US dollar rides high despite inflation spike

A high US inflation rate has historically caused the dollar to weaken, but even with America’s inflation rate at a 40-year high its currency is continuing to strengthen and could soon reach parity with the euro, with the current rate around US$1=€0.95.

The US Dollar Index, which tracks the greenback against a basket of six other major currencies, is reaching highs last seen in 2002. The index has risen 14% in the past year and has gained 8% since the start of 2022. Since January, the US dollar has risen more than 13% against the Japanese yen (JPY).

Analysts believe that the Federal Reserve’s policy of tightening monetary conditions will mean further rises for the dollar. Last week Fed policymakers announced a half-point increase in US short term interest bonds and plans to begin reducing the bonds on its US$9 trillion balance sheet from next month.

The dollar is appreciating as a variety of geopolitical developments unsettle global stock and bond markets have worked together to boost the greenback’s value against other currencies. In addition to the Fed accelerating its policy of rate increases, volatility has been triggered by Russia’s war in Ukraine and resulting global sanctions against Russia, soaring commodity prices, Covid-19 lockdowns in China and resulting supply chain disruption and economic slowdown in Europe and Japan.

In response to the uncertainty, demand has grown for relatively safe and increasingly higher-yielding assets such as US Treasurys. Last month Deutsche Bank forecast that the US economy would enter a recession in 2023 but in the meantime, it is regarded as having rallied strongly from the pandemic compared with other countries, its markets continue to be deep and relatively stable, and the interest rates offered on its government bonds are generous.

The Fed’s declared intention commitment to bring down inflation by further raising interest rates is expected to push up Treasury yields further and make them even more attractive in comparison with the lower-yielding bonds offered by Germany, Japan and China, each of which has been easing local monetary conditions, not tightening them and widening yield discrepancies, or spreads.

On the downside, US exporters report that the resurgent dollar is impacting on earnings. More than 20 US companies with market capitalisations exceeding US$100 billion have mentioned negative effects from the dollar’s strength since the start of the latest profit-reporting season at the start of April. That is more than double the amount in the same period in 2021.

In a biannual update on financial stability published on 9 May, the Federal Reserve noted that high inflation, volatility in stock and commodity markets and the war in Ukraine have emerged as the chief risks to the US financial system and warned of a system poised for potentially "sudden" disruption.

The quick rise in US Treasury yields, the war-related trouble in oil markets and other factors have already strained some parts of the financial system, the report cautioned, and while the stress "has not been as extreme as in some past episodes, the risk of a sudden significant deterioration appears higher than normal."

ANZ reports progress with A$DC stablecoin

Australia’s ANZ reports that it is actively leveraging global digital currency adoption by sustaining the success of first mover advantage with the first Australian-bank-issued stablecoin.

Following the group’s issuance of  the Australian dollar stablecoin (A$DC) in late March through a public, permission-less blockchain transaction that used Fireblock’s platform technology, ANZ reports multiple successful elements such as digital asset service components as composable and enterprise-ready.

The bank says that this is allowing it to steer through costly centralised infrastructure while proclaiming lower barriers to entry and recognising the benefits of smart contract auditing, on-chain compliance and digital asset custody services. Regulators are also closely monitoring ANZ’s testing of innovative digital asset transactions.

“In a live transaction for ANZ customer Victor Smorgon Group we delivered the stablecoin to Zerocap, a private wealth management firm for digital assets,” the bank added in a statement. “A$30 million in A$DC was minted as part of the transaction pegged to the Australian dollar, which was transferred between the two parties and then later redeemed into fiat currency conventional state-backed currency.”

ANZ’s Banking Services Portfolio Lead Nigel Dobson, who heads its payment platform strategy commented: “Defi is new world and traditional banks are old-world TradeFi institutions, but they are not necessarily mutually exclusive elements. As an approved deposit-taking institution we can hold deposits, that's valuable.

“Because of the regulatory perimeter in which we operate we can offer a number of other services, including the minting and redeeming part of the coin issuance and management. In the custody space which again is regulated, we can hold our customers’ private keys on behalf of them. There are potentially other use cases where, depending on the nature of the assets that are tokenised, there will be a number of financing opportunities. As a bank, we’re comfortable dealing with supply chain automation and digitisation opportunities.

“We’re not altering the money supply. We're just enabling a transaction to occur in a venue that is new from an operating model point of view but not necessarily very new from a business model point of view.”

Axis Asset Management probed by India’s market regulator

Axis Asset Management, which is India’s seventh-largest asset manager, is being investigated by the country’s capital markets regulator following allegations of front-running by two of the firm’s officials.

Local reports state that the Securities and Exchange Board of India (SEBI) is reviewing funds that Viresh Joshi and Deepak Agarwal managed at Axis Asset Management Co., which is the Indian partner of global money manager Schroders plc and has assets of rupees (INR) 2.5 trillion (US$32 billion).

In an official statement, Axis Asset Management company said that it has been investigating potential irregularities since February and external advisors are helping with the probe.

“As part of the process, two fund managers have been suspended pending investigation of potential irregularities. We take compliance with applicable legal and regulatory requirements seriously, and have zero tolerance towards any instance of non-compliance,” the fund house confirmed.

It added that it has changed the management of seven funds – Axis Consumption ETF, Axis Banking ETF, Axis NIFTY ETF, Axis Arbitrage Fund, Axis Quant Fund, Axis Technology ETF and Axis Value Fund.

LedgerEdge corporate bond trading platform goes live

LedgerEdge has announced that it is live with what it claims is the first regulated distributed ledger technology (DLT)-enable corporate bond trading platform. LedgerEdge is powered by R3’s Corda, a scalable, permissioned peer-to-peer (P2P) distributed platform that supports applications which foster and deliver digital trust between parties in regulated markets.

Founded in 2020, LedgerEdge’s digital market is described as a decentralised system that is fully regulated by UK regulator the Financial Conduct Authority (FCA) as a Multilateral Trading Facility (MTF). LedgerEdge adds that it has been built in collaboration with the world’s leading global banks, asset managers, and market makers. The system is operational with 45 firms in the UK MTF and 70 globally that are either trading on the platform or in the onboarding process. These include seven out of the top 10 sell-side dealers as well as more than 30 major asset managers.

In its release, the blockchain bond platform adds: “LedgerEdge built an ecosystem using DLT to modernize institutional-grade trading services and protocols in the US $41 trillion global corporate bond market, much of which is still conducted by phone. It allows traders to keep full control over their data and use smart contracts to reveal only certain information, such as order and pricing, under specific conditions. The ability to share data using conditional, bilateral, and anonymous smart protocols increases the amount of pre-trade data available and therefore improves liquidity transparency. Smart contract orders also help reduce market impact as bid and inventory data only reach traders with compatible bids.”

Commenting on the launch, LedgerEdge’s CEO and co-founder, David Nicol said: “The first fully regulated bond trading platform built on distributed ledger technology is an important milestone for the industry.

“Credit markets are on the cusp of a digital transformation that has come to other asset classes, and we are excited to be at the forefront in this important market. Client feedback has been an instrumental part of how we built our ecosystem, and I want to thank key participants for being integral to our development. I look forward to continuing that collaborative approach as volume grows and we continue to develop the product. We are bringing a new, modern ecosystem that emphasises control and ease of execution to a historically illiquid market.”

Bitcoin “failing as an inflation hedge”

Bitcoin has not been acting as an inflation hedge over recent months, according to Bank of America analysts who note that the flagship cryptocurrency has instead been trading as a risk asset since last July.

Business magazine Fortune reports that BoA’s Alkesh Shah and Andrew Moss have drafted a new report which cites data showing BTC often moves along with the stock market, instead of acting as a hedge against inflation.

The report details that on 21 January, the correlation between Bitcoin and the market’s flagship S&P 500 index hit an all-time high based on their movement over the previous 180 days. Bitcoin’s correlation with the Nasdaq 100 index was also near all-time highs.

Both equities and cryptoassets have been enduring a significant sell-off since the start of 2022. After last week’s Federal Reserve announcement that it was raising interest rates by 50 basis points, BTC’s value plummeted alongside that of stocks in a sell-off that has extended into this week. Today it traded at below $30,000 for the first time since July 2021.

BoA’s analysts expect the correlation between BTC and equities to remain in the near term. Moreover, while bitcoin has often been compared to gold, the correlation between the cryptocurrency and the precious metal has dropped to near zero since June 2021 and has kept trending down. They are more bullish on prospects for the Solana public blockchain platform and its $SOL cryptocurrency, commenting earlier this year that it has the potential to “become the Visa of the cryptocurrency space as it focuses on scalability, low transaction fees, and ease of use.

Their report noted that Solana has settled over 50 billion transactions since its 2019 launch, while Visa processed 164.7 billion transactions in the year ended 30 September. The report also suggested that Solana could soon take some of Ethereum’s market share helped by its low transaction fees and focus on scalability, while Ethereum “prioritises decentralisation and security, but at the expense of scalability, which has led to periods of network congestion.”

GTreasury pairs with Moody’s Analytics

Treasury management software firm GTeasury has announced a collaboration with Moody’s Analytics to enable customers to seamlessly leverage the latter’s asset and liability management (ALM) SaaS product, which is now available as an interoperable and integrated component within GTreasury’s software-as-a-service ecosystem for treasury and finance teams.

A release stated: “As small and medium-sized financial institutions grow, accumulated data reaches volume and complexity beyond what manual spreadsheets or outdated software can reliably or efficiently handle. These legacy approaches place increasing strain on internal staff – especially when accelerating growth puts financial institutions within the purview of new regulatory reporting requirements. Banks, credit unions, and other institutions in this position must implement automated capabilities that remove the burdens of routine ALM tasks and monitor and manage their risk far more effectively and completely.”

Moody’s Analytics’ ALM SaaS product meets these requirements, “offering a seamless enterprise platform that integrates ALM, liquidity risk management, funds transfer pricing, and regulatory reporting capabilities. Institutions leveraging the product can fully integrate ALM into their business management and regulatory compliance processes, optimizing capital distribution to achieve strategic benchmarks. The product eases the management of even the most complex ALM tasks, while also providing a foundation for defining client behavioural models and forecasts and delivering data-backed insights that drive key business decisions.”

Terry Beadle, Global Head of Corporate Development at GTreasury commented: “Small and mid-sized financial institutions struggling under the burden of their asset and liability management duties, especially from a regulatory compliance perspective, are instantly and significantly empowered by the automation and powerful tooling Moody's Analytics’ ALM SaaS product puts at their command. We’re excited to introduce the many benefits of Moody's Analytics’ offering to our customers as an interoperable, fully data-integrated, market-leading component of the GTreasury ecosystem.”