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Friday, 15 December 2017

Asian shares slip, U.S. tax reform woes dent sentiment


TOKYO (Reuters) - Asian shares erased earlier modest gains on Friday with sentiment dented by Wall Street’s weakness on concerns about the progress of U.S. tax reform, though regional stocks remain on track for a weekly rise.

European stock futures were down 0.3 percent, suggesting a downbeat opening for the region, with DAX futures also down 0.3 percent, CAC futures down 0.2 percent and FTSE futures FFIc1 0.1 percent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, but poised to gain 0.8 percent for the week.

Chinese shares slumped, with the Shanghai Composite index .SSEC off 0.8 percent and the blue-chip CSI300 index .CSI300 down 1.1 percent.

Japan's Nikkei stock index finished 0.6 percent lower at its lowest in more than a week, with mobile firms extending a sell-off on concerns of increased competition after e-commerce group Rakuten said it aims to become the country's fourth wireless carrier. The index is down 1.1 percent for the week.

Big Japanese manufacturers’ business confidence improved for a fifth straight quarter in the three months to December to hit an 11-year high, the Bank of Japan’s quarterly tankan survey showed.


“The Nikkei came off its lows in the afternoon, largely on futures-led buying,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. “But regional sentiment is still fragile, which will limit its upside.”

On Thursday, U.S. retail sales increased more than expected in November and the number of Americans filing for unemployment benefits dropped to near a 44-1/2-year low last week. That pointed to sustained strength in the economy that could pave the way for further Federal Reserve interest rate hikes next year.

The Fed hiked interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration’s proposed tax cuts.

“The Fed’s move this week was largely perceived as a dovish hike,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“It was ultimately well within expectations, and I think the one surprise was how strong the upgrade was for 2018 without any corresponding upgrade for their expectations for inflation,” he said. “That keeps our expectations around three rate hikes for 2018.”

On Wall Street on Thursday, major U.S. stock indexes fell, with the S&P 500 .SPX down the most in a month, as investor worries over potential roadblocks to the Republicans' tax overhaul more than offset optimism over the strong data.

Republicans in the U.S. Congress reached a deal this week on a final version of their debt-financed legislation to cut taxes for businesses and wealthy Americans, with House and Senate votes expected early next week. But the bill has yet to get needed support of some key Senators, and investors worry about downward pressure on stocks if the bill were to fail.

The dollar index, which tracks the greenback against a basket of six rival currencies, was up 0.1 percent at 93.570, down 0.3 percent for the week.

The dollar dipped 0.1 percent against the yen to 112.26 JPY=, down 1 percent for the week, and moving away from a one-month high of 113.75 yen touched on Tuesday.

The euro was steady at $1.1782 EUR=. On Thursday, the European Central Bank raised growth and inflation forecasts for the euro area, but stuck with its pledge to provide stimulus for as long as needed.

Sterling was steady at $1.3437 GBP=. The Bank of England also left interest rates unchanged on Thursday, as expected.

Bitcoin was up 4.2 percent on the Bitstamp exchange at $17,001, after earlier matching a record high of 17,428.42 set on Tuesday.

Crude oil futures extended gains, after rising on Thursday as a pipeline outage in Britain continued to support prices despite forecasts showing global crude surplus in the beginning of next year.

U.S. crude CLc1 added 0.3 percent, or 15 cents, to $57.19 a barrel, after gaining 0.8 percent overnight. Brent crude futures LCOc1 were up 0.2 percent, or 14 cents, at $63.45.

Reporting by Lisa Twaronite

Thursday, 14 December 2017

Fed raises interest rates, keeps 2018 policy outlook unchanged


WASHINGTON (Reuters) - The Federal Reserve raised interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration’s proposed tax cuts.

In an early verdict on the tax overhaul, Fed policymakers judged it would boost the economy next year but leave no lasting impact, with the long-run potential growth rate stalled at 1.8 percent. The White House has frequently said its tax plan would produce annual GDP growth of 3 percent to 4 percent.

The expected fiscal stimulus, coming on the heels of a flurry of relatively bullish data, cleared the way for the U.S. central bank to raise rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent. It was the third rate hike this year.

But the Fed’s forecast of three additional rate increases in 2018 and 2019 was unchanged from its projections in September, a sign the tax legislation moving through Congress would have a modest, and possibly fleeting, effect.

The rate increase represented a victory for a central bank that has struggled at times to deliver on its promised pace of monetary tightening. It also allowed Fed Chair Janet Yellen, at her final press conference before her term ends in February, to signal an all-clear for the U.S. economy a decade after the onset of the 2007-2009 recession.

“At the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable buildup of debt ... The global economy is doing well, we’re in a synchronized expansion,” Yellen said. “There is less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook.”

But the central bank’s projections also contained some potential dilemmas for incoming Fed chief Jerome Powell.

The Fed now envisions a burst of growth, ultra-low unemployment of below 4 percent in 2018 and 2019 and continued low interest rates - yet little movement on inflation.

Yellen said the persistent shortfall of inflation from the Fed’s 2 percent goal was the major piece of “undone work” she was leaving for Powell to figure out.

In its justification for Wednesday’s rate increase, which was widely expected by financial markets, the Fed’s policy-setting committee cited “solid” economic growth and job gains.

U.S. stocks extended gains after the release of the policy statement before ending mixed, while Treasury yields dropped. The dollar fell against a basket of currencies.

Traders of U.S. short-term interest rate futures kept bets the Fed would raise rates only twice next year.

The Fed now sees gross domestic product growing 2.5 percent in 2018, up from the 2.1 percent forecast in September. The pace of growth is expected to cool to 2.1 percent in 2019, slightly higher than the prior forecast of 2.0 percent.

“Changes in tax policy will likely provide some lift to economic activity in coming years,” Yellen said, adding that “the magnitude and timing of the macroeconomic effects of any tax package remain uncertain.”

INFLATION CONCERNS

The Fed also said on Wednesday it expected the nation’s unemployment rate would fall to 3.9 percent next year and remain at that level in 2019, well below what is considered to be full employment. It previously had forecast a jobless rate of 4.1 percent for those two years.

But inflation is projected to remain shy of the central bank’s goal for another year, with weakness on that front still enough of a concern that policymakers saw no reason to accelerate the expected pace of rate increases.

“It shows at least some members of the Fed don’t see any reason to keep hiking rates in an environment where the economy is growing more strongly but certainly not overheating and where inflation hasn’t become a problem and doesn’t look like it is going to be one,” said Kate Warne, investment strategist at Edward Jones.

Policymakers do see the federal funds rate rising to 3.1 percent in 2020, slightly above the 2.8 percent “neutral” rate they expect to maintain in the long run. That indicates possible concerns about a rise in inflation pressures over time

Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari dissented in the policy statement on Wednesday.

Reporting by Howard Schneider

Bank of England's Brexit views in focus as rates set to stay on hold


LONDON (Reuters) - The Bank of England’s views on Brexit will be scrutinised by investors on Thursday when the central bank announces its first policy decision since raising rates for the first time in more than a decade last month.

Both financial markets and economists expect BoE officials will wait nearly a year before raising interest rates again - a much slower pace of tightening than the U.S. Federal Reserve.

The “very gradual” pace of tightening signalled by the BoE last month reflects both uncertainty about the economic impact of ongoing talks to leave the European Union, as well as weak underlying inflation pressures that belie a headline rate at its highest in nearly six years.

Last week’s judgement by the European Commission that Britain had made sufficient progress in Brexit talks to move on to negotiations over trade and an interim deal to cover the period until 2021 should reinforce the BoE’s assumption that the Brexit process will be smooth.

“We expect a ‘holding position’ from the BoE ... and a neutral tone on Brexit progress,” said Robert Wood, UK economist at Bank of America Merrill Lynch.

Like most economists polled by Reuters, he expects the BoE’s Monetary Policy Committee to vote 9-0 to keep rates at 0.5 percent, after a 7-2 split in favour of raising rates by a quarter of a percentage point last month.

BoE Governor Mark Carney has said the central bank will focus on consumers’ and businesses’ reaction to Brexit talks, rather than make its own judgement about the economic impact.

Wood said he did not think last week’s Brexit progress - which had been in some doubt - would make the BoE raise rates sooner in 2018.

Consumer demand has faltered this year mostly due to rising inflation - not Brexit worries - so last week’s agreement removed a downside risk, rather than pointing to stronger growth. Figures overnight pointed to the weakest housing market since 2013.

Last month the BoE maintained its forecast that the economy would grow 1.6 percent next year - slightly faster than expected by the government and most economists polled by Reuters.

Since then, inflation has risen to its highest since March 2012 at 3.1 percent. The BoE says this overshoot is almost all due to sterling’s fall after June 2016’s Brexit vote, and it expects inflation to fall slowly next year.

Wage growth - which many BoE policymakers view as a good guide to medium-term inflation pressures - remains slow, with regular pay in the three months to October up just 2.3 percent on a year earlier.

However Wolfgang Bauer, a fixed income fund manager at M&G Investments, said Brexit made the BoE the hardest major central bank to predict for next year based on economics alone.

“If there are some hiccups in the negotiation process - and I think that is very likely - we could see some pressure on sterling,” he said.

“That ... might make the Bank of England want to have a bit more of a tighter monetary policy. On the other hand, if there’s a less-than-ideal Brexit on the horizon, that might dampen economic growth.”

Reporting by David Milliken

Wednesday, 13 December 2017

With rate hike in the bag, Fed may hint at Trump effect on economy


WASHINGTON (Reuters) - The Federal Reserve is widely expected to raise interest rates on Wednesday, but, more significantly, it may give its strongest hint yet on how the Trump administration’s tax overhaul could affect the U.S. economy.

Investors will pay close attention to how the central bank aims to balance a stimulus-fueled economic boost with the ongoing weak inflation and tepid wage growth that has curbed some policymakers’ appetite for higher rates.

The Fed’s policy statement and its latest economic projections are due to be released at 2 p.m. EST (1900 GMT) following the end of a two-day meeting. Fed Chair Janet Yellen is scheduled to hold a press conference half an hour later. It will be her last before her four-year term ends early next year.

Her successor, Fed Governor Jerome Powell, said at his recent confirmation hearing before a Senate panel that he had “no sense of an overheating economy,” an early signal he may not want to quicken the pace of rate increases until there is evidence of an acceleration in wage growth and inflation.

The Fed has increased rates twice in 2017 and is currently expected to push through three more hikes next year.

Much of Yellen’s tenure as Fed chief has been defined by a desire to leave loose monetary policy in place as long as possible in the hope that unemployment continued to decline, workers rejoined the labor force, and wages rose.

Powell, who has worked closely with Yellen, said he feels that process still has room to run.

Recent bullish data, highlighted by continued solid job gains and a jump in economic growth, has prompted some analysts to speculate that the central bank’s new projections will reflect an expectation of four rate increases next year.

There are also signs inflation may be firming after a lengthy bout of weakness. Fed policymakers have been stymied at how price rises have remained persistently below the central bank’s 2 percent target despite labor market strength and a growing economy.

President Donald Trump’s proposed tax plan, including a sharp reduction in the corporate income tax, could further boost the U.S. economy if it passes the Republican-controlled Congress, as appears likely.

In a recent note projecting four Fed rate increases next year, Paul Ashworth, U.S. economist for Capital Economics, said “the stimulus could provide cover for the Fed to normalize interest rates at a faster pace than it otherwise would have been able to.”

What Ashworth called a “badly timed” tax cut “would be expected to raise inflation as much as it boosted real GDP growth,” he said.

Reporting by Howard Schneider

Dollar bounce stalls as Alabama outcome adds uncertainty


LONDON (Reuters) - A two-week rally in the dollar stalled on Wednesday after a Democrat won a bitter fight for a U.S. Senate seat in deeply conservative Alabama, injecting fresh uncertainty about the outlook for the greenback in the coming months.

Even as the U.S. Federal Reserve prepares to raise interest rates for the third time this year at the end of a two-day policy meeting in the day, traders are a bit more sceptical that policymakers will flag more rate hikes next year than the current two increases currently priced into markets.

“Expectations from the U.S. are very limited today in terms of forward guidance despite some likely optimistic assessments about the economic outlook, so the Fed decision may prove to be less supportive for the dollar,” said Valentin Marinov, head of G10 currency research at Credit Agricole in London.

The dollar was flat against a trade-weighted basket of currencies at 94.06 on Wednesday after rallying more than 1.5 percent so far this month. Despite the bounce, the dollar is down nearly 8 percent so far this year.

Democrat Doug Jones’ win deals a blow to President Donald Trump as the reduced Senate majority could make it harder for him to push through tax cut plans and other economic agenda.

“I am surprised the Alabama outcome is not having a bigger impact on the dollar,” said John Marley, head of FX strategy at Infinity International, a currency risk management firm.

Against the yen, the dollar slipped 0.2 percent to 113.35 yen , after rising to a four-week high of 113.75 yen on Tuesday.

The euro was flat at $1.1745, after slipping to a three week low of $1.17175 the previous day.

Investors are focusing more on the Fed’s projection on the pace of its rate hikes next year and policymakers’ views on the outlook for inflation.

The Fed will announce its decision on rates at 1900 GMT Wednesday followed by a statement. Chair Janet Yellen will hold a news conference at 1930 GMT.

Elsewhere, the British pound hovered at $1.3320 GBP=D3, near two-week lows of $1.3303 touched on Tuesday, although the currency was briefly propped up by data showing British inflation unexpectedly hit a near six-year high in November.

Consumer price inflation rose to an annual rate of 3.1 percent in November, above economists’ average expectations of 3.0 percent rise.


Reporting by Saikat Chatterjee

Tuesday, 12 December 2017

Dollar gains as Fed seen set to raise rates


NEW YORK (Reuters) - The U.S. dollar rose to three-week highs against a basket of currencies on Tuesday as the Federal Reserve begins a two-day policy meeting where it is widely expected to raise interest rates for the fifth time since 2015.

Investors will be watching for any signals that Fed officials are more optimistic on the prospect of faster growth as lawmakers appear close to passing a large overhaul of the tax code.

“People are looking for a little more confidence on the fact that tax legislation is set to pass,” Sireen Harajli, a foreign exchange strategist at Mizuho in New York. “The general theme is that the dollar will continue to find support as we approach the end of the year.”

The dollar index gained to 94.10, the highest since Nov. 21. The greenback rose more than 1 percent last week, its biggest weekly rise since the end of October, but is down around 8 percent this year.

Investors will also be watching the Fed’s statement at the conclusion of the meeting on Wednesday for concern about low inflation.

Fed forecasters expect three additional rate hikes next year though bond markets see two as more likely.

“Deflationary risks generally around the world are slowly receding and probably further in the rear view mirror these days than at the start of the year,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. “Global central banks seem to be more optimistic about the outlook.”

U.S. producer price data on Tuesday showed an increase in wholesale inflation, increasing hopes that price pressures may be rising from sluggish levels.

The Labor Department said its producer price index for final demand increased 0.4 percent last month.

In the 12 months through November, the PPI shot up 3.1 percent. That was the biggest gain since January 2012 and followed a 2.8 percent rise in October.

Consumer Price Index (CPI) data on Wednesday will be a key data focus for further clues on price pressures.

The New Zealand dollar set a one-month high as investors welcomed the appointment of national pension fund chief Adrian Orr to head the Reserve Bank from March.

The kiwi was last up 0.41 percent against the U.S. dollar at $0.69.

Reference: Karen Brettell

Monday, 11 December 2017

Sterling stabilises after biggest drop in a month


LONDON (Reuters) - Sterling steadied on Monday after posting its biggest daily drop in more than a month on Friday as investors cautiously added some long bets in a week when Britain and the European Union will sign off on a deal to move to the next stage of Brexit talks.

The British currency was choppy in early trading in a potentially big week with a central bank meeting scheduled on Thursday and a raft of top tier data including retail sales, inflation and jobs data also due this week.

With latest positioning data showing a growth in long sterling bets for a third consecutive week after Prime Minister Theresa May managed to break the Brexit deadlock last week, investors have become a bit more optimistic in the short term

Some analysts such as Viraj Patel, an FX strategist at ING in London, say the central bank decision this week will be closely watched to see whether policymakers will acknowledge the developments in the Brexit negotiations.

“While we suspect the statement will be largely unchanged, it’ll be interesting to see whether the monetary policy committee explicitly acknowledge the recent Brexit progress,” said ING’s Patel.

“If so, one could see this as a hawkish development – with risks sterling moves up to 1.3500/50.”

Sterling was broadly steady against the dollar at $1.3375 after falling 0.7 percent on Friday, its biggest daily drop since Nov. 2. Sterling had skidded when cautious investors booked profits after a sharp rally in previous days.

Against the euro, sterling weakened by 0.3 percent to 88.15 pence in early trade on Monday.

Reporting by Saikat Chatterjee

Bitcoin futures steal spotlight, momentum keeps pushing stocks up



LONDON (Reuters) - World stocks climbed and equity volatility neared a record low on Monday as investors focused on signs of strong economic growth ahead of a slew of central bank rate decisions, while the launch of bitcoin futures fed the market’s cryptocurrency obsession.

European stocks drew strength from a positive Asian session to trade higher across the board in early deals, nearing four-week highs as bank stocks boosted benchmarks.

MSCI's main European Index .MSER rose 0.1 percent while the index of leading European companies .STOXX50 gained 0.2 percent. Britain's FTSE climbed 0.6 percent thanks to a boost from a weaker sterling.

Stealing the spotlight was the debut of bitcoin futures contracts, allowing investors to bet on the price of the cryptocurrency in one, two or three months.

The one-month contract, the most-traded on the Chicago-based CBOE Global Markets exchange XBTc1 opened at $15,850 on Sunday night - a gain of 21 percent.

It was last quoted at $18,600, while bitcoin itself hovered at $16,431.76. 

Bitcoin has rocketed up a gravity-defying 1,600 percent since the start of the year, attracting institutional interest - and concerns that it is a bubble in the making.

“The one-month contract is trading at around an 11 percent premium to the underlying bitcoin, and for me that’s a clear indication that there’s no connection between the two markets,” said Lukas Daalder, chief investment officer at Robeco.

Several online brokerages have not yet allowed trading of the new futures.

“I can understand you don’t see that many people who are willing to offer this contract, because you can’t hedge your underlying risk if you can’t short it,” Daalder added.


“This only adds to the bitcoin phenomenon. It’s interesting to watch, but not a market that I would like to touch.”

While frantic trading kept bitcoin volatility dizzying, a gauge of S&P 500 volatility .VIX dipped below 10 to its lowest in more than two weeks, nearing the record low hit in November.

World stocks rose, flirting with their most recent record highs, boosted by more benign Asian trading after Friday’s strong U.S. employment data and Chinese trade figures cemented optimism on the global economy.

Global stocks .MIWD00000PUS rose 0.3 percent to 505.35, nearing last week’s intraday record of 507.09.

“Momentum behind stock markets has been pretty solid, supported in part by good numbers on the economic front and not bad earnings. I don’t see anything happening right now that could break the momentum,” said Daalder.

BIG WEEK FOR MONETARY POLICY MOVES

Currency and bond markets were cautious ahead of a big week of policy meetings globally, although the Federal Reserve is the only major central bank expected to raise interest rates.

The Bank of England and the European Central Bank are widely seen holding rates steady.

“Global growth has strengthened but there is very little evidence yet that inflation pressures are picking up, which continues to favor only a gradual pace of monetary policy normalization,” Lee Hardman, strategist at MUFG, told clients.

Sterling GBP= edged lower after a volatile week, last at $1.3375.

The dollar index, which measures the greenback against a basket of currencies, eased 0.1 percent, hovering near a three-week high after five straight sessions of gains. 

Sluggish U.S. wage growth and inflation have sparked some concern over rate rises, and traders will zoom in on the Fed’s future rate projections on Wednesday.

“It’s a tall order for the median Fed dots to shift lower, but we may see a slight downshift in the distribution,” said ING forex strategists in a note, adding that the dollar index could fall back below 93 as the Fed’s 25bp rate rise is already priced in.

Data out on Friday showed average hourly earnings in the United States came in lower than economists forecast, despite stronger-than-expected non-farm payrolls, which rose by 228,000 in November.

Most high-grade euro zone bond yields were lackluster in early trading, with 10-year Bund yields, the benchmark for the region, edging below 0.30 percent. 

“Bunds have drifted lower in recent weeks,” said Robeco’s Daalder. “I would say there’s some complacency for sure, but I don’t see any major moves until the new year.”

The gap between U.S. and German bond yields came close to its widest since April as the monetary policy paths of the two central banks diverged.

In commodities, signs of increased drilling activity after the latest rise in the U.S. rig count weighed on oil prices.

U.S. crude fell to $57.13 a barrel and Brent crude inched 21 cents lower to $63.16, slipping from a recent 2-1/2 year peak of $64.65.

Spot gold was slightly firmer at $1,249.41 an ounce XAU=.

Reporting by Helen Reid

Sunday, 10 December 2017

After bitcoin’s wild week, traders brace for futures launch


NEW YORK (Reuters) - The newest way to bet on bitcoin will arrive on Sunday, when futures of the cryptocurrency that has taken Wall Street by a storm begin trading.

The first bitcoin future trades are set to kick off at 6 p.m. EST (2300 GMT) on CBOE Global Markets Inc’s CBOE Futures Exchange.

This has given an extra kick to the cryptocurrency’s scorching run this year. Bitcoin’s price soared so far this month, but it has made sharp moves in both directions in recent days, falling by almost a fifth on Friday after surging more than 40 percent in the previous 48 hours.

On Sunday, bitcoin was up about 3 percent at $15,000 on the Luxembourg-based Bitstamp exchange. On the Gemini Exchange, it was at $15,650.

Bitcoin fans appear excited about the prospect of an exchange-listed and regulated product and the ability to bet on its price swings without having to sign up for a digital wallet. Others, however, caution that risks remain for investors and possibly even the clearing organizations underpinning the trades.

The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

“The pretty sharp rise we have seen in bitcoin in just the last couple of weeks has probably been driven by optimism ahead of the futures launch,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“You are going to open up the market to a whole lot of people who aren’t currently in bitcoin,” Frederick said.

The futures are an alternative to a largely unregulated spot market underpinned by cryptocurrency exchanges that have been plagued by cybersecurity and fraud issues.

The launch has so far received a mixed reception from big U.S. banks and brokerages, though.

Interactive Brokers Group Inc plans to offer its customers access to the first bitcoin futures when trading goes live but will bar clients from assuming short positions and has margin requirements of at least 50 percent.

Several online brokerages, including Charles Schwab Corp and TD Ameritrade Holding Corp, will not allow trading of the new futures immediately.

JPMorgan Chase & Co, Citigroup Inc and other large U.S. banks will not immediately clear bitcoin trades for clients, the Financial Times reported on Friday.

Goldman Sachs Group Inc said on Thursday it was planning to clear such trades for certain clients.

VOLATILITY DAMPENER

Bitcoin’s manic run-up this year has boosted volatility far in excess of other asset classes. The futures trading may help dampen some of the sharp moves, analysts said.

“Hypothetically, volatility over the long run should drop after institutions get involved,” said Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories. “But there may not be an immediate impact, say in the first month.”

Placing futures on an underlying spot market can lend more order to spot trading in the long run by helping to determine the proper price of a security and by allowing investors to express both bullish and bearish biases, said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

Analysts warn, however, against trying to predict how the futures will perform, given that bitcoin is unlike any other asset.

“This is completely unknown territory,” said Charles Schwab’s Frederick.

Bitcoin’s meteoric price rise has raised worries that it could collapse soon, although analysts have little concern that this could hurt broader financial markets because the cryptocurrency lacks correlation with other risky assets and is held and traded largely outside the banking sector.

However, there are still fears of inaccurate pricing and systemic risk to clearing houses, should prices move sharply and clients fail to meet margin calls. Brokers have called for more safeguards to protect against bitcoin’s high volatility.

For a factbox on the launch of bitcoin futures contracts, see:

The risk that investors might manipulate the underlying spot market to benefit in the futures market is another big concern.

“Large equity indexes show some volatility around cash settlements, and those are in highly liquid, highly regulated venues,” said Steve Sosnick, chief options strategist at Interactive Brokers in Greenwich, Connecticut.

“Compare that to cash settlement in bitcoin, and there is a lot more uncertainty on how that would play out.”

Reporting by Saqib Iqbal Ahmed

Friday, 8 December 2017

Sterling rises, euro edges down as Brexit deal may be near


TOKYO (Reuters) - Sterling rose while the euro edged down on Friday, as traders waited to see if British Prime Minister Theresa May has finally clinched an elusive deal with Irish and EU officials on how they would run their post-Brexit Irish land border.

The U.S. dollar was higher against a basket of currencies, on track for a weekly gain, as the passage of a bill to temporarily extend U.S. government funding raised investors’ optimism that a tax reform bill would also pass.

The leader of the Northern Irish party which props up May’s government negotiated through the early hours about the post-Brexit Irish land border, a source in the party told Reuters on Friday.

An agreement would remove the last obstacle for opening free-trade talks with the European Union. May is likely to meet European Union chief executive Jean-Claude Juncker before dawn (0600 GMT) in Brussels.

The euro inched down 0.1 percent to $1.1761 EUR=, around its lowest levels since Nov. 22. It was on track to shed 1.1 percent for the week, but is still up nearly 12 percent so far in 2017.

Sterling was up 0.3 percent at $1.3512 GBP=, pulling away from its overnight low of $1.3320.

Forex traders were also awaiting the closely watched U.S. non-farm payrolls report later in the day, which is expected to show 200,000 new jobs were created in November, according to a Reuters poll.

The dollar index, which gauges the greenback against a basket of six major rivals, was slightly higher on the day at 93.830, up 1 percent for the week. But it was still down 8.2 percent for the year, a period plagued by U.S. policy uncertainty.

Removing one major stumbling block for the dollar, the U.S. Congress on Thursday passed legislation to temporarily fund the government through Dec. 22, beating a Friday midnight deadline. The bill will be sent to President Donald Trump to sign.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

“The market action this week has mostly been drawing cues from Washington,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“But from an economic perspective, as we start to look at the real economy, we will get one of the first ‘clean reads’ on employment,” he said, referring to a jobs report in which the impact of the year’s hurricanes is no longer a factor.

The number of Americans filing for unemployment benefits unexpectedly fell last week to 236,000, data showed on Thursday.

Fed funds futures prices show that investors expect the U.S. central bank to hike rates at its Dec. 12-13 meeting, with investors now focused on how many more hikes to expect in 2018.

“Speculators may think today is a good day to have dollar long positions, and buy the dollar on dips, ahead of the U.S. employment data, and with the Fed expected to hike next week,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

Against its Japanese counterpart, the dollar was 0.3 percent higher at 113.38 yen, trading at its highest levels since mid-November and up 1 percent for the week. It was still down 3.2 percent for the year.

Investors had a muted reaction to upbeat Japanese economic readings on Friday, including revised data that showed the economy grew an annualized 2.5 percent, twice as fast as originally estimated in the third quarter, thanks to big gains in capital expenditure.

But regional sentiment got a lift from stronger-than-expected Chinese trade data showing exports surged 12.3 percent in November from a year earlier, more than double the forecast, while imports climbed almost 18 percent.

Bitcoin was down 9.8 percent on the Bitstamp exchange at $14,965.00, after notching a record high of $16,666.66. It was up more than 30 percent for the week, as investors debated about whether the cryptocurrency was in a bubble that was about to burst.

Reporting by Lisa Twaronite

Thursday, 7 December 2017

Dollar hits two-week high on U.S. tax reform optimism, world shares climb


LONDON (Reuters) - The dollar rose to its highest level in two weeks on Thursday over optimism the United States would successfully push through tax reforms, while world shares rebounded after two straight days of losses.

The U.S. currency slipped against the safe-haven Japanese yen on Wednesday after U.S. President Donald Trump said he would recognise Jerusalem as the capital of Israel - a move that imperiled Middle East peace efforts and provoked widespread condemnation.

But amidst a broader climb in global stocks on Thursday, the greenback rose 0.3 percent against the yen to trade at 112.60 yen, and hit a two-week high against a basket of peers.

The MSCI World Index, which tracks shares in 47 countries, was up 0.1 percent.

Underpinning some of the dollar’s gains analysts said was some cautious optimism on progress over U.S. tax reforms.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

“The dollar is fighting back a little bit but there’s still some caution, as it could still be a few weeks until we know the outcome of the tax reform bill,” said Rabobank currency strategist Jane Foley, in London.

“The yen will be sensitive if geopolitical tensions rise again, and I think there’s an inevitability to that, so I don’t think there’s going to be too much upside for dollar/yen in this environment,” she added.

Upbeat U.S. private-sector employment data released on Wednesday also provided some support to the dollar. But strategists said the currency would trade in narrow ranges until the release of the closely watched non-farm payrolls report on Friday.

Bitcoin soared to a record high of more than $14,500, up almost 7 percent on the day and continuing a staggering surge from less than $1,000 at the beginning of the year.

European stock markets appeared to take their cues from a general recovery in tech stocks overnight in Asia and Wall Street.

The pan-European STOXX 600 was up 0.2 percent with tech stocks initially up 0.5 percent. Financials, industrials and healthcare shares also added points to the index.

“We have seen some aggressive moves in Asia, whereas Europe seems to be a bit more subdued,” said David Madden, analyst at CMC Markets in London.

“It’s almost like European markets look for an excuse to selloff but it takes them a lot to be convinced to actually push higher.”

Shares in the energy sector, which weighed on shares earlier in Wall Street and Asia, rose in Europe, as oil prices recovered from a big fall on Wednesday.

U.S. West Texas Intermediate crude futures traded at $56.13 per barrel in European trade, up 0.3 percent on the day.

Brent futures gained 0.4 percent to $61.45 per barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent as some technology bellwethers rebounded, with Tencent rising over 3 percent and Alibaba more than 2 percent.

In Japan, the Nikkei jumped 1.5 percent, recouping much of its 2.0 percent loss the previous day, which was its biggest fall since late March.

The price of copper, seen as a barometer of global economic health because of its extensive industrial use, also fell sharply earlier this week, raising worries about the world growth outlook.

Copper traded at $6,576 a tonne, up 0.5 percent on the day and above a two-month low of $6,507.5 touched on Tuesday.

Reporting by Ritvik Carvalho

Dollar inches up, shakes off weakness vs yen, Bitcoin briefly tops $14,000


TOKYO (Reuters) - The dollar edged up against peers on Thursday, shaking off earlier losses versus the yen, supported by signs that investors’ risk appetites were improving again and by optimism on U.S. tax reforms.

The greenback was 0.1 percent higher at 112.380 yen after dropping by 0.25 percent overnight.

The dollar had slipped against the yen after President Donald Trump on Wednesday recognised Jerusalem as the capital of Israel, imperilling Middle East peace efforts and upsetting Washington’s friends and foes alike.

“The impact of the ‘risk off’ moves that weakened the dollar against the yen stemming from the Middle East developments appears to have been limited. It likely served as a pretext for speculators to cover some yen shorts,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“We could still see participants try to sell the dollar on upcoming ‘risk off’ events. But the dollar is positioned to absorb much of the selling pressure, with many players poised to buy on dips,” he said.

Dollar/yen on Thursday rose in line with a surge in Tokyo shares, which had slumped the previous day on Middle East concerns.

But considering the Nikkei’s gains - the index was up more than 1 percent- the dollar’s rise versus the yen appeared limited, some observers noted.

"The decoupling that has begun taking place between equities and currencies is one of the key market themes of 2017," said Daisuke Karakama, chief market economist at Mizuho Bank.

The U.S. currency rose to a two-week high against a basket of six major currencies as optimism towards U.S. lawmakers’ making progress on tax legislation grew. Upbeat U.S. private-sector employment data released on Wednesday also provided support.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

The dollar index was little changed at 93.543 after rising to 93.650 overnight, its highest since Nov. 22.

The euro was steady at $1.1803 after slipping 0.25 percent overnight, when it hit a two-week low of $1.1780.

Bitcoin briefly soared to a record high of $14,095.00, continuing its surge from below $1,000 at the beginning of the year, despite questions about the cryptocurrency’s real value and worries about a dangerous bubble.

Later, Bitcoin was down 0.25 percent at $13,590.01 at the Luxembourg-based Bitstamp exchange.

The Canadian dollar nursed deep losses suffered overnight after the Bank of Canada held interest rates steady and showed enough caution to dampen expectations for a hike early next year.

The loonie was effectively flat at C$0.9895 per dollar after retreating 0.8 percent the previous day.

The Australian dollar, hit the previous day by weaker than expected local gross domestic product numbers, extended losses against the buoyant dollar.

The Aussie was 0.2 percent lower at $0.7548.

The New Zealand dollar held up for a while after showed that housing prices in the country jumped 6.4 percent in November.

But the kiwi last traded at $0.6859, down 0.3 percent on the day.

Sterling was down 0.1 percent at $1.3383 after touching a one-week low of $1.3358 overnight amid growing concerns that a Brexit deal may be unlikely before next week’s key EU summit. The immediate focus for the pound was on British Prime Minister Theresa May, who is expected to propose suggestions to Brexit negotiators to try to break an impasse on the issue of the Irish border.

Reporting by Shinichi Saoshiro

Wednesday, 6 December 2017

Brexit deadlock fears push sterling to 1-week lows


LONDON (Reuters) - Sterling fell to a one-week low in volatile trading on Wednesday after the Sun newspaper’s political editor said on Twitter that a Brexit deal is unlikely this week.

The Sun’s political editor Tom Newton Dunn, citing a source in the Democratic Unionist Party, said there would be no Brexit deal done this week and hopes are fading fast in London that Prime Minister Theresa May will go back to Brussels on Thursday.

The Northern Irish party that props up May’s minority Conservative government rejected this week a proposal on the post-Brexit border with Ireland that could have helped move forward negations on Britain’s exit from the European Union.

Market bets on sterling had shifted considerably in recent weeks towards betting on a breakthrough in Brexit negotiations with sterling rising to more than a two-month high last Friday.

Though the tentative deal was rejected on Monday, some market strategists such as Nomura believe there is a 70 percent probability of a breakthrough in talks, though some traders say the latest headlines reduce those expectations even further.

“This political ping-pong battle is really hurting investor sentiment towards sterling,” said Neil Jones, Mizuho’s head of currency sales for hedge funds in London.

Failure could mean a delay until February, adding to the risk of businesses scaling back investment plans in Britain as uncertainty clouds the outlook beyond Brexit in March 2019.

The British pound which was already down on the day, extended its drop to stand 0.6 percent weaker at $1.3358 on the day. Against the euro, sterling was down half a percent on the day at 88.33 pence.

High-frequency indicators of market positioning and options market hedging have also shifted markedly in recent weeks to show some optimism emerging on sterling, with the British currency hitting a two-month high last week.

But reflecting the growing pessimism about a conclusive breakthrough in talks before a crucial EU summit next week, some traders reported a pickup in activity in selling short-dated calls on sterling around the 2017 highs of $1.3653, hit in mid-September.

Reference: Saikat Chatterjee

Bitcoin dips below $11,000 after setting another record high


LONDON (Reuters) - Bitcoin dipped back under $11,000 (8,169.93 pounds)on Monday, coming off a record high just shy of $11,800 it hit on Sunday after a surge from less than $1,000 at the start of the year.

The cryptocurrency, which trades 24 hours a day and seven days a week, climbed as high as $11,799.99 on the Luxembourg-based Bitstamp exchange at around 2100 GMT on Sunday.

It was not clear what caused the move higher over the weekend other than new investors joining the upstart market, with so-called wallet-providers reporting record numbers of sign-ups over the past week.

Analysts said Friday’s announcement by the main U.S. derivatives regulator that it would allow CME Group Inc and CBOE Global Markets to list bitcoin futures contracts had turned sentiment positive after a choppy week.

“The price rises are triggered by continued media interest driven by the expectation of futures trading on CME,” Charles Hayter, founder of data analysis website Cryptocompare, said.

By 1310 GMT on Monday, bitcoin had slipped back to around $10,919, down 2 percent on the day but still up more than 100 percent over the past three weeks. Sunday’s high marked a 1,121 percent increase since the start of the year.

Think Markets analyst Naeem Aslam said reports Britain wants to increase regulation of bitcoin and other digital currencies by expanding the reach of European Union anti-money-laundering rules that force traders to disclose their identities and report suspicious activity, had knocked bitcoin off its highs.

But others said greater regulatory scrutiny would help.

“If anything, regulation will only increase bitcoin’s rate of growth as regulation lends credibility and engenders trust,” Nicholas Gregory, CEO of London-based cryptocurrency firm CommerceBlock, said.

Sunday’s record high for bitcoin came as Venezuelan President Nicolas Maduro announced the launch of the “petro”, which he said would be a cryptocurrency backed by oil reserves, to shore up a collapsed economy.

Opposition leaders said the digital currency would need congressional approval and some cast doubt on whether it would ever see the light of day in the midst of turmoil.

Reporting by Jemima Kelly

Tuesday, 5 December 2017

Dollar steadies after Monday's bounce; sterling crumbles


LONDON (Reuters) - The dollar steadied on Tuesday after posting its biggest daily rise in a week in the previous session as caution set in before the U.S. tax bill becomes reality, with sterling leading early losers.

“With regards to the dollar, everything is already there in the price and we need to see further movement on the tax bill or strong data to push it higher,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The Senate must now reconcile its version of the bill with legislation passed by the House of Representatives.

Against a basket of six major currencies, the dollar edged 0.1 percent higher at 93.278 after gaining about 0.3 percent the previous day, its biggest daily rise since Nov.

Sterling dipped more than half a percent GBP=D3 in early trades as disappointment over a Brexit deal prompted investors to cut their long bets. The British currency fell 0.8 percent to $1.3375, extending its decline from Asia.

Prime Minister Theresa May failed to clinch a deal on Monday to open talks on post-Brexit free trade with the European Union after a tentative deal with Dublin to keep EU rules in Northern Ireland angered her allies in Belfast.

Commerzbank strategists said Monday’s volatility in sterling showed how difficult the Brexit negotiations remain.

“As soon as the second round of the negotiations starts, which will be dealing with the trade agreement, things are going to heat up further as every single one of the 27 EU countries had the right to veto the agreement and can therefore block any progress,” they said.

The Australian dollar led early gainers after the The Australian dollar was 0.6 percent higher at $0.7639 AUD=D4 after data showed strong retail sales in October after months of lukewarm demand.

Reporting by Saikat Chatterjee

Asian shares down as tech blues offset U.S. tax cut optimism


TOKYO (Reuters) - Asian shares dipped slightly on Tuesday as investors’ rotation out of technology shares took a toll on some of the region’s tech heavyweights although hopes of a major tax cut in the United States underpinned risk sentiment.

European shares are seen steady, with spread-betters picking Britain's FTSE .FTSE and Germany's DAX to be almost flat and France's CAC to edge 0.1 percent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent, driven by a fall in technology shares such as Tencent and Alibaba.

Japan's Nikkei slipped 0.4 percent, with semi-conductor related shares leading losses while mainland China's start-up board dropped almost 3 percent to its lowest level in four months.

“I would say the market is hitting a speed bump after a strong rally so far this year,” said Yukino Yamada, senior strategist at Daiwa Securities.

While MSCI’s ex-Japan Asia-Pacific index flirted with last month’s low, it was still up almost 30 percent so far this year, and is on course to mark its best year since 2010.

On Wall Street, the benchmark S&P 500 finished lower on Monday after setting a record intraday high earlier as the technology sector, which has led the market's record-setting rally this year, tumbled 1.9 percent.

The tech index hit a five-week low and was down 4.3 percent from its record peak hit a week ago though it still remained the best performer of the year with year-to-date gains of 33 percent.

Investors switched to banks and retailers, which are seen benefiting from the expected corporate tax cuts.

President Donald Trump’s goal of slashing taxes on businesses cleared an important hurdle at the weekend when the U.S. Senate narrowly approved the Republican’s tax overhaul plan.

The S&P 500 banks index  surged 2.3 percent while battered department store shares also jumped.

“Some high-tech shares’ valuations are getting stretched. For the entire market to keep rallying, we needed a sector rotation,” said Nobuyuki Kashihara, head of research at Asset Management One.

“On the whole, the world’s shares are supported by a synchronized growth in the global economy,” he added.

U.S. tax cut optimism supported the dollar, particularly against the yen.

Yet, concerns about the ongoing investigation into contacts between Trump’s election campaign and Russia sapped some of the market’s enthusiasm.

The dollar fetched 112.48 yen JPY=, little changed in Asia after a brief foray to 113.09 on Monday, which was its highest level in more than two weeks.

The euro EUR= was steadier at $1.1875, sitting comfortably in its familiar trading range between $1.1810-1.1960, as the common currency was helped by hopes the two major German parties will form a grand coalition.

The British pound GBP=D4 stood at $1.3475, off last week's two-month high of $1.3550, after European Commission President Jean-Claude Juncker and British Prime Minister Theresa May failed to reach an agreement on a divorce deal.

The Australian dollar gained as much as 0.8 percent to a three-week high of $0.7654 AUD=D4 following strong economic data and a relaxed tone from the country's central bank on the level of the local currency.

Bitcoin  ticked down 0.5 percent to $11,558, still hovering near its record high of $11,800 set on Sunday.

Oil gained slightly after falling more than 1 percent on Monday, buoyed by expectations of a drop in U.S. crude stockpiles and after last week’s deal between OPEC and other crude producers to extend output curbs

U.S. West Texas Intermediate futures CLc1 traded at $57.55 per barrel, up 0.1 percent for the day.

International benchmark Brent futures LCOc1 inched up 0.1 percent to $62.52 a barrel.

Reference: Hideyuki Sano

Dollar holds modest gains, rise slows with next phase in tax saga awaited


TOKYO (Reuters) - The dollar held on to modest gains against its peers on Tuesday, with its rise made at the week’s start slowing as the market awaited the next phase of the U.S. tax reform saga for cues.

The dollar was a shade higher at 112.500 yen.

The greenback had climbed to a 2-1/2-week high of 113.090 the previous day, boosted by the U.S. Senate’s approval of the U.S. tax bill over the weekend.

But it was unable to remain above the 113.000 yen threshold. The Senate must now reconcile its version of the bill with legislation passed by the House of Representatives, a process that could face a few speed bumps along the way.

“A large portion of the enthusiasm for the tax bill passing the Senate had already been factored in when (Republican Senator John) McCain gave his endorsement last week,” said Shin Kadota, senior strategist at Barclays in Tokyo, explaining the dollar’s loss of momentum.

“The upcoming negotiations on the bill between the Senate and the House are likely to decide the dollar’s direction this week.”

The euro was steady at $1.1867 after losing 0.3 percent overnight.

The dollar index against a basket of six major currencies was little changed at 93.113 after gaining about 0.3 percent the previous day.

The pound was little changed at $1.3474 after wide swings the previous day.

Sterling initially spiked to $1.3538 on Monday on hopes that divorce talks between Britain and the European Union would make headway. But it slumped to $1.3415 after European Commission President Jean-Claude Juncker and British Prime Minister Theresa May failed to reach an agreement.

The Australian dollar nudged up 0.1 percent to $0.7603.

The Aussie awaited the Reserve Bank of Australia’s interest rate decision later in the session. Analysts polled by Reuters expected the RBA to keep its cash rate at a record low of 1.5 percent.

The New Zealand dollar climbed 0.1 percent to $0.6866 after dropping 0.4 percent on Monday.

Reporting by Shinichi Saoshiro

Monday, 4 December 2017

Tax deal sends dollar surging, preps U.S. stocks for strong day


LONDON (Reuters) - The dollar jumped on Monday versus the currencies of other developed and emerging nations while Treasury yields rose and Wall Street was primed for a another record-setting day after the U.S. Senates voted to approve a wide-ranging tax overhaul.

European stocks opened higher, with French, German and British markets up 0.9 to 1.4 percent, anticipating a strong New York session - futures for the Dow Jones, S&P 500 and Nasdaq indexes rallied as much as 0.9 percent

Markets are reacting to the Senate’s approval on Saturday for the biggest tax law change since the 1980s, taking President Donald Trump closer to his goal of slashing taxes for businesses.

“With this tax deal, markets could pick up speed into the end of the year. It looks like the ingredients for a year-end rally are there,” said Angelo Meda, head of equities at asset manager Banor SIM in Milan, predicting equity gains of 3 to 4 percent.

Tax cut hopes have been a significant tailwind this year for U.S. stocks, although the move is expected to add to the country’s $20 trillion national debt and increase the chances of more aggressive near-term rate rises in the world’s largest economy.

Those expectations pushed the dollar up as much as 0.4 percent against a basket of currencies while Treasury yields rose across the curve.

Two-year yields matched Friday’s nine-year high , indicating that bonds are already anticipating the debt increase.

“This environment should question whether the market is being too conservative in only pricing 50 basis points of (U.S. Federal Reserve) tightening next year,” analysts at ING Bank told clients.

“Loose fiscal and tight monetary policy should be sending the dollar firmer.”

For the time being, the dollar gave up some early gains against the euro and sterling, which traded around 0.3 percent lower to the dollar EUR= GBP=. Many warn of risks ahead, especially a U.S. government shutdown, should this Friday's deadline to authorize new borrowing pass without a deal.

World stocks rose just 0.18 percent .MIWD000PUS, though they stayed off recent record highs, following a shaky start in Asia caused by early selling in technology shares.

While Japanese shares closed half a percent lower most other Asian markets managed to end in the black. Emerging equities rose 0.5 percent

EXIT EUROPE

In Europe, German bond prices tracked Treasuries lower, with 10-year Bund yields up around four basis points and rising off almost three-month lows hit Friday.

But the focus was on Britain, with 10-year UK government bond yields up around 6 basis points as Prime Minister Theresa May headed for a crunch meeting with European Union officials to break a deadlock in Brexit talks.

EU officials have expressed optimism a deal on the main issues will be struck on Monday, even though members of May’s party have urged her to walk away unless there is progress.

Hopes of a deal pushed sterling recently to six-month highs against its trading partners’ currencies =GBP, but it slipped on Monday against the firmer dollar and was flat to the euro, giving up tentative early gains EURGBP=.

Shares in British mid-sized firms were up 0.7 percent.

“If a green light is provided today for talks to move on to future relations, including a timely transition arrangement, it would open the door for further pound gains in the near-term,” MUFG analysts wrote, warning that the reverse was likely, should talks break down.

Emerging currencies were mostly weaker against the dollar, with Turkish markets hit by data showing inflation at almost 13 percent, the highest since 2003.

On commodities, Brent crude futures slipped 0.7 percent, LCOc1 pressured by signs of increasing supply from U.S. shale producers. Copper prices firmed, after data last week showed China’s economy in good shape.

Reporting by Sujata Rao

Sterling slips against dollar, rises vs euro before Brexit summit


LONDON (Reuters) - Sterling slipped against a stronger dollar on Monday but edged up against the euro, with investors focused on a summit in Brussels, where British Prime Minister Theresa May hopes to break a deadlock in Brexit talks with a new divorce offer.

Over lunch with European Commission President Jean-Claude Juncker and European Union Brexit negotiator Michel Barnier, May will try to persuade them to start discussions on a new trade pact and a two-year transitional deal.

EU officials and diplomats say they are increasingly optimistic a deal can be struck, and so are investors: a Reuters poll last week found economist believe the chance of a disorderly Brexit has declined over the past month.

Such optimism drove sterling to six-month highs on a trade-weighted basis last week and to its highest in two months against the dollar at $1.3550.

And speculators bought back into the pound in the week up to last Tuesday, data showed on Friday, with positioning moving into positive territory - reflecting more bets that sterling will strengthen than that they will fall - for the first time since October

“Strong signals could emerge later today as to whether EU negotiators are recommending to EU leaders that Brexit negotiations should move to Phase II ... We think sterling can outperform, but prefer gains versus the euro or yen,” said ING currency strategist Chris Turner.

Sterling slipped to $1.3442 on Monday, down 0.3 percent on the day. Against the euro, it was 0.1 percent stronger at 88.27 pence.

Traders were also focused on the latest activity data from the construction sector, due at 0930 GMT.

Reference: Jemima Kelly

Sunday, 3 December 2017

Dollar slumps on report ex-adviser Flynn to testify against Trump


NEW YORK (Reuters) - The greenback slipped against a basket of currencies on Friday after ABC News reported that Michael Flynn, a former adviser to U.S. President Donald Trump, said he was prepared to testify that Trump directed him to make contact with the Russians when he was a presidential candidate.

The dollar index, which measures the greenback against six rival currencies, was down 0.15 percent at 92.903.

Growing optimism that U.S. Senate Republicans would be able to pass a tax overhaul bill had sent the index as high as 93.248, but the index reversed course sharply on the Flynn headlines.

Reuters could not immediately verify the ABC News report.

“To the extent that this headline further ensnares this administration into this investigation or suggests a widening of the Special Counsel’s probe, I think that it is certainly a key concern for global investors and that’s why we are seeing the dollar come off,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Meanwhile, U.S. Senate Republicans said they had gathered the votes needed to pass a sweeping tax overhaul, after last-minute negotiations to ease some senators’ concerns about the bill’s impact on the federal deficit, healthcare and property taxes.

A final vote on the bill was expected later on Friday.

The dollar has grown very sensitive to the prospect of the passage of the tax bill in recent weeks and any perceived hurdles have been a source of anxiety for dollar bulls.

The euro remained slightly weaker against the dollar, despite data that showed global manufacturing expanded at the fastest pace in years last month and the second-fastest for two decades in the euro zone, driven by robust demand.

The single currency was down 0.09 percent to $1.1891.

“The euro has had generally a good week, and it’s almost a dynamic of buy the rumour, sell the fact,” said Mazen Issa, senior FX strategist at TD Securities in New York.

Sterling slipped from a two-month high against the dollar, getting only a temporary boost from better-than-expected UK manufacturing data, as investors fretted about Britain reaching a deal with the European Union over the Irish border.

The Canadian dollar posted its biggest gain in about 20 months against its U.S. counterpart after stronger-than-expected domestic jobs data fuelled expectations for further Bank of Canada interest rate hikes early next year.

Reference: Reuters

Friday, 1 December 2017

Sterling tops $1.35 on Brexit deal hopes, dollar weakness


LONDON (Reuters) - Sterling topped $1.35 on Thursday, hitting a two-month peak, as hopes grew of a deal between Britain and the European Union at a summit next month.

The dollar’s weakness in late New York trading exacerbating the pound’s gains.

“The dollar has been whacked across the board and cable has been benefiting from that, but sterling was already strengthening on speculation that the UK is close to an agreement on the Irish border,” said Adam Cole, chief currency strategist at RBC Capital Markets.

The dollar retreated from the session highs of 93.505 against a trade-weighted basket of its rivals on Thursday and was trading at 92.875.

EU leaders are preparing to offer a two-year Brexit transition deal as early as January after negotiators were close to a deal over the Northern Ireland border, The Times newspaper said on Thursday, citing EU sources.

Avoiding a so-called “hard border” on the island of Ireland that many fear could disrupt the peace in Northern Ireland is the last major hurdle before talks can move to negotiations on Britain’s future trade relationship with the bloc.

Sterling extended a 3-day rally to its highest level since Sept. 25 to $1.3549 taking its gains since late Tuesday to more than 2.5 percent.

“The news triggered a lot of stops that pushed the currency higher. This would be tremendously bullish for sterling,” said ACLS Global strategist Marshall Gittler.

Brexit supporters accused Prime Minister Theresa May on Wednesday of being far too weak with the European Union after reports that she is ready to pay what Brussels is demanding to settle the divorce bill to leave the bloc.

But investors have welcomed the higher offer from May, with many fearing a “disorderly Brexit” - one without a deal - could spook financial markets, sow legal chaos and harm the British and EU economies by disrupting trade ties and cross-border supply chains.

“A key short-term downside risk appears to be abating,” wrote UBS macro strategist Lefteris Farmakis, in a research note on Thursday.

“Now the prospect for a fairly long and smooth transitional period has emerged. Should a transition deal be confirmed, downside risks for the currency will be firmly pushed back in time. And equally, the alleviation of imminent tail risks should support sterling, at least in the short term.”hit a three-week high of 87.76 pence.

Those gains helped pull up the Bank of England’s trade-weighted sterling index, which tracks the British pound’s effective exchange rate, to 78.8, its highest since May 19.

Reporting by Jemima Kelly