USD/CHF Holds Steady Above 0.9100 as Cooling US Inflation Keeps Fed on Track for Rate Cuts

WASHINGTON (Jan 15): The United States on Wednesday imposed hundreds of sanctions targeting Russia, seeking to increase pressure on Moscow in the Biden administration's final days, and protect some sanctions previously imposed.

The US State and Treasury departments imposed sanctions on over 250 targets, including some based in China, taking aim at Russia's evasion of US sanctions and its military industrial base.

As part of the action, the Treasury imposed new curbs on almost 100 entities that were already under sanctions, potentially complicating any future efforts to remove the measures.

Russia's embassy in Washington did not immediately respond to requests for comment.

The Treasury in a statement said Washington was imposing fresh sanctions on almost 100 critical Russian entities — including Russian banks and companies operating in Russia's energy sector — that were previously sanctioned by the United States. It said the move increases secondary sanctions risk for them.

The new sanctions are issued under an executive order that a senior Treasury official said requires Congress to be notified before any of the actions can be reversed.

Jeremy Paner, a partner at the law firm Hughes Hubbard & Reed, said the actions are "Trump-proofed", preventing reversal of the additional sanctions without congressional approval.

"You can't just with the stroke of a pen remove what's being done," he said.

Edward Fishman, a former US official who is now a research scholar at Columbia University, called it a "very significant action".

"It protects these sanctions against sort of any frivolous decision to lift them," he said. "It gives the new Trump administration more leverage with Russia."

Trump's transition team did not immediately respond to a request for comment.

It was unclear how Donald Trump, who succeeds President Joe Biden on Monday, will approach the issue of sanctions on Russia. Trump has been friendly towards Russian President Vladimir Putin in the past, and said on Monday that he would aim to meet quickly with him to discuss Ukraine.

When asked about his strategy to end the war, Trump told Newsmax: "Well, there's only one strategy and it's up to Putin, and I can't imagine he's too thrilled about the way it's gone because it hasn't gone exactly well for him either."

Sanctions evasion scheme

Washington also took action against a sanctions evasion scheme established between actors in Russia and China, targeting regional clearing platforms in the two countries that it said have been working to allow cross-border payments for sensitive goods. The Treasury said several Russian banks under US sanctions were participants.

"China firmly opposes any illegal unilateral sanctions and 'long-arm jurisdiction'," Liu Pengyu, spokesperson for the Chinese embassy in Washington, said in a statement.

"The normal economic and trade exchanges between China and Russia should not be interfered with or disrupted, and should not be used as a tool to smear and contain China."

Also hit with sanctions on Wednesday was Keremet Bank, a Kyrgyzstan-based financial institution the Treasury accused of coordinating with Russian officials, and a bank identified by the United States as circumventing sanctions.

Keremet Bank did not immediately respond to a request for comment.

The US State Department also imposed sanctions on Russian-held Zaporizhzhia nuclear power plant, the largest in Europe.

The plant, located in Ukraine's south east, was captured by Russia shortly after it launched the invasion in 2022. It is shut down but needs external power to keep its nuclear material cool and prevent a meltdown.

The sanctions will not affect its operations, Russian news agencies reported on Wednesday, citing the plant's spokeswoman.

The Biden administration has imposed rafts of punitive measures targeting Russia over its February 2022 invasion of Ukraine that has killed or wounded thousands and reduced cities to rubble. Washington has repeatedly sought to counter the evasion of its measures.

Less than a week ago, the administration imposed its broadest package of sanctions so far, targeting Russia's oil and gas revenues, in an effort to give Kyiv and Trump's incoming team leverage to reach a deal for peace in Ukraine.

Source: Theedgemarkets

WTI price loses ground to near $78.85 in Thursday’s Asian session.

Israel and Hamas agreed to a ceasefire deal, weighing on the WTI price.

US crude oil inventories declined by 1.962 million barrels last week, according to the EIA. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $78.85 on Thursday. The WTI price edges lower as improved prospects for a ceasefire between Hamas and Israel could ease geopolitical tensions in the Middle East, which weigh on the WTI price.

 According to an official, Israel and Hamas agreed to a deal to halt fighting in Gaza and exchange Israeli hostages for Palestinian prisoners. 

An ending of conflicts between Israel and Hamas will ease tensions in the Middle East and reduce the threats of disruption to crude supplies in the region. This, in turn, could undermine the black gold price. 

However, US crude oil stockpiles extend decline, which might cap the downside for the WTI price. The US Energy Information Administration weekly report showed crude oil stockpiles in the United States for the week ending January 10 decreased by 1.962 million barrels, compared to a decline of 959K barrels in the previous week. The market consensus estimated that stocks would fall by 1.6 million barrels. 

Oil traders await the release of US Retail Sales for December and weekly Initial Jobless Claims for fresh impetus, which are due later on Thursday. In case of a weaker-than-expected outcome, this could drag the Greenback lower and lift the USD-denominated commodity price. 

WTI Oil FAQs

What is WTI Oil?

WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.

What factors drive the price of WTI Oil?

Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

How does inventory data impact the price of WTI Oil

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

How does OPEC influence the price of WTI Oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.

Source: FXSTREET

EUR/USD trades flat around 1.0295 in Thursday’s early Asian session. 

The softer US core CPI data revives Fed easing expectations, which cap the upside for the USD. 

Traders see the ECB delivering three or four rate cuts this year. 

The EUR/USD pair holds steady around 1.0295 during the early Asian session on Thursday. The cooler-than-expected US Consumer Price Index (CPI) inflation data for December raises the bet that the US Federal Reserve (Fed) could cut interest rates twice this year, which weighs on the Greenback.

However, rising concerns over Eurozone economic growth might cap the upside for the major pair. The US Dollar (USD) declined after the US core CPI data came in softer than estimated, triggering expectations that the Fed's easing cycle may not be over yet.

Markets now expect the US central bank to deliver 40 basis points (bps) of rate cuts by year-end, compared with about 31 bps before the inflation data.Across the pond, the European Central Bank (ECB) delivered rate cuts four times last year, and traders expect three or four moves this year due to the concerns about the Eurozone's weak economic outlook.

The rising bets of further interest rate reductions from the ECB could undermine the Euro (EUR) against the USD in the near term. Later on Thursday, investors will keep an eye on Germany’s Harmonized Index of Consumer Prices (HICP) for December and the ECB Monetary Policy Meeting Accounts. On the US docket, the Retail Sales for December and weekly Initial Jobless Claims will be the highlights. 

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Source: FXSTREET

Canada could impose countermeasures on up to C$150 billion (US$105 billion, or RM471.8 billion) worth of US imports if President-elect Donald Trump puts tariffs on Canadian goods and services, a source familiar with the matter said on Wednesday.

Canada has drawn up a list of targets but would hold public consultations before acting, said the source, adding that the extent of any potential reaction would depend on what Trump does.

The Toronto Star was the first to report the proposed countermeasures.

Canadian Prime Minister Justin Trudeau earlier met the premiers of Canada's 10 provinces to discuss how to react to any US tariffs and the list of tariff targets, said the source, who requested anonymity because they were not authorised to speak to the media.

Trump says he wants to impose a 25% tariff to push Canada to tighten border security, to stem the flow of illegal migrants and cut fentanyl smuggling, a move that would appear to violate a free-trade deal.

Such a move would be crippling, given that Canada sends 75% of all goods and services exports to the United States.

The source said the proposed countermeasures would be divided into three groups. If Trump does make good on his threat, Canada would immediately target a small group of goods, including orange juice from Florida, where he lives.

"Nothing can be off the table if the US continues to choose to move forward with these punishing tariffs," Trudeau said after meeting the premiers.

Trudeau said any push back would be forceful and robust but declined to give details, given it was not yet clear what exactly Trump would do.

"I support the principle of a proportional dollar-for-dollar response," he said.

Earlier on Wednesday, federal Immigration Minister Marc Miller said the flow of migrants and drugs coming from Canada is minute, compared to the volumes entering the United States from Mexico.

Although Trudeau and the premiers in the room said the two levels of government were united, the energy-producing province of Alberta did not sign the final joint declaration released at the end of the meeting.

Alberta premier Danielle Smith, who dialled into the meeting, said she was opposed to the idea of curbing Canadian oil exports, an option that federal officials have raised as an option that would drive up US gasoline prices.

The final declaration said if Ottawa did impose retaliatory measures, it would quickly provide money to Canadian workers and businesses to help offset the damage done by Trump's tariffs.

Trudeau announced this month that he would be stepping down, in the wake of a dispute with former finance minister Chrystia Freeland, who quit in opposition to his proposals for more spending. She said Canada needed to maintain financial reserves to help offset the impact of US tariffs.

Trudeau told reporters that he would not be running again the next election, which must be held by Oct 20.

Source: Theedgemarkets

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Thursday at 7.1881 as compared to the previous day's fix of 7.1883 and 7.3247 Reuters estimates.

PBOC FAQs

What does the People's Bank of China do?

The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

Who owns the PBoC?

The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

What are the main policy tools used by the PBoC?

Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

Are private banks allowed in China?

Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

Source: FXSTREET