Meanwhile, the dollar index was trading lower by 0.04 per cent at 105.98

Rupee weighed down by foreign fund outflows, domestic equities

Donald Trump’s policies risk making the US dollar a source of global instability Expert comment LToremark 13 November 2024

Although Trump favours a weaker exchange rate, his policies are likely to have the opposite effect. The risk is that the US dollar could become too strong, which is bad news for the global economy.

President-elect Donald Trump has a dollar problem. In recent months he has shown a clear preference for a weaker exchange rate to support the competitiveness of US exports and help reduce the US trade deficit. And yet, as the market has sensed since the US election, the much more likely outcome is that his policies end up strengthening the greenback. The risk is that the US dollar – which is expensive already – becomes more obviously overvalued, and this could increase the risk of global financial instability. 

The dollar has been on a rollercoaster ride in the past few decades. From 2002 until 2011, for example, the dollar weakened by around 30 per cent in inflation-adjusted, trade-weighted terms, according to BIS data. Yet in the years since 2011, the dollar has strengthened and is now at a more appreciated level than at any time since 1985.

What shapes this rollercoaster, broadly speaking, is the global balance of economic vitality: when the US economy gains momentum relative to the rest of the world, the dollar tends to strengthen; and vice versa. 

After China joined the WTO in 2001, the balance of economic vitality shifted decisively away from the US, in favour of China and other emerging economies. This was the decade of the commodity boom: the longest, biggest peacetime increase in commodity prices in nearly 200 years during which a sustained surge in China’s economy supported GDP growth across the developing world. The dollar weakened as a result.

But after 2011, a combination of factors – including the eurozone crisis and its aftermath, together with the sagging of the Chinese economy – tipped the balance of economic vitality back in favour of the US. The dollar strengthened once again.

And since both the European and Chinese economies remain very fragile, the balance of economic vitality seems likely to keep favouring the US dollar.

Two more considerations also point to a stronger US dollar under a second Trump administration.

The first is the exchange rate implications of Donald Trump’s proposed tariffs on imports. When the US imposes tariffs on a trading partner, the foreign exchange market tends to sell that trading partner’s currency, forcing it to weaken to offset the dollar-price increase induced by the tariff. This helps explain why the Chinese renminbi depreciated by some 10 per cent in 2018 after Trump began imposing trade restrictions on China in January of that year. 

More widespread tariffs on a whole range of US trading partners should therefore strengthen the dollar more broadly.

A stronger dollar should also result from the macroeconomic framework Trump seems likely to deliver. He will certainly want to extend his 2017 tax cuts beyond 2025 when they are currently due to expire, so a more sustained loosening of US fiscal policy seems likely. Since boosting the US economy will create inflationary pressure, the market will expect interest rates to end up higher than they might otherwise be. The resulting combination of looser fiscal and tighter monetary policy tends to be a stronger currency.

The dollar probably has a fair amount of room to keep going up, since it is not obviously overvalued just yet. The US current account deficit – the broadest measure of a country’s trade deficit, and a rough but useful measure of financial vulnerability – was a little over 3 per cent of GDP last year. 

This is around half the level it reached in 2006, just before the 2008 global financial crisis, meaning the risks arising from an overvalued dollar may be for the latter part of Trump’s second presidency.

A strengthening dollar is also not great news for the rest of the world economy. A strong dollar tends to depress global trade growth, restrict developing countries’ access to international capital markets, and make it more difficult for countries whose currencies will be weakening to keep inflation under control.

If and when the dollar becomes unsustainably expensive, a further problem will present itself: how to deal with an overvalued currency without risking a lot of financial dislocation.

This problem last occurred in early 1985, when the dollar was universally reckoned to be dangerously dear. At that time the US was able to call on trading partners who depended on the US security umbrella – the UK, Germany, France and Japan – to negotiate the ‘Plaza Accord’, which coordinated a series of interventions in the foreign exchange market that allowed the dollar to decline in a measured way.  

It is virtually unimaginable that something similar could be negotiated today, not least because Chinese policymakers believe that the post-Plaza strengthening of the yen in the late 1980s led to an economic disaster for Japan. Beijing will not play ball.

Without much scope for a negotiated decline in the dollar, more chaotic alternatives seem likely. 

One is that the market decides suddenly that it no longer has an appetite for expensive dollar-denominated assets, and this might lead to a messy adjustment in the foreign exchange market. 

KUALA LUMPUR: The ringgit opened marginally higher against the US dollar today despite the US Dollar Index’s (DXY) strengthening, which should accelerate demand for the greenback.

At 8 am, the local note traded slightly better at 4.4330/4465 against the greenback compared with Tuesday’s close of 4.4365/4400.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said higher demand for the US dollar is expected as comments from US Federal Reserve (Fed) officials indicated that the prospect of an interest rate cut highly depends on upcoming economic data.

“Minneapolis Fed president Neel Kashkari suggested that he will look at the upcoming inflation data before making any decision on the interest rate.

“As such, ringgit and other emerging market currencies will likely stay weak in the near term,” Mohd Afzanizam told Bernama.

He added investors will monitor the US Consumer Price Index (CPI) print tonight, with consensus pencilling in a 2.6 per cent rise in October from 2.4 per cent previously, while Core CPI may be sustained at 3.3 per cent.

At the opening, the ringgit traded higher against a basket of major currencies.

It was higher against the British pound at 5.6463/6635 from 5.6889/6934 at Tuesday’s close, better against the euro to 4.7061/7204 from 4.7111/7148 and firmer against the Japanese yen to 2.8661/8752 from 2.8788/8812.

The ringgit also traded higher against ASEAN currencies.

Against the Thai baht, it rose to 12.7162/7637 from 12.7456/7608 at Tuesday’s close and strengthened against the Singapore dollar at 3.3107/3210 from 3.3143/3174.

The local unit marginally increased vis-a-vis the Philippine peso to 7.53/7.56 from 7.54/7.55 and was slightly higher against the Indonesian rupiah to 280.8/281.9 from 281.0/281.5 previously.

Fundamental Overview

The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might also be seeing some pre-positioning into a potentially hot US CPI report tomorrow.

At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.

The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY continues to consolidate above the key 152.00 support zone maintaining a bullish bias. If we were to get another pullback into the support, we can expect the buyers to step in once again to position for a rally into the 160.00 handle. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the 148.00 handle next.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. The price recently bounced near the trendline and we can expect the buyers to keep leaning on it, while the sellers will look for a break lower to gain more conviction for a bigger correction to the downside.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we have a minor support zone around the 153.40 level. This is where the buyers are stepping in with a defined risk below the zone to position for the continuation of the uptrend. The sellers, on the other hand, will want to see the price breaking lower to target a pullback into the trendline. The red lines define the average daily range for today.

Upcoming Catalysts

This week is a bit empty on the data front with the most important releases scheduled for the latter part of the week. Tomorrow, we have the US CPI report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.

See the video below

Fundamental Overview

The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might also be seeing some pre-positioning into a potentially hot US CPI report tomorrow.

At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.

The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.

On the GBP side, this morning we got the UK labour market report and although the data was mostly mixed, it leant more on the dovish side. Overall though, it didn’t change anything for the market or the BoE.

GBPUSD Technical Analysis – Daily Timeframe

On the daily chart, we can see that GBPUSD broke through the support zone around the 1.2840 level and extended the drop as more sellers piled in. The natural target should be the swing low at 1.2665 level. That’s where we can expect the buyers to step in with a defined risk below the level to position for a rally back into the 1.28 handle.

GBPUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see more clearly the break of the support which was defining the range between the 1.2840 support and the 1.3040 resistance. If the price retests the support now turned resistance, we can expect the sellers to step in with a defined risk above the level to position for a drop into the 1.2665 level next. The buyers, on the other hand, will want to see the price breaking higher to position for a rally back into the 1.3040 resistance.

GBPUSD Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we have a minor downward trendline defining the current bearish momentum. The sellers will likely keep on leaning on it to position for new lows, while the buyers will look for a break higher to pile in for a rally into new highs. The red lines define the average daily range for today.

Upcoming Catalysts

This week is a bit empty on the data front with the most important releases scheduled for the latter part of the week. Tomorrow, we have the US CPI report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.

https://nypost.com/2024/11/11/opinion/un-climate-conference-just-an-excuse-to-shake-west-down-for-cash/ By Bjorn Lomborg The UN climate summit in Azerbaijan kicked off Monday in the shadow of Donald Trump’s election and with many key leaders not even showing up. With low expectations set before it even began, the summit will nonetheless see grandiose speeches on the need for a vast flow of money from rich countries to poorer ones. […]

The rupee slipped 1 paisa to an all-time low of 84.40 against the US dollar in early trade on Wednesday, as persistent foreign fund outflows and a muted trend in domestic equities weighed on the local unit.

The rupee slipped 1 paisa to an all-time low of 84.40 against the US dollar in early trade on Wednesday, as persistent foreign fund outflows and a muted trend in domestic equities weighed on the local unit.

Forex traders said the rupee is likely to remain under pressure unless there is a softening in the dollar index or a slowdown in foreign fund outflows

On Tuesday (October 15, 2024), the rupee witnessed a range-bound trade and appreciated 1 paisa to 84.04 against the U.S. dollar

The dollar index, which gauges the greenback's strength against a basket of six currencies, was marginally down by 0.01% to 103.25 points.

Forex traders said a downward trend in domestic equity markets and elevated level of crude oil prices prevented a recovery in the Indian currency.

Forex traders said, the indication of some recovery in domestic equity markets prevented the fall in the local unit.

The rupee touched fresh record lows again on the back of weak domestic equities and sustained FII outflows

Forex traders said the US Federal Reserve's recent decision to cut interest rates signals a shift in the global financial landscape.

Meanwhile, the dollar index gained 0.16 per cent to 102.85 points

At the interbank foreign exchange market, the local unit opened at 83.86 but soon pared the gains to trade at 83.92, unchanged from its previous close

Rupee weighed down by a firm dollar, geopolitical tensions in West Asia

Meanwhile, the dollar index was trading 0.03 per cent lower at 103.17

Meanwhile, the dollar index was trading 0.06 per cent higher at 103.19

Forex traders say a mixed-to-positive tone in the domestic market also supported rupee

Forex traders said the weakening of the American currency in the overseas market and retreating crude oil prices also supported investor sentiments

At the interbank foreign exchange, the rupee opened at 83.86 against the greenback and traded in the range of 83.76 to 83.88

Meanwhile, the dollar index was trading marginally higher by 0.02 per cent to 101.31

Meanwhile, the dollar index was down 0.15 per cent to 101.35 point

At the interbank foreign exchange market, the local unit opened at 83.83 and then gained ground and touched 83.80, registering a rise of 10 paise from its previous close

Meanwhile, the dollar index was trading 0.07 per cent higher at 100.78

At the interbank foreign exchange market, the local unit opened at 83.91, then lost further ground and touched 83.95, registering a loss of 8 paise from its previous close

Meanwhile, the dollar index was trading 0.05 per cent lower at 100.79

Meanwhile, the dollar index was up 0.03 per cent to 101.37 points

Currency traders are awaiting the PMI manufacturing data set to be released later in the day

At the interbank foreign exchange market, the rupee opened at 83.94, lower by 3 paise from its previous close before dropping further to 83.95. The unit had settled at 83.91 against the US dollar on Monday

At the interbank foreign exchange market, the rupee opened at 83.96, higher by 2 paise from its previous close and stayed put

Meanwhile, the dollar index was down 0.03 per cent to 101.32 points

Rupee gains capped by negative domestic markets, higher crude oil prices, and foreign capital outflows

At the interbank foreign exchange market, the local unit opened at 83.95 against the American currency and finally settled at 83.97 (provisional) against the US dollar, down 2 paise from its previous close

Forex traders said market participants are eagerly awaiting cues from the US Fed policy on Wednesday, with a rate cut all but certain

Meanwhile, the dollar index declined 0.05 per cent to 100.38

Rupee gains following Fed Reserve rate cut and strong demand for domestic equities

A firm domestic equity market, lower crude oil prices supported the Indian currency, say forex traders

Meanwhile, the dollar index was up by 0.07 per cent to 100.49

The dollar index was up 0.34 per cent at 101.06

At the interbank foreign exchange market, the local unit opened at 83.54 against the American currency and finally settled at 83.65 (provisional) against the US dollar, down 11 paise from its previous close

The dollar index rose marginally by 0.05 per cent to 100.52

The USDINR is expected to find strong support at 83.50, with potential to rebound toward 83.75-83.80, says CR Forex Advisors MD Amit Pabari

The dollar index declined 0.14 per cent to 100.48

Meanwhile the dollar index was up 0.15 per cent to 100.39

Analysts say market participants were awaiting cues from the personal consumption expenditure data to be released in US on Friday