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Business

Fed’s Brainard: Can’t wrap head around not having U.S. central bank digital currency

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Federal Reserve Board Governor Lael Brainard speaks at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts, U.S., March 1, 2017. REUTERS/Brian Snyder

July 30 (Reuters) – Federal Reserve Governor Lael Brainard on Friday laid out a range of reasons for “urgency” around the issue of developing a U.S. central bank digital currency, including the fact that other countries such as China are moving ahead with their own.

“The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC (central bank digital currency)offering, and the U.S. doesn’t have one, I just, I can’t wrap my head around that,” Brainard told the Aspen Institute Economic Strategy Group. “That just doesn’t sound like a sustainable future to me.”

Fed officials are taking a deep dive into the digital payments universe, collecting public feedback on the potential costs and benefits as well as design considerations with a view to publishing a discussion paper in early September.

Fed Chair Jerome Powell in comments earlier this month described the analysis as a key step in accelerating the Fed’s efforts to determine if it should issue its own CDBC.

“One of the most compelling use cases is in the international realm, where intermediation chains are opaque and long and costly,” Brainard said on Friday.

But there are domestic reasons too for a U.S.-backed digital currency, she said: the dramatic rise in stablecoins, a form of cryptocurrency pegged to a conventional currency such as the U.S. dollar but not backed by any government.

Stablecoins could proliferate and fragment the payment system, or one or two could emerge as dominant, she said. Either way, “in a world of stablecoins you could imagine that households and businesses, if the migration away from currency is really very intense, they would simply lose access to a safe government backed settlement asset, which is of course what currency has always provided.”

A CBDC could also help solve other problems, she suggested, including the difficulty during the pandemic of getting government payments to people without bank accounts, who also tend to be the very people who need the payments the most.

Reporting by Ann Saphir;
Editing by Sandra Maler

Our Standards: The Thomson Reuters Trust Principles.

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Business

Investors eye COVID-19 spread, Golden Cross to gauge U.S. dollar trajectory

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A U.S. dollar note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration

July 23 (Reuters) – A rally in the U.S. dollar has investors looking at a broad range of factors — from global COVID-19 infections to yield gaps — to determine whether the greenback will continue appreciating.

The dollar is up 4% from its lows of 2021 and is among the world’s best performing currencies this year, boosted by last month’s hawkish shift from the Federal Reserve, burgeoning inflation and safe-haven demand driven by COVID-19 worries.

Because of the dollar’s central role in the global financial system, its moves ripple out towards a broad range of asset classes and are closely watched by investors.

For the United States, a period of sustained dollar strength would be a double-edged sword, helping tamp down inflation by increasing the currency’s buying power while denting the balance sheets of exporters by making their products less competitive abroad.

On the other hand, dollar strength would continue pushing down currencies such as the euro and British pound, potentially giving a boost to the recoveries in those countries.

Here are several things investors are watching to determine the dollar’s trajectory.

THE DELTA VARIANT

Some investors believe the dollar – a popular safe haven during uncertain times – will rise if the Delta variant of COVID-19 spreads and risk aversion grows in markets.

COVID worries have already helped the dollar notch gains against the currencies of countries where the Delta variant is proliferating, including the Australian dollar and the British pound. Those gains could fade if coronavirus concerns ebb in coming months, however.

“We’re seeing a lot of risk factors and uncertainty across assets, said Simon Harvey, senior FX market analyst at Monex Europe. “Investors are looking at all these and saying that they’re going to find refuge in the dollar.”

GLOBAL GROWTH

While some investors are concerned the U.S. rebound is slowing, it still outpaces the bounce seen in Europe and other regions.

That gap in growth, illustrated by such metrics as stronger manufacturing sector growth and inflation, is among the factors putting upward pressure on the dollar, said Morgan Stanley’s James Lord in a recent podcast.

“There is a case still for the dollar to strengthen as we do see more divergence,” he said.

YIELD GAP

Though Treasury yields have recently slid, the gap between real yields on U.S. government debt and some foreign bonds has widened, raising the allure of dollar-denominated assets. Real yields represent the cost of borrowing after stripping out inflation effects.

The spread between the real yield on 10-year Treasury Inflation Protected Securities at “constant maturity” and those on their German counterpart, for instance, stood at 72 basis points late Thursday, up from 63 basis points two months ago.

POSITIONING SQUEEZE

Speculators’ net short positions on the U.S. dollar fell to their lowest level since March 2020 last week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on July 16.

“The most crowded trade in the world through the first quarter was the short dollar. We had, unquestionably, a squeeze on the way back,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

The dwindling bearish sentiment could mean there is less fuel for further dollar gains. At the same time, “the dollar and other currencies do tend to overshoot when they are correcting, in both directions,” Schamotta said.

GOLDEN CROSS

The Dollar Index’s (.DXY) 50-day moving average is close to crossing above its 200-day moving average and forming a chart pattern known as a “Golden Cross” that is seen as a bullish signal by those who follow technical analysis.

A Golden Cross “could herald another leg higher for the greenback,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Reporting by Saqib Iqbal Ahmed; editing by Ira Iosebashvili and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

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World

Britain sanctions Venezuelan President Maduro’s envoy Saab

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LONDON, July 22 (Reuters) – Britain on Thursday sanctioned one of Venezuelan President Nicolas Maduro’s envoys, Alex Saab, in connection with an allegedly corrupt deal to obtain supplies for Maduro’s government-run food subsidy programme.

Saab, a Colombian national, is currently detained in Cape Verde facing extradition to the United States, which accuses him of helping Maduro’s government skirt U.S. sanctions imposed in 2019. read more

Britain said Saab had been sanctioned along with his associate Alvaro Pulido for exploiting two of Venezuela’s public programmes which were set up to supply poor Venezuelans with affordable foodstuffs and housing.

“They benefited from improperly awarded contracts, where promised goods were delivered at highly inflated prices,” the UK Foreign Office said in a statement. “Their actions caused further suffering to already poverty stricken Venezuelans, for their own private enrichment.”

Saab’s lawyers could not immediately be contacted but have previously called the U.S. charges “politically motivated.”

Venezuela’s foreign ministry responded in a statement that Britain was presenting itself as an “anti-corruption judge for the world, while acting as one of the main responsible parties for the theft of assets belonging to all Venezuelans.”

That was a reference to the Bank of England’s refusal to hand over nearly $1 billion in gold to Maduro’s government due to a dispute over whether the gold should go to opposition leader Juan Guaido, who Britain recognises as Venezuela’s legitimate president. read more

Saab was arrested last June in Cape Verde after Interpol issued a so-called red notice.

At the time of his arrest, Saab was en route to Iran to negotiate shipments of fuel and humanitarian supplies to Venezuela, his lawyers previously told Reuters. His plane had stopped in the archipelago nation off the coast of West Africa to refuel.

Also on Thursday Britain sanctioned Teodoro Obiang Mangue, the son of Equatorial Guinea’s president, for misappropriating millions of dollars which London said was spent on luxury mansions, private jets and a $275,000 glove worn by Michael Jackson. read more

Additional reporting by Brian Ellsworth in Caracas; Editing by William Maclean and Chris Reese

Our Standards: The Thomson Reuters Trust Principles.

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Business

Dollar, yen on back foot as risk sentiment revives; Musk buoys bitcoin

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  • Risk appetite returns as strong earnings lift Wall Street
  • Euro firmer against dollar ahead of ECB policy decision
  • Musk hints Tesla will accept bitcoin as payment again

TOKYO, July 22 (Reuters) – The safe-harbour U.S. dollar and yen were on the back foot on Thursday, after pulling back from multi-month highs amid a recovery in risk appetite as strong earnings lifted Wall Street stocks.

Cryptocurrencies held gains after Tesla Inc (TSLA.O) CEO Elon Musk said the company would “most likely” resume accepting bitcoin for payment. read more

The dollar index , which measures the currency against six major peers, stood at 92.770 after pulling back from a 3 1/2-month high of 93.194 touched on Wednesday.

The yen traded at 129.950 per euro , from an almost four-month top of 128.610 earlier this week, and at 81.07 to Australia’s dollar , from a 5 1/2-month peak of 79.85.

“Strong earnings have swept away Delta concerns in the U.S.,” weighing on haven currencies, National Australia Bank analyst Tapas Strickland wrote in a note to clients.

“The consensus is that (the Delta strain) does not pose an immediate risk to the recovery,” delaying reopening by three months at the most as countries ramp up vaccination drives in response, he said.

Sterling traded at $1.3717, recovering from a 5 1/2-month trough of $1.35725 reached on Tuesday, despite rising Delta variant cases in Britain and confusion about the lifting of restrictions in England.

The Aussie changed hands at $0.7350, from an eight-month low of $0.72895 the previous day, even as coronavirus cases spiked despite half the Australian population being under lockdown. read more

The euro stood at $1.1789, rising off Wednesday’s 3-1/2-month low of $1.1752 ahead of a closely watched European Central Bank policy decision later in the global day.

Policymakers will implement for the first time changes to their strategy and are all but certain to promise an even longer period of stimulus to make good on its commitment to boost inflation. read more

Analysts generally see ECB dovishness weakening the euro over the medium-term.

“On balance, the ECB’s new inflation target suggests monetary policy will remain ultra‑accommodative for an even longer period of time,” which will act as a headwind for the euro, Commonwealth Bank of Australia strategists Kim Mundy and Carol Kong wrote in a research note.

“Indeed, we expect the ECB will be one of the last central banks under our coverage to tighten policy.”

In cryptocurrencies, bitcoin held Wednesday’s 7.9% jump – the biggest since mid-June – to trade just north of$32,000.

Rival ether traded slightly below $2,000 following a 12% surge.

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Currency bid prices at 0525 GMT

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

Reporting by Kevin Buckland; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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World

EXCLUSIVE UK to warn EU it may deviate from Brexit deal on N.Ireland -sources

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  • UK prepares showdown with EU over N.Ireland
  • UK to warn it may deviate from Brexit deal
  • Frost says: Things have to change
  • Frost says: All options on the table

BRUSSELS/LONDON, July 19 (Reuters) – Britain will threaten this week to deviate from the Brexit deal unless the European Union shows more flexibility over Northern Ireland, one UK and three EU sources told Reuters, a move that could thrust the five-year Brexit divorce into tumult.

Deviating from the deal’s so-called Northern Ireland Protocol is a risky step: its aim was to prevent Brexit from disrupting the delicate peace brought to Northern Ireland by the U.S.-brokered 1998 agreement that ended three decades of sectarian conflict.

Prime Minister Boris Johnson, who signed the 2020 Brexit deal, has been dismayed by the protocol which has imposed paperwork and checks that London says could prevent British food staples such as sausages going to Northern Ireland.

David Frost, the British minister who leads Brexit negotiations, is preparing to announce a significant potential change on the protocol that could have far-reaching consequences for the relationship with the EU, one of the sources said.

The plans are being worked on by Downing Street. Frost is due to update parliament on Wednesday about Northern Ireland and Brexit, and will also present a paper on Brexit to lawmakers.

After the Reuters report, Frost told lawmakers the protocol was not sustainable in its current form and that if an agreement could not be reached then London would consider all options, including unilateral action through Article 16 of the protocol.

“All options are on the table,” Frost said, when asked if he would consider triggering Article 16. “We’ve said it’s not sustainable in the way it’s working at the moment, things have got to change.”

Frost said it was not yet clear whether or not a fundamental rebalancing of the protocol was possible.

Brussels expects Frost will push for a deviation from the protocol unless the EU agrees to compromise, said an EU diplomat who was briefed on talks with British negotiators.

“We will not agree to the reopening of the Irish protocol,” said a third source, a senior EU official.

Britain is expected to go beyond its demands for changes to veterinary rules. The senior EU official and a second EU diplomat said that London would seek to have the European Court of Justice (ECJ) removed from the arbitration process.

Preserving the peace in Northern Ireland while protecting the EU’s single market but without dividing up the United Kingdom was always the most difficult riddle of the Brexit saga since the 2016 referendum.

NORTHERN IRELAND

Since the United Kingdom exited the bloc’s orbit on Jan. 1, Johnson unilaterally delayed the implementation of some provisions of the protocol and Frost has said the protocol is unsustainable.

Frost is insisting on a bespoke veterinary deal based on equivalence which London says would remove the need for controls on goods crossing from Britain to Northern Ireland.

Britain is arguing that there should be a more flexible approach to agri-food rules to limit the impact on everyday lives and will spell out clearly what the options and risks are.

The 1998 peace deal largely brought an end to the “Troubles” – three decades of conflict between Irish Catholic nationalist militants and pro-British Protestant “loyalist” paramilitaries in which 3,600 people were killed.

An open Irish land border is seen as crucial to the spirit of that deal by aiming to safeguard peace, free trade and travel on the island.

But that became a problem after the 2016 Brexit vote. The EU could not close the land border between Northern Ireland and Ireland but feared it could become a backdoor into the EU’s single market.

The result was the 63-page “Protocol on Ireland/Northern Ireland”, which effectively keeps Northern Ireland in the EU’s single market for goods and having Northern Ireland apply EU customs rules at its ports.

But by putting checks on some goods crossing between mainland Britain and Northern Ireland, many pro-British unionists say the protocol has breached the 1998 peace settlement.

Loyalist paramilitary groups told Johnson in March that they were temporarily withdrawing support for the peace agreement due to concerns over the Brexit deal. read more

Writing by Gabriela Baczynska and Philip Blenkinsop in Brussels and Guy Faulconbridge in London; additional reporting by William James; Editing by Andrew Heavens, Catherine Evans and Toby Chopra

Our Standards: The Thomson Reuters Trust Principles.

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