Europe Futures Slide as Yen Rises With Bunds Amid China Concern

28 Sep 2015 | Author: | No comments yet »

Dollar edges lower ahead of this week’s payrolls, China survey.

The dollar lost its rising momentum in Asia on Monday because the focus shifted to U.S. economic indicators in coming sessions and murky policy outlook, even after Federal Reserve Chairwoman Janet Yellen made her case for potential rate increases later this year.The dollar pulled away from a one-month high against a basket of currencies on Monday as investors awaited a key Chinese factory survey and U.S. employment figures this week for clues on when the Federal Reserve will finally hike U.S. interest rates. Thursday’s China Caixin Purchasing Managers’ Index (PMI) and U.S. non-farm payrolls on Friday could give the greenback a lift if upbeat results strengthen the case for a rate hike this year. But the ascent didn’t last long because the Fed’s acknowledgement of global market developments as a concern in the latest policy statement stayed on investors’ minds.

Continued improvement in U.S. employment conditions as well as signs of stabilization in the recently slowing Chinese economy could help convince the Fed to raise rates for the first time since 2006. “We have two big events this week. Chinese data now seems to be classified in the payrolls category of events,” said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore.

Since then, a string of Fed officials, including Janet Yellen herself last Thursday, has assured markets that the bank is still on track to normalize policy this year. Atsushi Hirano, head of FX sales Japan at Royal Bank of Scotland, said the dollar could rise to test ¥122 this week if global stock and emerging markets stabilize. Kansas City Fed President Esther George on Friday said she believes the Fed should act soon so that it will “have the luxury” of being able keep rate hikes gradual. “With a further nine Fed speakers scheduled for this week,” analysts at ANZ wrote in a note to clients, “Fed policy – and its impact on broader markets – will no doubt remain at the forefront of the markets’ mind.” The consolidating dollar saw commodity currencies recover some ground.

While the Fed stays on its course to a potential liftoff this year, European Central Bank officials, including president Mario Draghi, have emphasized that the eurozone central bank is not yet ready to expand its asset purchase program. Also this week, the IMF is expected to downgrade its global economic forecasts when it publishes updated figures, which could quell investors’ risk appetite. Still, the bank does not see Catalan independence from Spain as the most likely outcome because the costs associated would be very high, including exit from the European Union, and Catalonia is likely to win some concessions from the central government later this year. In the United States, the shock resignation of House Speaker John Boehner and his comments on Sunday that Congress will avoid a government shutdown this week potentially remove one source of investor anxiety.

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