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Column-G7 “Knowing” FX turmoil is a wet deception: Mike Dolan by Reuters

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© Reuters. FILE PHOTO: US dollar banknotes are seen at the American Finance Museum in New York on October 15, 2010. REUTERS/Shannon Stapleton.

by Mike Dolan

LONDON (Reuters) – Japan’s one-on-one fight against the appreciation of the US dollar may look more intense after it met the Group of Seven chief financial officials in Washington this week – and potential year-end market turmoil could make its allies regret it.

After heavy pressure from Tokyo and some big market speculation about tougher language to cool the runaway exchange rates, the Economic Powers Meeting at the International Monetary Fund’s annual meeting ended up giving one of the possible bright green lights for further dollar-damaging gains.

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And that’s even as the dollar’s 20% appreciation against major currencies over the past year has alarmed the broader financial markets and government finances. A staggering 30% rise in just 12 months to a 32-year high against the yen this week drew $20 billion in unilateral dollar sales by the Bank of Japan, while a 27% swing jumped to record highs against ailing sterling. At one point last month it added to the turmoil of the turbulent UK asset markets.

With geopolitical tensions making the broader G-20 financial pool barely functional, finance ministers and central bank chiefs from the G7 allies gathered separately — and with myriad pressing issues from the energy crisis, war in Europe and climate change.

The joint statement released by the US Treasury late Wednesday gave Japan something – but it was a thin porridge.

“Recognizing that many currencies have moved significantly this year with increased volatility, we reaffirm our exchange rate commitments as detailed in May 2017,” the G7 wrote.

And for the record, the wording of 2017 was that excessive volatility and uncontrolled currency movements have negative effects on their economies and financial stability.

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Perhaps that is all they wanted or needed to say, without doing. But the choreography is lacking in beats, to say the least – the slightly degraded reference to a five-year-old phrasing gives the impression of an afterthought, or a problem most people didn’t want to tackle at the moment.

The situation was particularly tepid given how Japanese Finance Minister Shunichi Suzuki claimed to have passed on the problem to his peers – how he was “extremely concerned” about sharply increased volatility”.

He then said, “We cannot tolerate excessive volatility in the currency market driven by speculative movements.” “We are watching currency movements with a strong sense of urgency.”

Judging by the seismometer found in currency options for three months, the implied volatility of the G4 currency pairs has more than doubled over the past year to the height of the pandemic shock.

But the latest G7 statement seems to accept it as a fact of life, reflecting the more conservative stance of events from the IMF’s chief economist Pierre-Olivier Gorinchas earlier in the week.

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Gorinich acknowledged that the dollar’s strength puts a lot of pressure on countries, but he insisted that it is fundamentally justified and not dysfunctional and that countries should step back and allow currencies to adjust.

This will be uncomfortable with Japan as it watched the dollar rise again on Thursday to a 32-year high above 147 yen after hot US inflation readings for September raised expectations about how much higher Fed rates could be with the BoJ standing by.

Graphic: Dollar Zoom – https://fingfx.thomsonreuters.com/gfx/mkt/movanxanepa/Two.PNG

Chart: Rising FX Volatility – https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgrygopb/One.PNG

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Although currency valuation metrics and fair value models vary and often give vastly different signals, the frequently cited procedures assume that the dollar is 10-20% high.

Despite this, many investors feel there is more to come and will push it higher – with different and often circular arguments.

Initial interest rate gaps were the biggest driver. But with higher Fed rates and lower global stock and bond prices, the appeal of dollar cash as a haven is boosting even though the resultant dollar strength often amplifies this pressure in a vicious circle.

Likewise, geopolitical concerns and a related energy shock have ballooned balance of payments gaps outside the US as import bills increase – weakening the currencies of major energy importers. But as energy is priced in dollars, the resultant dollar strength only exacerbates trade gaps and inflation problems and hurts asset prices even more — fueling stress-related dollar demand.

Mark Heffley, chief investment officer at UBS Global Wealth Management, said Thursday that the interest rate gap and the story of global pressures will add to the dollar’s gains. “We maintain our preferred position on the US dollar and the Swiss franc.”

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Aviva (LON 🙂 “We continue to favor an overweight dollar because of greater economic resilience and higher core inflation in the US,” said Investors Strategist Michael Grady.

But if the volatile and increasingly overvalued dollar begins to fuel itself and complicate inflation, government finances and households – during what many still hope will be a temporary political and energy shock – perhaps Japan should have received a more sympathetic listen.

And if the surging yen’s weakness stokes Japanese inflation and forces the BoJ to raise its long-term bond yield ceiling – thus joining other central banks in a simultaneous tightening – global markets will receive at least another jolt on par with the one in UK bond markets this month.

There is an argument that no one wants to stand in the way of Fed tightening until it finally catches up with US inflation and feels that threats of intervention won’t be feasible until markets are more confident in exactly where the “final interest rate” tops.

But as an International Monetary Fund working paper concluded this summer, after studies of 26 countries over nearly 30 years: “The evidence supports the hypothesis that central banks can effectively lean against short-run cyclical imbalances of the real exchange rate.”

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The big question is whether this rally in the dollar is actually a “short-term” aberration or a more permanent feature of the global landscape.

Graphic: Japan’s History of Interventions in the Yen – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykbovr/Pasted%20image%201650518854154.png

Graph: Japan’s dollar reserves fall – https://graphics.reuters.com/JAPAN-ECONOMY/RESERVES/klpykxbokpg/chart_eikon.jpg

The opinions expressed here are those of the Reuters columnist.

(By Mike Dolan, Twitter: @reutersMikeD; graphic added by Andy Bruce; Editing by Margarita Choi)

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MicroStrategy is at its lowest level since 2020 after the sales were revealed

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(Bloomberg) — Shares of MicroStrategy touched their lowest level since August 2020 after the enterprise software company, which in recent years has been known as the largest buyer of bitcoin, revealed its first sale of the token.

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The stock fell 1.1 percent to $136.63 on Thursday, down 75 percent this year. Bitcoin rose less than 1% to around $16,590 and is believed to have fallen 64% since the start of the year.

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In a filing on Wednesday, MicroStrategy said it acquired approximately 2,395 Bitcoin between the beginning of November and December 21 through its subsidiary MacroStrategy, and paid out approximately $42.8 million in cash. It then sold 704 of the tokens on Dec. 22 for a total of about $11.8 million, citing tax purposes, before buying another 810 of them two days later.

Matt Malley, chief market strategist for Miller Tabak + Co. Step down as CEO. This news means they don’t seem to want to do that anytime soon.”

Overall, MicroStrategy held about 132,500 bitcoins worth over $4 billion USD as of December 27th. The company paid an average purchase price of $30,397 per bitcoin.

“Given MicroStrategy’s $2.4 billion in leverage, we believe the company may have a lot of leverage over Bitcoin, and may face some liquidity risk,” Jefferies analyst Brent Thiel wrote in a note on Wednesday. Thill has an “underperform” rating on the stock and a price target of $110.

Over the years of the pandemic, MicroStrategy has become well known for its Bitcoin takeovers, largely led by Saylor. Earlier this year, Saylor stepped down from that role and now serves as CEO at the company and continues to lead its bitcoin strategy.

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MicroStrategy was trading around $120 before Saylor first announced the company’s Bitcoin purchases in 2020. The stock reached an all-time high of $1,315 in February 2021.

(Updates to include the stock’s closing price in the second paragraph.)

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Bankman-Fried May File Petition in New York Federal Court Next Week Before Judge Louis Kaplan By Cointelegraph

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Former FTX CEO Sam Bankman-Fried is set to appear in court on the afternoon of January 3 to enter a lawsuit over two counts of wire fraud and six counts of conspiracy against him related to the collapse of cryptocurrency exchange FTX, according to Reuters. mentioned on December 28, citing court records. Bankman-Fried will appear before District Judge Lewis Kaplan in Manhattan.

Judge Kaplan was appointed to hear the case on December 27 after the original judge in the case, Ronnie Abrams, Resigned herself because of connections between FTX and the law firm Davis Polk & Wardwell, where her husband is a partner. The company provided advisory services to FTX in 2021.