The dollar had a roller-coaster session on Monday after investors were spooked by comments made by the Peoples Bank of China and comments made by Fed officials caused the dollar to rally and then sell-off in the afternoon.
Investors were caught unawares by this morning’s statement from the People’s Bank of China (PBoC), which implied its refusal to provide more liquidity to the country’s banking system is a means of reining in wayward banks that had binged on risky lending earlier in the year.
Short lived cash crunches are not unusual in China, they’re indicative of a growing economy, what makes this one different is that the central bank refused to step in and help. Instead of printing money and buying stuff, it decided to sell three-month bills on June 18th, withdrawing money from circulation. This is an unusual step by the PBoC which is effectively punishing banks for behaviour that the regulator should have prevented in the first place.
The move is likely to put banks off lending in the short term to conserve capital, which will have a detrimental effect on long term growth.
The dollar was also driven higher this morning by the continued sell off in Treasuries, as yields continued to rise in anticipation of the Federal Reserve tapering its bond buying program. But was tamed later in the session after comments made by Dallas Fed President Richard Fisher, who said, that all the Fed had announced last week was that it would begin “tapering” when conditions were right and had not even started reducing its purchases.
The dollar which had been trading strongly all morning, reversed after the comments, posting losses against the euro, pound and yen. With EUR/USD closing the U.S. session down 0.02% at 1.3127, GBP/USD closed up 0.11% at 1.5438 and USD/JPY closed down 0.14% at 97.71.
More Coverage of the Day’s Top Story
Forex News: FX Traders should watch bonds – Ground Zero for deleveraging. – The U.S. dollar is starting the week stronger against all of the major currencies as deleveraging in the equity, bond and currency markets continue to drive investors into the arms of greenback. The rush to liquidate out of dollar funded carry trades along with renewed demand for long U.S. dollar positions has driven the mighty buck sharply higher over the past week.
Andrew Keene: Will China’s growing pains undermine the Aussie dollar? – As the great yen short unwinds with a vengeance and central banks the world over continue to pursue aggressive interventionist policies, currency bears are looking for the next casualty of aggressive easing policies. The most likely candidate for a collapse, given several troubling technical and fundamental indications, is the Australian dollar.
More Top Stories:
Marc Chandler: Missed the move? Be prepared for turn around Tuesday. – There have obviously been a boatload of US dollars bought over the last four sessions. There are some preliminary technical signs that the near-term momentum may have exhausted itself and short-term participants are better advised sell into a bounce rather than rush into it now.
The Age: How low can the Aussie dollar go? – There are five key influences on the Australian dollar and each in its own way offers a clue as to how low the dollar might fall.
WSJ: Canadian dollar continues descent, hits lowest level since October 2011. – The Canadian dollar is extending its sharp decline from last week Monday, hitting a new 20-month high as it struggles with the stronger U.S. dollar and higher U.S. bond yields stemming from the U.S. Federal Reserve’s indications last week that it could reduce its bond-purchasing programs relatively soon.
FT: Precious little cheer for gold and silver. – Drivers of the gold market can be difficult to pin down. But right now its seems nothing is going right for the precious metal. The price is flirting with its lowest level since September 2010, having last week dropped below $1,300 an ounce.
Reuters: Gold falls on stronger dollar, Fed outlook. – Gold fell by about 1 percent on Monday, following last week’s 7 percent decline, hurt by a stronger dollar and due to worries over an early end to the U.S. Federal Reserve’s stimulus programme.
FCF: NZD/USD could drop to 75 US cents this week. – Commodity-driven currencies like the New Zealand Dollar experienced extreme volatility last week as the market reacted to the expectation that the US Federal Reserve could soon begin reining in its extensive levels of quantitative easing. Now, with several pieces of positive US data due for release this week, industry experts are speculating that the appeal of the ‘Kiwi’ could continue to weaken, perhaps causing the South Pacific currency to drop as low as 75 US cents.
MarketPulse FX: USD/JPY – Limited losses as Yen fights back. – The Japanese yen has opened the week with some gains against the US dollar. USD/JPY has dipped below the 98 line in Monday’s European session. USD/JPY was up sharply last week as the pair jumped more than 300 points.
Investing.com: GBP/USD steady near 3-week lows. – The pound was steady close to three-week lows against the dollar on Monday as demand for the dollar continued to be underpinned by expectations that the Federal Reserve will soon start to taper bond purchases.
Investing.com: EUR/USD weekly outlook: June 24 – 28. – The euro ended the week at two-week lows against the broadly stronger dollar on Friday after Federal Reserve Chairman Ben Bernanke said Wednesday that the bank could soon start to scale back its asset purchase program.
Investors were caught unawares by this morning’s statement from the People’s Bank of China (PBoC), which implied its refusal to provide more liquidity to the country’s banking system is a means of reining in wayward banks that had binged on risky lending earlier in the year.
Short lived cash crunches are not unusual in China, they’re indicative of a growing economy, what makes this one different is that the central bank refused to step in and help. Instead of printing money and buying stuff, it decided to sell three-month bills on June 18th, withdrawing money from circulation. This is an unusual step by the PBoC which is effectively punishing banks for behaviour that the regulator should have prevented in the first place.
The move is likely to put banks off lending in the short term to conserve capital, which will have a detrimental effect on long term growth.
The dollar was also driven higher this morning by the continued sell off in Treasuries, as yields continued to rise in anticipation of the Federal Reserve tapering its bond buying program. But was tamed later in the session after comments made by Dallas Fed President Richard Fisher, who said, that all the Fed had announced last week was that it would begin “tapering” when conditions were right and had not even started reducing its purchases.
The dollar which had been trading strongly all morning, reversed after the comments, posting losses against the euro, pound and yen. With EUR/USD closing the U.S. session down 0.02% at 1.3127, GBP/USD closed up 0.11% at 1.5438 and USD/JPY closed down 0.14% at 97.71.
More Coverage of the Day’s Top Story
Forex News: FX Traders should watch bonds – Ground Zero for deleveraging. – The U.S. dollar is starting the week stronger against all of the major currencies as deleveraging in the equity, bond and currency markets continue to drive investors into the arms of greenback. The rush to liquidate out of dollar funded carry trades along with renewed demand for long U.S. dollar positions has driven the mighty buck sharply higher over the past week.
Andrew Keene: Will China’s growing pains undermine the Aussie dollar? – As the great yen short unwinds with a vengeance and central banks the world over continue to pursue aggressive interventionist policies, currency bears are looking for the next casualty of aggressive easing policies. The most likely candidate for a collapse, given several troubling technical and fundamental indications, is the Australian dollar.
More Top Stories:
Marc Chandler: Missed the move? Be prepared for turn around Tuesday. – There have obviously been a boatload of US dollars bought over the last four sessions. There are some preliminary technical signs that the near-term momentum may have exhausted itself and short-term participants are better advised sell into a bounce rather than rush into it now.
The Age: How low can the Aussie dollar go? – There are five key influences on the Australian dollar and each in its own way offers a clue as to how low the dollar might fall.
WSJ: Canadian dollar continues descent, hits lowest level since October 2011. – The Canadian dollar is extending its sharp decline from last week Monday, hitting a new 20-month high as it struggles with the stronger U.S. dollar and higher U.S. bond yields stemming from the U.S. Federal Reserve’s indications last week that it could reduce its bond-purchasing programs relatively soon.
FT: Precious little cheer for gold and silver. – Drivers of the gold market can be difficult to pin down. But right now its seems nothing is going right for the precious metal. The price is flirting with its lowest level since September 2010, having last week dropped below $1,300 an ounce.
Reuters: Gold falls on stronger dollar, Fed outlook. – Gold fell by about 1 percent on Monday, following last week’s 7 percent decline, hurt by a stronger dollar and due to worries over an early end to the U.S. Federal Reserve’s stimulus programme.
FCF: NZD/USD could drop to 75 US cents this week. – Commodity-driven currencies like the New Zealand Dollar experienced extreme volatility last week as the market reacted to the expectation that the US Federal Reserve could soon begin reining in its extensive levels of quantitative easing. Now, with several pieces of positive US data due for release this week, industry experts are speculating that the appeal of the ‘Kiwi’ could continue to weaken, perhaps causing the South Pacific currency to drop as low as 75 US cents.
MarketPulse FX: USD/JPY – Limited losses as Yen fights back. – The Japanese yen has opened the week with some gains against the US dollar. USD/JPY has dipped below the 98 line in Monday’s European session. USD/JPY was up sharply last week as the pair jumped more than 300 points.
Investing.com: GBP/USD steady near 3-week lows. – The pound was steady close to three-week lows against the dollar on Monday as demand for the dollar continued to be underpinned by expectations that the Federal Reserve will soon start to taper bond purchases.
Investing.com: EUR/USD weekly outlook: June 24 – 28. – The euro ended the week at two-week lows against the broadly stronger dollar on Friday after Federal Reserve Chairman Ben Bernanke said Wednesday that the bank could soon start to scale back its asset purchase program.
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