The dollar held most of last week’s gains on Monday but hung just off 18-month highs against major currencies as ebbing market turbulence took some of the bid out of safe-haven assets.
The prospect that investors could see renewed volatility this week remains, however, with key Australian, UK and European central bank meetings taking place in the days ahead.
The euro was at $1.1161, up 0.16%, having fallen to $1.1119 on Friday, its weakest since June 2020. The Aussie was at $0.701, up 0.35%, after touching its lowest since July 2020 on Friday.
The greenback had its best week in seven months last week supported by investors seeking safety amid a sell-off in riskier assets and by analysts raising forecasts for U.S. interest rate hikes.
MSCI’s 50-country main world index is headed for its worst month since the start of the pandemic although Asian markets regained some composure on Monday.
Market pricing now suggests a more than 90% chance of at least four Fed rate hikes by the end of the year and a 67% chance of at least five.
“The USD ‘smiled’ again, drawing on a combination of rates repricing and much weaker risk sentiment,” said analysts at Barclays.
Looking forward, they said the potential for further dollar gains based on rate hike expectations was limited, as last week’s moves mean an “aggressive normalisation cycle” is now priced in, though weak and volatile equities could push it higher.
The dollar index, which measures the greenback against six major peers was at 97.131, down 0.1%, but still close to Friday’s 18-month intraday top of 97.441.
The yen was at 115.47 per dollar, in the middle of its recent range, buffeted by the headwind of rising U.S. rate expectations with little prospect of rate hikes at home, but supported by some demand for it as a safe-haven.
While U.S. payroll figures are out on Friday, the focus this week shifts a little away from the Fed to other central banks.
Australia-watchers await the central bank’s Tuesday meeting, amid rising expectations it will announce an end to its quantitative easing programme. That will be followed by a speech by the RBA’s governor on Wednesday and a statement on monetary policy Friday.
The week “will go far to define the psychology of the market for the next few months,” said Westpac analysts. “That QE will cease will not be a surprise, so the real focus is on the RBA’s shifting economic view and its implications for the (benchmark) cash rate.”
The Bank of England also holds its meeting on Thursday, with a Reuters poll of economists predicting a second rate hike in less than two months, as the BOE reverses more pandemic stimulus, after inflation jumped to its highest in nearly 30 years.
The European Central Bank also has a policy meeting on Thursday. While no policy change is expected, analysts are starting to warn that approaching rate hikes from the Fed will shrink the ECB’s window for action.
In cryptocurrencies, bitcoin was just below $37,700, after a quiet weekend for the digital asset.
(Reporting by Alun John; Editing by Sam Holmes)
Charting the Global Economy: Factories Slow Down From US to Asia – BNN
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Manufacturing from the US to Asia is very much in a slowdown as factories continue to struggle with supply snarls, labor shortages and elevated materials costs.
A measure of US manufacturing activity weakened in June to a two-year low, and several regional Federal Reserve surveys indicated business activity shrank. Factory purchasing managers’ gauges across Asia eased, with South Korea, Thailand and India among those showing the biggest declines, according to S&P Global.
Similar indexes in Poland, Spain and Italy also showed weaker activity compared to May.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Consumer spending fell in May for the first time this year and prior months were revised lower, suggesting an economy on somewhat weaker footing than previously thought amid rapid inflation and Fed interest-rate hikes.
Regional Fed manufacturing surveys have taken on a grimmer tone, with four of five indicating business activity shrank in June. Separately, a measure of overall manufacturing slid to a two-year low as new orders contracted, restrained by lingering supply constraints and some softening in demand.
The pandemic housing boom is careening to a halt as the fastest-rising mortgage rates in at least half a century upend affordability for homebuyers, catching many sellers wrong-footed with prices that are too high.
Confidence in the euro-area economy slipped as households become more pessimistic amid fears a Russian energy cutoff will spark a recession. At the same time, they’re less worried about inflation than they were a month ago, though there’s a split between core and peripheral euro-area countries.
After suffering from unprecedented shocks in recent years, the UK is succumbing to more intractable problems marked by plodding growth, surging inflation and a series of damaging strikes.
China’s economy showed some improvement in June as Covid restrictions were gradually eased, although the recovery remains muted. That’s the outlook based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge returned to the neutral level after deteriorating for two straight months.
Japan’s factory output shrank at the fastest pace since the height of the pandemic as the lagged impact of China’s virus lockdowns continued to disrupt supply chains and economic activity in the region. The weakness in manufacturing extended across Asia, particularly in South Korea, Thailand, India and Taiwan.
Colombia’s central bank delivered its biggest interest rate increase in over two decades. Policy makers are bracing for another spike in annual inflation that’s already above 9%.
Two years after Argentina emerged from its latest default, a debt crisis in brewing once again. This time, the immediate trouble is in the local bond market, where creditors have become reluctant to roll over maturing government bonds.
Zambia’s inflation rate dropped below 10% for the first time in almost three years in June, bucking a global trend of record consumer-price growth. Optimism over the nation’s economy since the election of Hakainde Hichilema as president in August, a potential debt restructuring and a $1.4 billion bailout package from the International Monetary Fund has seen a rally in the local currency, which has helped contain prices.
Differences in underlying inflation trends call for different policy outlooks among the world’s top central banks, according to Bloomberg Economics. The Fed will have to go well into restrictive territory, the Bank of England may go a little above neutral and the European Central Bank might not even get that far.
©2022 Bloomberg L.P.
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Minister Of The Economy Franz Fayot On Luxembourg’s Transition Towards A Green Economy – Forbes
Just last week, Luxembourg’s Minister of the Economy, Franz Fayot, came to the cities of Toronto and Montreal as part of an economic mission organized by the Luxembourg Chamber of Commerce in close cooperation with the Ministry of the Economy. I had the opportunity to sit down with Minister Fayot at the InterContinental Toronto Centre, and get some insights into the Grand-Duchy’s economic transition towards sustainability.
A transitioning economy
With up to one-third of its GDP related to the finance sector, Luxembourg’s economy is widely dominated by the financial sector. However, the past 20 years have been characterized by a push for economic diversification, and increased transparency and regulations following the financial crisis, said Minister Fayot.
“What we are trying to do is diversify [the economy] even more into new sectors to make us less dependent on the financial sector and adaptable to new circumstances,” he said. “We are also more and more developing a green finance sustainable finance sector, which is doing very well.”
A green state responsibility
Minister Fayot, whose guiding principles are a strong welfare state and sustainability, firmly believes that the government must assume its pivotal role in shifting the economy towards sustainability — “both in terms of environmental sustainability, but also social sustainability,” he added.
In June 2020, an international consultation was launched to gather strategic spatial planning project ideas considering the climate-related challenges and social issues, and support for the country’s ecological transition towards a zero-carbon territory by 2050.
“We need to understand that we have to help businesses innovate, and invest in the future,” said Minister Fayot.
A rising startup ecosystem
Luxembourg has seen a steady growth in startups over the past decade.
Earlier this year, the Ministry of the Economy launched a strategic initiative aimed at providing a thorough understanding of the startup ecosystem based on data analysis and interviews with key stakeholders.
Luxinnovation, the national innovation agency, identified over 500 active startups offering innovative digital and data-driven solutions in its latest mapping.
These assessments will also provide relevant comparisons with international markets, and aim to identify the necessary next steps for development opportunities in the upcoming years.
“Our innovation agency is there to guide startups, but also other more established businesses, to get access to grants,” explained Minister Fayot. “We have a state aid framework in Europe which we have to comply with, but the main message is that there is an obvious need to co-finance innovation, particularly in times when we are in this transition towards a more green economy.”
Going above the limits of territory
Surrounded by Belgium, France and Germany, Luxembourg is one of the smallest countries in the world — slightly smaller than Rhode Island. Yet, despite its dependence on its neighboring countries’ energy supplies, it is making continuous efforts to increase its share of renewable energy by also investing in projects across its borders, said Minister Fayot.
“We don’t have that much sun in Luxembourg, and we don’t have an unlimited space to build wind power,” he said. “It’s a bit of a limiting factor, but it shouldn’t excuse anything.”
“We are investing a lot into energy efficiency,” he added. “We are trying to get people to e-mobility and pushing for geothermal heating and energy in new constructions.”
A growing space sector
Luxembourg might not be the first to come to mind when we think of space, but, the country owns one of the world-leading satellite operators, and is increasing its investment into space resources.
“The SpaceResources.lu is an initiative that we launched about six years ago, and it is very much focused on the space resources segment of the space industry,” he said. “We are not launching anything in space out of Luxembourg, but focusing on services like space traffic management.”
As part of the economic mission, a group of space companies participated in a distinctive program set up by the Luxembourg Space Agency in collaboration with the Canadian Space Agency. This included on-site company visits, workshops and B2B opportunities that led to the signing of a Memorandum of Understanding between the two national space agencies.
Stephanie Ricci contributed to this story.
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