Issue link: https://maltatoday.uberflip.com/i/1408316
9.9.2021 6 INTERNATIONAL NEWS BITCOIN licked its wounds on Wednesday, a day after its heaviest losses in more than two months as El Salvador's historic adoption of the crypto asset as legal tender caused chaos online and on the street. e coin last traded at $46,560, having endured wild trade the day before in which it hit a near four- month high of $52,956 before plung- ing 11.1 per cent, its largest fall since June 2nd. Analysts said the sharp retreat was partly due to investors who had bought the rumour of El Salvador's move now selling the fact. "I think there was some anticipa- tion building ahead of that event [El Salvador], similar to what we saw ahead of Coinbase listing on Nas- daq," said Henrik Andersson, chief investment officer at Apollo Capital, a crypto asset fund in Melbourne, Australia. At one point on Tuesday, the digi- tal currency fell as much as 18.6 per cent, wiping out more than $180 bil- lion from the market. It was a historic day for bitcoin as El Salvador's experiment of making it legal tender got off to a bumpy start. Technological glitches hampered its use while street protests by mis- trustful citizens broke out in the Central American country. As bitcoin wobbled, Salvador- an president Nayib Bukele said his government purchased an addition- al 150 bitcoins on Tuesday, worth around $7 million. "at has underscored the difficulty in trying to protect the value of bit- coin as its own currency," said Nana Otsuki, chief economist at Monex Securities. "e buying didn't seem to be effective in halting its fall." Amid the trading frenzy, major US cryptocurrency exchanges Coinbase Global, Kraken and Gemini strug- gled with delays in some transac- tions. All of them said their systems have since been restored. Separately, the US securities reg- ulator has threatened to sue Coin- base Global if the crypto exchange proceeds with plans to launch a pro- gramme allowing users to earn inter- est by lending crypto assets. BTC price tanks 12% on El Salvador Bitcoin debut A man outside a shop where bitcoins are accepted in La Libertad, El Salvador EXCHANGE rates overall were held in relatively narrow ranges on Wednesday with a lack of data releas- es, but the pound lost ground. Con- fidence in the UK economic recovery has faltered over the last few weeks and the confirmation of tax increases amplified these reservations. The Pound to Dollar (GBP/USD) ex- change rate dipped below the 1.3800 level and was held below this level on Wednesday. The Pound to Euro (GBP/EUR) ex- change rate also dipped to 6-week lows just above 1.1600 before a tenta- tive recovery to 1.1630. Tax Hikes Undermine Sterling Sentiment Prime Minister Johnson conformed that national Insurance rates will be increased to 13.25% from 12.0% with the dividend tax rate increased to 8.75% from 7.50%. The tax increases are aimed at increasing health spend- ing in the short term and helping to reform social care over the medium term. The announcement increased specu- lation that the UK economic recovery would stall amid a higher tax burden which hampered UK currency senti- ment. Jeremy Stretch, head of G10 FX strategy at CIBC World Markets com- mented: "We are seeing the narrative of the (economic) recovery process being tested by a tax hike which po- tentially could take liquidity or money out of the system, so that newsflow isn't particularly helpful." Rabobank added: "Johnson's strong parliamentary majority suggests that he, and therefore GBP, has a large buffer of protection against political uncertainty. That said, in terms of the extra cost implied by a tax hike, many businesses and consumers may be feeling a lot less protected." BoE Rhetoric under the Microscope Bank of England external MPC member Saunders reiterated that the economy no longer needs as much stimulus as previously. He was also concerns that contin- uing asset purchases when the infla- tion rate is above 4% could increase medium-term inflation expectations and force a more severe monetary re- sponse later. Hawkish comments in July and fears over higher inflation triggered signifi- cant gains for the Pound. Sterling was, however, unable to gain significant support from the com- ments this time, especially as he noted that only a limited increase in interest rates would be appropriate. Michael Brown, senior market ana- lyst at Caxton FX noted: "I would as- sume that the market sees Saunders as an outlier on the MPC (Monetary Policy Committee), thus feels no need to reprice hawkishly based on what he's said." Comments from BoE Governor Bai- ley and other MPC members will be watched closely this week in testimo- ny to the Treasury Select Committee. ING noted: "This may well be the last chance for the market to extract any hint about the current BoE's stance ahead of the 23 September meeting, so we could see the pound being quite reactive to any policy-related com- ments." Commerzbank sees scope for fur- ther EUR/GBP gains: "For now, we maintain a near-term upside bias. We would allow for a move to 0.8620 and possibly to 0.8671, the July 2021 high." (1.1535 for GBP/EUR). US Dollar Secures Tentative Gains Higher US yields helped under- pin the dollar during Tuesday with the benchmark 10-year yield posting 7-week highs close to 1.40%. The Euro to Dollar (EUR/USD) exchange rate retreated to around 1.1830. National Australia Bank strategist Rodrigo Catril noted: "Risk aversion in the air alongside the move up in UST yields have helped the USD ex- tend its post-payrolls recovery." Danske Bank noted increased un- certainty surrounding EUR/USD fol- lowing last week's jobs data: "While we remain strategically very bullish dollar, the short-term sentiment can equally also include a roundtrip over 1.20." ING is doubtful that Thursday's ECB meeting will support the Euro, but noted: "For today, some wait-and-see approach may prevail and keep EUR/ USD close to the 1.1850 level as the risk event draws closer. Pound to Euro rate dips to 6-week lows as Sterling retreats