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Dollar rises as U.S. data shows inflation running hot

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The U.S. dollar climbed to a 5-day high against a basket of currencies on Tuesday after data showed U.S. inflation data for June coming in hotter than expected, raising the prospect that inflationary concerns are set to linger.

U.S. consumer prices rose by the most in 13 years in June https://www.reuters.com/article/usa-economy-inflation/u-s-consumer-prices-surge-in-june-idUSL1N2OO1VQ amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

“(This was) clearly an upside surprise. It will make (Federal Reserve Chairman Jerome) Powell’s testimony on Capitol Hill tomorrow a much trickier exercise than it would’ve otherwise been given that it will put some additional pressure on the ‘transitory’ narrative,” said Michael Brown, senior analyst at payments firm Caxton in London.

“FX reaction is as one would expect given an upside surprise, with the dollar rallying across the board in line with the sharp rise in Treasury yields,” said Brown.

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Traders are looking forward to Powell testifying before Congress on Wednesday and Thursday for any signals on the timing of potential U.S. tapering.

Powell has repeatedly stated that higher inflation will be transitory, noting that he expected supply chains to normalize and adapt. Treasury Secretary Janet Yellen shares that view.

The dollar index, which measures the greenback against a basket of six currencies, was 0.59% higher at 92.762, its highest since July 8. The index is just shy of the three-month high of 92.844 touched last week.

The possibility of U.S. stimulus withdrawal – brought to the fore by a surprise shift in tone last month from the Fed – has boosted the dollar in recent weeks despite a renewed rise in coronavirus cases in many parts of the world.

U.S. consumer price inflation data is likely to help boost the dollar higher.

“It kind of reinforced the Fed taper story and the dollar has been consolidating for the front of the week, and I think this was the kick that it needed to renew its gains,” said Kathy Lien, managing director at BK Asset Management in New York.

Modest strength in the price of oil, a major export for Canada, failed to stanch the Canadian currency’s losses against its U.S. counterpart. The loonie was down 0.5% to a four-day low against the dollar. The Canadian central bank is due to update its economic forecasts at a policy announcement on Wednesday.

Sterling fell on Tuesday after the Bank of England scrapped pandemic-era curbs on dividend payments by banks, but warned some asset prices look stretched.

The pound was last down 0.49% against the dollar, with the bulk of the day’s losses coming after the release of the U.S. CPI data.

Escalating violence over the jailing of former President Jacob Zuma https://www.reuters.com/article/safrica-zuma/update-3-worst-violence-in-years-spreads-in-south-africa-as-grievances-boil-over-idUSL1N2OP0HW sent South Africa’s rand down more than 2% to a three-month low against the U.S. dollar.

China’s yuan rose to a near one-week high after surprisingly strong trade data eased fears about a slowdown in what has been one of the world’s strongest economic recoveries.

Cryptocurrencies remained on the back foot on Tuesday, with bitcoin down about 2.18% at a four-day low of $32,384.64, as investors shed riskier assets following U.S. inflation data.

(Reporting by Saqib Iqbal AhmedEditing by Sonya Hepisntall)

Economy

China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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Economy

German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

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A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

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But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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