The dollar rose to a seven-week high on Wednesday after Federal Reserve meeting minutes boosted speculation that the central bank will raise interest rates as soon as June.
Emerging-market currencies slumped on the prospect of higher U.S. interest rates, with the Brazilian real, South Africa’s rand and the Russian ruble pacing declines.
“The greenback should be bid here,” said Bipan Rai, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in Toronto. “The minutes suggest that the odds of a June hike or even a signal in June for a July hike are more likely than the market was prepared for.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed as of 8:26 a.m. in Tokyo after climbing 0.8 percent on Wednesday and reaching the highest level on a closing basis since March 28. The U.S. currency was at $1.1225 per euro from $1.1216 on Wednesday, when it added 0.9 percent. It fetched 110.10 yen from 110.19.
The likelihood of the Fed raising rates at its June 14-15 meeting more than doubled from Tuesday to 32 percent, while the chances of a move by September rose to 62 percent from 47 percent the previous day, according to data based on fed fund futures compiled by Bloomberg.
Fed officials “have been building the case for a potential June hike over the past few weeks, with more hawkish undertones in their speeches,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. “They may not want to make the mistake of waiting too long, only to see the environment weaken and lose an opportunity to hike.”
Moody's: Global growth to remain muted as China's slowdown weighs on emerging markets
Weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to act as a drag on the global economy this year, says Moody's Investors Service.
Moody's has lowered its 2016 growth forecasts for Argentina, Brazil, Mexico and Turkey, as the effects of the weaker external demand and lower commodity prices have compounded domestic structural and political challenges. We currently forecast G20 emerging markets growth at 4.2% for 2016compared to 4.4% in 2015. For G20 advanced markets growth is forecast at 1.7% for 2016 compared to 1.9% in 2015.
China's economy will slow gradually from 6.9% in 2015 to around 6.3% in 2016, guided by policies intended to bolster growth, according to the report "Global Macro Outlook 2016-17 -- Further Weakness in Emerging Markets Amid Persistent Downside Risks."
"The fears of a Chinese hard landing have eased in recent months with data suggesting the economy is stabilizing," said Madhavi Bokil, a Vice President and Senior Analyst at Moody's. "However, the government's focus on achieving specific growth targets, could come at a cost to the quality of growth."
China's growth continues to be supported by increased borrowing, which ultimately will increase longer-term risks, particularly within the banking system.
Moody’s Investors Service lowered its growth forecast for the U.S. economy this year to 2 percent from 2.3 percent to account for a weak first quarter, while anticipating underlying resilience through 2017.
Moody's expects that the Federal Reserve will raise its benchmark interest rate at most twice this year. Policy makers will raise rates gradually, giving investors ample forward guidance as they seek to minimize the negative impact that higher borrowing costs will have on growth and the potential disruption they could cause to global capital markets.
Oil prices drop on dollar strength, rising inventories
Crude oil prices headed lower in early Asian trade Thursday as a stronger dollar and the unexpected increase in U.S. crude inventories triggered selling.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM6 traded at $47.63 a barrel, down $0.57, or 1.2%, in the Globex electronic session. July Brent LCON6 crude on London’s ICE Futures exchange fell $0.74, or 1.4%, to $48.20 a barrel.
Oil prices had surged in recent sessions as outages in Africa and Canada, economic woes among Latin American producers, and production declines in the U.S. propelled expectations of a smaller glut.
Even as late as Wednesday afternoon, Brent, the global benchmark, was lumbering steadily towards $50 a barrel, a level unseen since November. But oil futures reversed direction after minutes of the Federal Reserve’s April meeting indicated that the central bank could raise U.S. interest rates as early as next month, causing the dollar to jump. The Wall Street Journal Dollar Index BUXX, +0.05% which tracks the dollar against 16 other currencies, was last down 0.01%.
A stronger U.S. currency makes dollar-traded oil more expensive for foreign buyers.
Another factor suppressing prices could be profit-taking after prices rose to six-month high earlier in the week.
Reference: Bloomberg, Moody's, MarketWatch
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