Dollar takes a breather from US Fed-inspired rally

Dollar slips in Asian trading as investors lock in gains after its rise last week on growing expectations of a US interest rate hike later this month


Graphics by Naveen Kumar Saini/Mint
Graphics by Naveen Kumar Saini/Mint

The dollar slipped in Asian trading on Monday, as investors locked in gains after its rise last week on growing expectations of a US interest rate hike later this month.

Market participants also kept a wary eye on developments in North Korea, which fired four ballistic missiles early on Monday, three of which landed in Japan’s exclusive economic zone.

The news bolstered the perceived safe-haven yen, and also weighed on US Treasury yields, decreasing the dollar’s appeal.

The dollar slipped 0.2% to 113.84 yen, down from Friday’s high of 114.75. The yield on benchmark 10-year US Treasury notes slipped to 2.476% in Asian trading, from Friday’s US close of 2.492%.

Federal Reserve chair Janet Yellen said on Friday that the central bank is set to raise its benchmark interest rate later this month as long as economic data on jobs and inflation holds up, in comments that likely cement a rate hike at Fed’s next meeting on 14-15 March. Reuters

Indian sovereign bonds fall as ‘repo squeeze’ eases

India’s most-traded bonds dropped on speculation that a shortage of the securities in the repurchase market has eased, eliminating the need for investors to buy them from the secondary market.

Yields on two sovereign notes maturing in 2026 climbed on Monday after sliding for the last two days on account of a “repo squeeze”.

The situation arose after some banks refused to part with the securities in a bid to maximize their treasury gains before closing books for the year ending 31 March.

That prompted participants looking to finance their overnight naked short positions to buy the notes from the secondary market.

The yield on the benchmark 6.97% notes due September 2026 rose 10 basis points to 6.88% as of 5.30pm in Mumbai, according to prices from the Reserve Bank of India’s trading system. It slipped 16 basis points in the last two days. A basis point is 0.01% Bloomberg

China remains major driver of global trade

Despite the slowdown in economic growth, China remains a focal point for global trade. The country surprised on imports and emerged a major driver of global seaborne trade in 2016.

According to Clarksons Research, nearly half of the incremental growth in global seaborne trade in 2016 was contributed by China’s imports.

In 2017, the US as well as emerging economies are expected to make meaningful contributions to global trade.

But as Clarksons points out, China, due to its sheer scale, will still move the needle for global trade. “2017 might see a focus on other parts of the world too, with hopes for the US economy, India to drive volumes, and developing economies to potentially benefit from improved commodity prices,” adds Clarksons Research. “But amidst all that, China will no doubt still have a big say in the fortunes of world seaborne trade.”

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