds fueled the declines.

The fixed-income market is pricing in no Fed rate hikes this year, as central banks from Asia to Europe have mixed success trying to quell the turmoil that’s roiled markets in 2016.

While a weaker dollar makes commodities more appealing in other currencies, oil is heading for its first weekly loss since mid-January as U.S. inventories rise to a record.

“Expectations are growing by the day that the Fed will not hike again this year given the weaker growth picture and tightening financial conditions,” Jason Wong, a currency strategist in Wellington at Bank of New Zealand Ltd., wrote in an e-mail to clients.

“The key release is U.S. employment data overnight, which is expected to show some payback in employment growth in January.”

Global Stocks Gain as Commodities Advance After Dollar's Tumble

Stocks gained around the world as a selloff in the dollar underpinned a resurgence in crude oil.
A gauge of European shares rose for the first time this week, led by mining and energy companies. 

Gains were tempered by a plunge in Credit Suisse Group AG shares after the company swung to a quarterly loss. U.S. index futures advanced. The euro extended its 1.7 percent surge on Wednesday, when the dollar tumbled against a basket of currencies. South Korea’s won rallied the most in three months. U.S. oilextended gains above $32 a barrel after jumping 8 percent in the previous session.

The outlook for China has been gloomy for years now. I don’t really think that there’s too much negative sentiment that could be piled on to this market. Investors should start buying slowly.”

The dollar’s retreat was sparked by data showing the U.S. services sector grew at the slowest pace in nearly two years, underscoring the vulnerability of the American economy to unsteadiness abroad.

The report tipped the fixed-income market’s balance closer toward zero rate hikes by the Federal Reserve this year, amid prospects central banks from Asia to Europe will act to quell the turmoil that’s roiled markets in 2016.

The greenback’s drop helped boost the price of crude oil, along with speculation OPEC and other oil producing nations have agreed to an emergency meeting on market volatility.

China set a range for its economic growth target for the first time in 20 years, saying late Wednesday that the economy would likely expand 6.5 percent to 7 percent this year, slower than last year’s goal of about 7 percent.

Gyrations in Chinese equity and currency markets unsettled global trading at the start of the year, with regulators’ response to the volatility fueling anxiety over their ability to manage the slowing economy.

STRONG DOLLAR COULD KEEP INFLICTING PAIN

The dollar, up 8.4 percent against a basket of currencies in 2015, is expected to see further gains next year as the United States hikes rates while other countries continue easy money policies.

That could further pressure sales of U.S. companies with heavy international exposure because it makes U.S. goods more expensive overseas.

"If we have a similar movement to last year, then we're going to have roughly a $28-billion hit to corporate America," said Wolfgang Koester, chief executive of currency risk consulting firm FireApps. 

He said he expects the dollar to shave 3 to 4 cents from first-quarter earnings of U.S. companies with foreign exposure.

Currencies subdued in Christmas holiday lull, dollar adrift

The dollar, euro and yen were subdued on Thursday in a languid session with much of the Western world already shuttered for the Christmas and year-end holidays, but some players are eyeing the potential for more dollar strength next year.

The euro traded at $1.0922 EUR=, having drifted up slowly from a low of $1.0903. Against the yen, the greenback eased to 120.75 JPY= from 121.00.

Many financial centers around the world will shut early and stay closed on Friday for the Christmas holidays. Some won't reopen until Tuesday. The euro fetched 131.88 yen EURJPY=R and remains hemmed in a 131.83-131.98 range.

The Japanese currency has well and truly gotten over last Friday's move by the Bank of Japan (BOJ) to fine tune its massive stimulus program. There was no major reaction to minutes of the BOJ's November meeting.

All that left the dollar index .DXY a touch softer at 98.256, still well off last Thursday's peak of 99.294. It was back at levels seen before the Federal Reserve delivered a highly anticipated hike in interest rates a week ago.

A mixed bag of U.S. data on Wednesday gave the market no real steer. New orders for U.S. manufactured capital goods fell in November, but personal income rose for an eighth straight month. Consumer sentiment hit a five-month high in December.

Dollar adrift in a sea of central bank uncertainty

The dollar drifted lower in light Asian trading on Monday amid doubts about how far and fast the Federal Reserve would raise U.S. interest rates next year. 

An employee checks U.S. dollar bank-notes at a bank in Hanoi, Vietnam August 12, 2015.

The dollar eased to 121.20 yen JPY= and further away from Friday's brief peak of 123.59. The euro edged up to $0.0867 EUR= and the dollar was a shade weaker against a basket of major currencies at 98.680 .DXY.

The yen held gains made after Friday's decision by the Bank of Japan to merely tweak its stimulus campaign rather than outright expand the amount of assets it buys.

The resulting shakeout of long dollar positions was eerily reminiscent of the reaction to the European Central Bank's policy easing early in the month, which also disappointed the market's lofty expectations.

Barclays predicts the Fed will raise rates by no more than 75 basis points next year compared to the 100 basis points assumed by the FOMC.

A Reuters poll of 120 economists found the Fed would hike rates again in March, but probably would not move as quickly next year as policymakers have suggested.

Investors have reacted by pairing back what had become a very crowded wager on further gains in the dollar.

Dollar slips vs yen after BOJ stimulus disappoints

The dollar slipped against the yen on Friday after a set of stimulus measures the Bank of Japan unveiled were deemed too modest to drive the greenback higher.

The BOJ on Friday said after its policy meeting that it would expand the types of assets it purchases, sending the dollar briefly soaring versus the yen.

The dollar initially rose to 123.59 JPY= after the BOJ announcement, but was last down 0.5 percent at 121.895 yen.

The BOJ decided to set aside 300 billion yen to buy exchange-traded funds (ETFs) that specifically target shares of companies actively pursuing capital expenditure. It will also extend the maturity of JGBs it buys to 12 years from 10 years next year.

The U.S. dollar index .DXY slipped 0.4 percent to 98.910 after hitting 99.294 overnight, its highest in two weeks. The index posted a 1.2 percent gain on Thursday - its biggest rise in over a month. The greenback advanced broadly after the Fed on Wednesday lifted its benchmark rate off zero.

The euro was up 0.2 percent at $1.0850 EUR=, pulling away from a 10-day low of $1.0802 hit overnight.

The Canadian dollar was now close to a 12-year low, having come within a whisker of C$1.40 per USD CAD=D4.

The Australian dollar briefly dipped below 71 U.S. cents AUD=D4 for the first time in a month, before edging back to $0.7138. Its New Zealand counterpart fell to its lowest in over a week at $0.6680 NZD=D4.