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Dollar hits six-week low as traders prepare for Powell

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Dollar hits six-week low as traders prepare for Powell 1

By Tommy Wilkes

LONDON (Reuters) – The dollar touched its lowest since Jan. 13 on Tuesday as investors shifted focus to how U.S. Federal Reserve chief Jerome Powell might respond to expectations of resurgent inflation, while commodity-linked currencies hovered near multi-year highs.

The rise in inflation expectations as investors bet on a post-pandemic economic rebound and the so-called “reflation” trade had lifted U.S. government bond yields and – briefly – the dollar until earlier this month.

But analysts expect Powell, who testifies before Congress at 1500 GMT, will provide reassurance that the Fed will tolerate higher inflation without rushing to raise rates. That might calm bond markets and eventually weigh on the dollar, they said.

“Mr. Powell will very likely reiterate that the Fed is a long way from meeting its goals and that it will likely take some time before ‘sufficient progress’ has been made to taper its bond purchase programme,” UniCredit analysts said.

Joe Capurso, Commonwealth Bank of Australia currency analyst in Sydney, said he thought Powell would deliver “a bit of a cold shower and say: ‘Mr Market you’re getting a bit ahead of yourself….the U.S. economy is long, long way from full employment.'”

The dollar index was last at 90.046, flat on the day, having earlier fallen to 89.941, its weakest since Jan. 13.

Positioning data shows investors overwhelmingly betting that a U.S. dollar, which has been dropping since last March, will keep falling as the world recovers from the COVID-19 pandemic.

The euro rose 0.1% to $1.2168. Euro zone government bond yields had also been rising, but on Monday dropped after European Central Bank President Christine Lagarde said the bank was “closely monitoring” rising borrowing costs.

Commodity-linked currencies have been among the best performers in 2021. Surging prices for materials from oil to milk powder have pushed currencies such as the Canadian, Australian and New Zealand dollars to their highest in roughly three years.

On Tuesday, the Aussie traded down slightly at $0.791 having earlier hit a high of $0.7934. The New Zealand dollar was also down while the Canadian dollar was just below its Monday high.

Sterling hit a new nearly three-year high of $1.4098, up 0.3% on the day, as investors stuck with their bets that a rapid vaccine rollout would allow the British economy to reopen over the next few months.

Prime Minister Boris Johnson laid out his step-by-step plan for ending the current British lockdown on Monday.

The Japanese yen, the worst performing major currency of 2021 because rising U.S. Treasury yields can draw investment from Japan, steadied at 105.13 per dollar, down slightly.

Bitcoin, the world’s biggest cryptocurrency, shed 11% to $48,481 after a wild overnight ride where it sank as low as $47,400.

(Additional reporting by Tom Westbrook in Singapore; editing by Barbara Lewis)

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Mining, energy stocks push FTSE 100 higher; HSBC slides

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Mining, energy stocks push FTSE 100 higher; HSBC slides 2

(Reuters) – London’s FTSE 100 advanced on Tuesday, as rising commodity prices lifted mining and energy stocks, while HSBC dropped after the lender abandoned its long-term profitability targets.

The commodity-heavy FTSE 100 was up 0.7 by 0813 GMT, boosted by oil producers BP and Royal Dutch Shell, which tracked gains in crude prices. [O/R]

Shares of miners Anglo American, Rio Tinto and BHP Group were also among the biggest boost to the index.

Travel and leisure stocks jumped 2.4%, gaining for a second straight day as Prime Minister Boris Johnson unveiled a map out of the lockdown for England.

The mid-cap FTSE 250 rose 0.7%, led by industrials and consumer discretionary stocks.

HSBC Holdings PLC fell 1% after unveiling a revised strategy, focused mainly on wealth management in Asia as the COVID-19 crisis pushed the lender’s annual profit sharply lower.

Shares of Holiday Inn-owner InterContinental Hotels rose 3.2%, despite posting an annual loss, triggered by repeated COVID-19 restrictions and lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru, Editing by Sherry Jacob-Phillips)

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World shares sink as bond yields, commodities surge

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World shares sink as bond yields, commodities surge 3

By Ritvik Carvalho

LONDON (Reuters) – World shares sank on Monday as expectations for faster economic growth and inflation battered bonds and boosted commodities, while rising real yields made equity valuations look more stretched in comparison.

MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.4% after the start of European trade.

The pan-European STOXX 600 index was down 1%, at its lowest in 10 days. Germany’s DAX, France’s CAC 40 and Spain’s IBEX 35 index fell 1% each, Britain’s FTSE 100 lost 0.85% and Italy’s FTSE MIB index fell 0.9%. [.EU]

S&P 500 futures fell to their lowest since Feb. 4, down 1% on the day. [.N]

Bonds have been bruised by the prospect of a stronger economic recovery and greater borrowing as President Joe Biden’s $1.9 trillion stimulus package progresses.

Federal Reserve Chair Jerome Powell delivers his semi-annual testimony before Congress this week and is likely to reiterate a commitment to keeping policy super easy for as long as needed to drive inflation higher.

“The coming week is relatively thin on the international data agenda, but after the recent rise in long bond yields, Fed Chairman Powell’s hearings in both chambers of Congress (Tuesday / Wednesday) will be attracting great interest,” said Elisabet Kopelman, U.S. economist at SEB.

“The fact that the most recent rise in long bond yields has been driven by higher real interest rates and not just inflation expectations increases the probability of a dovish message.”

European Central Bank President Christine Lagarde is also expected to sound dovish in a speech later Monday.

Yields on 10-year Treasury notes have already reached 1.38%, breaking the psychological 1.30% level and bringing the rise for the year so far to a steep 43 basis points.

Analysts at BofA noted 30-year bonds had returned -9.4% in the year to date, the worst start since 2013.

“Real assets are outperforming financial assets big in ’21 as cyclical, political, secular trends say higher inflation,” the analysts said in a note. “Surging commodities, energy laggards in vogue, materials in secular breakouts.”

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan went flat, after slipping from a record top last week as the jump in U.S. bond yields unsettled investors.

Japan’s Nikkei recouped 0.8% and South Korea 0.1%, but Chinese blue chips lost 1.4%.

A COPPER-PLATED RECOVERY

One of the stars has been copper, a key component of renewable technology, which shot up 7.7% last week to a nine-year peak. The broader LMEX base metal index climbed 5.5% on the week.

Oil prices have gone along for the ride, aided by tightening supplies and freezing weather, giving Brent gains of 22% for the year so far. [O/R]

On Monday, Brent crude futures were up 0.7% at $63.33 a barrel. U.S. crude added 0.7% to $59.65.

All of that has been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all higher for the year so far.

Sterling reached a three-year top at $1.4050, aided by one of the fastest vaccine rollouts in the world. British Prime Minister Boris Johnson is due to outline a path from COVID-19 lockdowns on Monday.

The U.S. dollar index has been relatively range-bound, with downward pressure from the country’s expanding twin deficits balanced by higher bond yields. The index was last at 90.342, not far from where it started the year at 90.260.

Rising Treasury yields has helped the dollar gain against the yen to 105.60, given the Bank of Japan is actively restraining yields at home.

The euro was steady at $1.2104, corralled between support at $1.2021 and resistance around $1.2169.

One commodity not doing so well is gold, partly due to rising bond yields and partly as investors question if crypto currencies might be a better hedge against inflation. [GOL/]

Gold stood at $1,793 an ounce, having started the year at $1,896. Bitcoin was off 3.3% on Monday at $55,535, but started the year at $32,216.

(Reporting by Ritvik Carvalho; additional reporting by Wayne Cole in Sydney; editing by Larry King)

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Sterling steadies around $1.40, long positions at one-year high

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Sterling steadies around $1.40, long positions at one-year high 4

LONDON (Reuters) – The pound hit a new three-year high of $1.4050 in early London trading on Monday, before stabilising around the $1.40 level, as bullish investors bet on the UK’s vaccination rollout bringing about an economic recovery.

Sterling rose to its highest levels since April 2018 when it crossed $1.40 on Friday, having risen 2.4% so far in 2021.

Analysts attributed the recent strengthening to the UK’s relative success in providing COVID-19 vaccinations, which is expected to help Britain’s economy rebound from its biggest contraction in 300 years.

Relief that a no-deal Brexit was avoided at the end of 2020 is also supporting the pound, as is a lessening of fears that the Bank of England could introduce negative interest rates.

Speculators added to their net long position for the third week running in the week to Feb. 16, CFTC positioning data showed. The market is at its most bullish in one year.

At 0839 GMT, the pound was at $1.3992, down 0.1% on the day. Versus the euro, it was up around 0.2% at 86.42 pence per euro, having touched a one-year high earlier in the session EURGBP=D3>.

“The move higher in cable this year has been primarily driven by pound strength rather than US dollar weakness,” wrote MUFG currency analyst Lee Hardman in a note to clients.

“If the highs from April 2018 are taken out it will encourage expectations that the pound is adjusting to a new higher equilibrium now that Brexit risks have diminished,” he said. “Whereas if those highs remain in place, market participants may then start to question whether recent pound strength is overshooting and thereby increasing the risk of a correction lower.”

British Prime Minister Boris Johnson will set out a plan on Monday to release the UK from its third national lockdown.

Some 17.6 million people, over a quarter of the 67 million population, have now received a first dose of a COVID-19 vaccine. The UK is behind only Israel and the United Arab Emirates in vaccines per head of population.

The yield on British government bonds jumped on Monday, boosted by the prospect of heavy U.S. fiscal stimulus and the UK economy reopening.

“Markets are still adjusting to the fact that the Bank of England is unlikely to implement negative rates for now, leading to a narrowing of the US-UK 10-year yield differential,” UBS strategists wrote in a note to clients.

 

Sterling steadies around $1.40, long positions at one-year high 5

(Reporting by Elizabeth Howcroft; Editing by Bernadette Baum)

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