AFP

The euro and yen sunk to new multi-year lows against the dollar on Tuesday as investors focused on central bank efforts to contain surging inflation and fears of an economic slowdown.

The dollar struck a 24-year high of $142.98 yen, while the euro sank to $0.9864, a level unseen since December 2002.

“Recession concerns around the world continue to boost the appetite for US dollar, even at these levels,” said City Index and FOREX.com analyst Fawad Razaqzada.

“Investors are becoming more and more convinced that the Fed is going to hike by 75 basis points this month and proceed with further aggressive hikes until inflation comes back under control,” he added.

The Fed has increased the key lending rate four times this year, including two supersized 75 basis points (0.75 percentage point) hikes in June and July, with Fed chief Jerome Powell indicating another similar increase is possible this month.

Yields on US government debt continue to rise as investors expect further hikes.

The Fed’s earlier start to raising interest rates, and pledge to continue to aggressively raise them until it has tamed surging inflation, has boosted the attractiveness of the dollar for investors.

The European Central Bank brought an end to eight years of negative interest rates with a surprisingly-aggressive 0.50 percentage point hike in July, and is expected to hike interest rates on Thursday by at least the same amount to tackle surging eurozone inflation.

Meanwhile the Bank of Japan has dug in its heels on its easy-money policies as it seeks to ensure inflation is here to stay after a long deflationary period. 

In the first session back after the Labor Day holiday, Wall Street fell again, extending an equity downturn as worries about tightening central bank policy and Europe’s energy woes offset good US services industry data.

European stocks ended the day higher despite poor German data, a day after tumultuous trading as Russia curbed gas supplies to Europe.

– ‘Wait-and-see mood’ –

Nevertheless, traders are still wary.

“Investors remain cautious amid worries about the slowing global economy,” noted Hargreaves Lansdown analyst Susannah Streeter.

“There is a wait-and-see mood hanging over markets.”

Russia’s decision over the weekend to halt gas supplies to Germany in retaliation for sanctions over Ukraine sent shock waves through European trading floors on Monday as it ramped up expectations of a painful recession in major economies.

That continues to bedevil the euro, as well as measures that European governments are taking to prop up their economies in face of the energy crisis.

Razaqzada said these measures are likely to fuel inflation even further. This would require the ECB to hike interest rates even more aggressively, meaning a sharper recession.

“So, it is a catch-22 situation for the ECB,” he said.

“For this reason, traders are reluctant to buy the euro.”

Similarly, the yield on 10-year British government bonds surged to the highest level since 2011 after Britain’s new Prime Minister Liz Truss unveiled a 130-billion-pound package to freeze consumer energy bills. 

– Key figures at around 2050 GMT –

New York – Dow: DOWN 0.6 percent at 31145.30 (close)

New York – S&P 500: DOWN 0.4 percent at 3,908.19 (close)

New York – Nasdaq: DOWN 0.7 percent at 11,544.91 (close)

London – FTSE 100: UP 0.2 percent at 7,300.44 (close) 

Frankfurt – DAX: UP 0.9 percent at 12,871.44 (close)

Paris – CAC 40: UP 0.2 percent at 6,104.61 (close)

EURO STOXX 50: UP 0.3 percent at 3,572.76 (close)

Tokyo – Nikkei 225: FLAT at 27,626.51 (close)

Hong Kong – Hang Seng Index: DOWN 0.1 percent at 19,202.73 (close)

Shanghai – Composite: UP 1.4 percent at 3,243.45 (close)

Euro/dollar: DOWN at $0.9905 from $0.9929 on Monday

Pound/dollar: UP at $1.1519 from $1.1517

Dollar/yen: UP at 142.80 yen from 140.60 yen

Euro/pound: DOWN at 85.97 pence from 86.21 pence

West Texas Intermediate: UP less than 0.1 percent at $86.88 per barrel

Brent North Sea crude: DOWN 3.0 percent at $92.93 per barrel

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Apple has been barred from selling iPhones without a charger in Brazil and fined more than $2 million over the issue, the government said Tuesday, after accusing the US tech giant of “discriminatory practices.”

In an official notice, Brazilian authorities ordered “the immediate suspension of the distribution of iPhone brand smartphones, regardless of model or generation, that are not accompanied by a battery charger.”

The Ministry of Justice and Public Security ordered the California company to pay a fine of 12.28 million reais (nearly $2.4 million).

The measure from the Department of Consumer Protection and Defense effectively prohibits the sale of all iPhone 12 and 13 models.

Apple has been under investigation in Brazil since December for “the sale of an incomplete product,” “discrimination against the consumer” and “the transfer of responsibility to third parties” by offering iPhone 12s and newer versions without chargers for power outlets, according to an official statement. 

The company has faced fines from Brazilian state agencies before, but “did not take any measures to minimize the harm and until now continued to sell the cellular devices without chargers,” the statement said. 

According to Brazilian authorities, Apple alleges that the decision to exclude chargers from iPhone sales comes from an “environmental commitment.”

But the ministry determined “there is no effective demonstration of environmental protection on Brazilian soil as a consequence” of Apple’s policy, and accused the company of “deliberate discriminatory practices against consumers.”

“There is no justification for an operation which, in aiming to reduce carbon emissions, leads to the introduction into the consumer market of a product whose use depends on the acquisition of another (product) which is also marketed by the company,” the official notice added. 

Britain’s new Prime Minister Liz Truss is getting down to business fast with plans for a big-spending offensive to rein in soaring energy prices, putting her on collision course with nervous financial markets.

In the Conservative race to succeed Boris Johnson, Truss overcame warnings from former finance minister Rishi Sunak that her plans for debt-financed tax cuts risked inflaming double-digit inflation.

Undaunted, Truss declared from the steps of 10 Downing Street Tuesday that tax cuts would indeed form part of her package to address economic turmoil stoked by Russia’s war in Ukraine and the pandemic aftermath.

“I have a bold plan to grow the economy through tax cuts and reform,” she told the nation. 

“I am confident that together we can ride out the storm,” she added, after heavy rain almost forced her speech indoors.

But another kind of storm, imperilling Britain’s ability to borrow cheaply, awaits if the markets reject Truss’s plans.

Those plans reportedly include a pandemic-sized package worth up to £130 billion ($150 billion) to freeze energy bills for households and businesses, many of whom risk going to the wall this winter.

On the bond markets, the UK’s 10-year borrowing rate rose above 3.0 percent on Tuesday, for the first time since 2014.

The pound, weighed by fears of a looming recession in Britain, has been falling against the dollar faster than other major currencies.

The sterling has lost more than six percent against the dollar since early August as surveys showed Truss on track to beat Sunak.

Deutsche Bank strategist Shreyas Gopal warned of the potential for a debt crisis similar to the 1970s, when the UK had to turn to the International Monetary Fund (IMF) for a bailout.

That helped destroy the political credibility of the then Labour government, ushering in more than a decade of Conservative rule under Margaret Thatcher.

“If investor confidence erodes further, this dynamic could become a self-fulfilling balance-of-payments crisis whereby foreigners would refuse to fund the UK external deficit,” Gopal said.

– ‘Serious questions’ –

Geoffrey Yu from BNY Mellon Markets said: “This sets the UK up for some serious questions on fiscal credibility -– it is already being tested in bond markets.

“However, we think fears of unfunded tax cuts and energy subsidies precipitating a fiscal collapse are not justified,” he added.

Kwasi Kwarteng, before he was named as Truss’s chancellor of the exchequer, sought to placate the markets on Monday in the Financial Times.

“I want to provide reassurance that this will be done in a fiscally responsible way,” he wrote of her plans.

“Liz is committed to a lean state and, as the immediate shock subsides, we will work to reduce the debt-to-GDP ratio over time,” Kwarteng added, after the ratio ballooned to over 95 percent during the pandemic.

Some in the markets are willing to give Truss and Kwarteng the benefit of the doubt, arguing the energy plan expected on Thursday could prove the right fix for a pressing emergency.

“For the near-term this seems an effective way to bring greater certainty and relieve the (interest rate) pressure on the Bank of England,” IG senior market analyst Joshua Mahony said.

“But the long-term consequence will undoubtedly result in another pile of debt that will ultimately need paying through higher taxes,” he cautioned.