Euro hits 2-1/2 year highs as warning signs grow
The euro climbed to a fresh 2-1/2 year high against the dollar on Wednesday as investors added long bets in the single currency though some analysts advised caution as some signals such as interest rate differentials were flashing a warning sign. While fears of a trade spat between China and the U.S. saw the U.S. currency score some early gains against its commodity-linked rivals such as the New Zealand and the Canadian dollar, it has struggled against the euro. The euro briefly climbed to $1.1869, its highest since January 2015 before giving back some gains to trade 0.3 percent up at $1.1835 on the day. “We see some dollar recovery in the fourth quarter as market expectations are rock bottom now so it might not take much to see some improvement,” said Derek Halpenny, European head of FX research, Bank of Tokyo-Mitsubishi UFJ. The dollar’s weakness this year has been fuelled by a steady unwinding of expectations of optimism about U.S. President Donald Trump’s stimulus plans and falling hopes to the extent of a Federal Reserve policy increase in the coming months.
Treasury to Maintain Borrowing at $62 Billion for Sixth Quarter
The U.S. Treasury said it will maintain the issuance of longer-term debt for the sixth straight quarter at $62 billion and predicted borrowing needs will increase in coming quarters. The department will sell $24 billion in three-year notes on Aug. 8, $23 billion in 10-year notes on Aug. 9 and $15 billion in 30-year bonds on Aug. 10, it said Wednesday in its quarterly refunding announcement of longer-term debt sales. The auctions will raise about $14.7 billion in new cash. On future borrowing, the Treasury said it would increase bills and nominal coupon sizes to address needs as the Federal Reserve begins to unwind its balance sheet, without giving specifics. The borrowing committee and Treasury agreed on possibly making a decision as early as the next refunding in November over what auctions would be increased. The Treasury also foresees increased borrowing needs as budget deficits are projected to widen. Last month, the Treasury asked primary dealers about their expectations for the Fed’s plans to start shrinking its $4.5 trillion balance sheet, to help inform the government’s debt issuance strategy. Dealers were requested to comment on their expectations for the timing on when the Fed will start and complete the balance-sheet reduction and what they see as a normal level of Treasury holdings. They were also asked to comment on their expectations for the Treasury to meet both the financing needs caused by deficits and System Open Market Account, or SOMA, redemptions.
Brazil’s industrial output remains steady in June
Brazil’s industrial output remained steady in June, data showed on Tuesday, beating expectations for a small drop while underscoring that a tentative economic recovery remains fragile. Industrial production was expected to drop 0.4 percent from May after seasonal adjustments, according to a Reuters poll. It was the third consecutive month in which manufacturers and miners outperformed market expectations. Production in June grew 0.5 percent from a year earlier, slowing from an increase of 4.1 percent in May. Output grew sequentially in 12 of the 24 sectors covered by IBGE. Automobile production fell 3.9 percent, paring back part of the strong performance at the start of the year. Food processing rose 4.5 percent, IBGE said. Brazil’s economy is expected to grow just 0.3 percent in 2017 after two years of deep recession, according to a weekly central bank poll of economists on Monday. Industrial output, which has fallen back to 2009 levels, is forecast to grow 0.8 percent in 2017.