By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Cooling U.S. inflation is accelerating a decline in the dollar, and risk assets around the world stand to benefit.

The dollar is down nearly 13% against a basket of currencies from last year’s two-decade high and stands at its lowest level in 15 months. Its decline quickened after the U.S. reported softer-than-expected inflation data on Wednesday, supporting views that the Federal Reserve is nearing the end of its interest rate-hiking cycle.

Because the dollar is a linchpin of the global financial system, a wide range of assets stand to benefit if it continues falling.

Weakness in the dollar can be a boon to some U.S. companies, as a weaker currency makes exports more competitive abroad and makes it cheaper for multinationals to convert foreign profits back into dollars.

The U.S. technology sector, which includes some of the big growth companies that have led markets higher this year, generates just over 50% of its revenues overseas, an analysis of Russell 1000 companies by Bespoke Investment Group showed.

Raw materials, which are priced in dollars, become more affordable to foreign buyers when the dollar declines. The S&P/Goldman Sachs Commodity Index is up 4.6% this month, on pace for its best month since October.

Emerging markets benefit as well, because a falling U.S. currency makes debt denominated in dollars easier to service. The MSCI International Emerging Market Currency Index is up 2.4% this year.

"For markets, the weaker dollar and its underlying driver, weaker inflation, is a balm for everything, especially for assets outside the U.S.," said Alvise Marino, foreign exchange strategist at Credit Suisse.

The greenback's tumble has come as U.S. Treasury yields eased in recent days, dulling the dollar's allure while boosting a wide range of other currencies, from the Japanese yen to the Mexican peso.

"That sound you hear is the breaking of technical levels across the foreign exchange markets," said Karl Schamotta, chief market strategist at Corpay. "The dollar is plunging toward levels that prevailed before the Fed started hiking, and we're seeing risk-sensitive currencies melt up on a global basis."

A continued fall in the dollar could boost profits for foreign exchange strategies such as the dollar-funded carry trade, which involves the sale of dollars to buy a higher-yielding currency, allowing the investor to pocket the difference.

The dollar's decline has already made the strategy a profitable one this year: An investor selling dollars and buying the Colombian peso would have collected 25% year-to-date, while the Polish zloty has yielded 13%, data from Corpay showed.

Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US, is bearish on the dollar while betting on gains in the Kazakhstan tenge, Uruguayan peso and Indian rupee.

"When you look at what's going on right now, the outlook for the dollar remains pretty bleak," said Upadhyaya, who expects carry trades to thrive if the dollar keeps falling.

In the world of monetary policy, the dollar's decline may be a relief to some countries, as it removes the urgency for them to support their falling currencies.

Among them is Japan. The greenback has tumbled 3% against the yen this week and is set for its biggest weekly fall against the Japanese currency since January. Yen weakness has been problematic for Japan's import-reliant economy and raised expectations Japan would again intervene in markets to support its currency after doing so for the first time since 1998 last year.

Traders have also been watchful for potential action from Sweden's central bank given weakness in the Swedish krona. But this week, the dollar is down almost 6% against the krona and set for its biggest weekly drop since November.

Continued strength in the yen could see investors unwind the large bearish positions that have built up against the currency in recent months, pushing it higher, said Societe Generale (OTC:SCGLY) currency strategist Kenneth Broux.

Of course, being bearish the dollar has its own risks. One is a potential rebound in U.S. inflation, which could stoke bets on more Fed hawkishness and unwind many of the anti-dollar trades that have prospered this year.

Though inflation has cooled, the U.S. economy has remained resilient compared with other countries and few believe the Fed will cut rates anytime soon, which could potentially limit the dollar's near-term downside.

Still, Helen Given, FX trader at Monex USA, believes the Fed will wrap up its rate-hiking cycle before most other central banks, sapping the dollar’s long-term momentum.

While the dollar may pare some of its recent losses, "looking six months out it's likely the dollar will be even weaker than it is today," she said.

By Kevin Buckland

TOKYO (Reuters) - Asian stocks rose on Friday, on course for their best week this year, as a cooling in U.S. inflation stoked speculation that the Federal Reserve could pause rate hikes after this month.

The dollar sank to a fresh 15-month low against major peers and U.S. Treasury yields languished near multi-week lows following the sharpest weekly drop in four months.

Gold was poised for its best week in three months as the dollar floundered, while crude oil rose to the highest in nearly three months.

While money market traders still see a quarter point bump to the Fed funds rate on July 26 as close to a sure thing, they have reduced the chances of another this year to just 1-in-5.

Data on Thursday showed the smallest increase in U.S. factory gate inflation in nearly three years, reinforcing the milder inflation outlook after a report the previous day showing consumer price gains mitigated to the slowest pace in more than two years.

"What it means is we've got the Fed with its chest pretty much crossing the finish line at the end of the most aggressive tightening cycle in four decades, so it does warrant the rapid repricing that we've seen in many of these asset classes," said Tony Sycamore, a market analyst at IG in Sydney.

"The equity market absolutely took off, and the dollar is under intense pressure."

MSCI's broadest index of Asia-Pacific shares outside Japan rallied 0.7% on Friday to put it on track for a 5.4% weekly advance, the biggest for eight months.

Hong Kong's Hang Seng gained 0.52% and mainland Chinese blue chips added 0.12%. South Korea's Kospi jumped 1%.

Japan's Nikkei, though, was a notable outlier, flipping early gains to be last down 0.43% as it struggles to find its feet following its retreat from a 33-year peak reached at the start of this month.

U.S. E-mini equity futures also pointed to a 0.16% lower restart for the S&P 500, after the index rallied 0.85% overnight.

Meanwhile, the U.S. dollar index - which measures the currency against six major peers - edged about 0.1% lower to touch 99.637 for the first time since April of last year.

"The dollar index can probably trade down toward 98 over the coming weeks without too many problems," said IG's Sycamore. "I wouldn't be fighting that trend."

U.S. two-year Treasury yields, which tend to be most sensitive to the Fed policy outlook, languished at 4.63%, following a 30 basis point slide this week that extended its drop from last week's 16-year peak above 5%.

Ten-year yields wallowed around 3.77% following a 28 basis point decline since last Friday, when it reached an eight-month high at 4.094%.

Japan's market was again an outlier, with the 10-year yield rising as high as 0.485%, taking it the closest its been to the Bank of Japan's 0.5% policy ceiling since March 10.

Speculation that the BOJ could widen its 10-year yield band this month has been rising since a labor report a week ago showed solid growth in wages.

In Australia, the government's appointment of deputy governor Michele Bullock to lead the Reserve Bank of Australia from mid-September had little effect on markets.

The Aussie dollar was flat at $0.6891, following two days of 1.5% gains against its U.S. peer to take it to the highest in a month.

In commodities, gold edged to a new one-month high at $1,963.59, buoyed by the dollar's weakness. It has rallied nearly 2% this week.

Brent crude futures rose 27 cents, or 0.3%, to $81.63 per barrel on Friday. U.S. West Texas Intermediate crude futures rose 35 cents, or 0.5%, to $77.24.

By Wayne Cole

SYDNEY (Reuters) -Australia has appointed the first female head of its central bank, passing over the current governor to elevate his deputy to the high-profile job amid a public backlash over steeply rising interest rates.

Australian Treasurer Jim Chalmers and Prime Minister Anthony on Friday announced Michele Bullock would head the Reserve Bank of Australia (RBA) for the next seven years, having chosen not to reappoint Governor Philip Lowe for a second term.

Lowe will leave on Sept. 17, marking the end of his 43-year career at the bank. The decision comes as Lowe is due to accompany Chalmers to a Group of 20 meeting in India next week.

In a press conference, Chalmers said it was not out of the norm for a governor to only serve one term and he felt Bullock was best placed to lead the RBA through a coming reorganisation.

"This is a history-making appointment," Chalmers told reporters. "Michele Bullock will become the first woman to ever lead the Reserve Bank in this country."

The government has been under pressure to dump Lowe for encouraging people to borrow in 2021 by saying interest rates were unlikely to rise until 2024, only to start hiking two years early in mid-2022.

The central bank has since lifted rates 12 times to a decade-high of 4.1%, adding hundreds of dollars to monthly mortgage repayments at a time when a cost of living crisis is already stretching household budgets.

Lowe even took the extraordinary step of apologising to any borrowers who had acted on his policy assurances.

A SAFE CHOICE

Just this week, Lowe said it was possible rates would have to rise yet further to bring inflation to heel. He is due to chair the next two policy meetings in August and September and markets are divided on the likely outcomes.

Lowe had also said he would be honoured to stay if asked, but would understand if the government wanted a new leader. His two predecessors, again both career central bankers, were reappointed to second terms and each served 10 years in total.

"The Reserve Bank is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA," Lowe said in a statement on Friday.

Bullock, who joined the RBA in 1985 with a masters from the London School of Economics, is widely respected by analysts and financial markets showed little reaction to the change.

"My interpretation is this is much better than a political appointee," said Hugh Dive, chief investment officer at Atlas (NYSE:ATCO) Management. "Markets would have been concerned if it was someone very overtly political. So it's probably the best outcome."

The RBA is currently undertaking the biggest reorganisation in decades after an independent review into its operations recommended sweeping changes to the way policy was formulated and communicated.

"It is a challenging time to be coming into this role, but I will be supported by a strong executive team and boards," Bullock said in a statement.

JOHANNESBURG (Reuters) -The International Monetary Fund's executive board has approved an immediate $189 million disbursement to Zambia following its first review of a $1.3 billion loan programme, the IMF said on Thursday.

The IMF board meeting came after Africa's second-biggest copper producer clinched a deal last month with governments abroad including China to rework about $6.3 billion of its overseas debt.

"Swift finalization and signature of the Memorandum of Understanding with the OCC (Official Creditor Committee) will be important," said IMF Managing Director Kristalina Georgieva in a statement.

"Timely implementation of this agreement, together with agreements with private creditors on comparable terms, should restore Zambia's debt sustainability over the medium term," she added.

Zambia was the first African country to default on its sovereign debt during the COVID-19 pandemic and faced lengthy delays in restructuring negotiations.

The IMF said that Zambia's performance under the support programme had been strong, and that all quantitative performance criteria for the first review had been met.

The Fund now sees Zambia's total public debt falling to 88.5% of gross domestic product (GDP) by the end of 2026 from about 110% of GDP at the end of this year.

Although Zambia's economic growth is projected to moderate to 3.6% in 2023, it is expected to accelerate to 4.3% in 2024 and settle at around 5% per year over the medium term, the IMF said.

By Shivangi Acharya and Sarita Chaganti Singh

NEW DELHI (Reuters) - Global finance chiefs will meet in India next week to discuss increasing loans to developing nations from multilateral institutions, reforming the international debt architecture and regulations on cryptocurrency, Indian officials said.

The finance ministers and central bank governors from the Group of 20 (G20) nations will also discuss a multilateral agreement on taxing conglomerates with cross-border operations, while the Russian war in Ukraine was also bound to come up, they said.

The July 17-18 meeting in Gandhinagar, the capital of the western state of Gujarat, will be the third finance chiefs' meeting under India's G20 presidency and will set the tone for a leaders summit in New Delhi in September.

The meeting is likely to be attended by most senior treasury officials from G20 member-nations, including U.S. Treasury Secretary Janet Yellen, as well as the World Bank's newly appointed President Ajay Banga and the International Monetary Fund's Managing Director Kristalina Georgieva.

Senior treasury officials from Russia and China are also expected to attend, according to two Indian officials, who did not want to be named.

India will try to keep the focus of member nations on discussing issues of debt and other economic issues, and not push for any consensus on Ukraine war, one Indian official said, declining to be identified.

During the two-day meeting, the group is likely to discuss a "substantial" increase in annual loans to developing countries from multilateral institutions as recommended by an independent panel formed in March, said another Indian official, who also did not want to be named.

The independent panel, headed by economists Lawrence Summers and N.K. Singh, was commissioned by the G20 to propose reforms to multilateral development banks with a focus on increasing funding for sustainable developments goals and climate change, among others.

The official also said the group will continue to work towards resolving differences in helping low-income countries manage their debt burdens and free up funding for climate financing.

Countries like Zambia and Ghana have been waiting for big creditors to make progress in providing debt relief under the so called "Common Framework", which is led by the G20.

Global creditors, debtor nations and international financial institutions agreed in April to galvanize the Common Framework - a platform supposed to speed up and simplify the process of getting over-stretched countries back on their feet.

Though Zambia, locked in default for almost three years, struck a deal last month to restructure $6.3 billion in debt owed to governments abroad including China, many challenges remain.

The finance ministers and treasury heads will also attempt to bring agreement on the principles of managing cryptocurrencies in their respective geographies.

The first volume of a report and a "guidance note" to develop a globally coordinated framework for regulation and supervision of crypto assets will be discussed in Gandhinagar, India's Economic Affairs Secretary Ajay Seth said in a video address on Wednesday.

At the first meeting of the finance chiefs in February, the IMF endorsed the Indian government's position that crypto assets would require global and coordinated regulation, while giving sovereigns option to ban such assets.

The G20 is also expected to discuss the key differences in taxation of large multinational companies under a framework put forward by the Organisation for Economic Co-operation and Development (OECD).

The OECD agreed on Wednesday to defer levying taxes on large multinational companies by one year to 2025 until a common framework is in place.

Investing.com -- The pace of economic growth rose "slightly" since late May and the pace of inflation continued to slow as wage increases moderate to or nearing pre-pandemic levels, according to the Federal Reserve's Beige Book released Wednesday.

"Overall economic activity increased slightly since late May, [though] overall economic expectations for the coming months generally continued to call for slow growth," the Fed said in its Beige Book economic report, based on anecdotal information collected by the Fed's 12 reserve banks through June. 30.

The pick up in economic activity comes as several districts noted some slowing in the pace of inflation, the report said, though inflation expectations were "stable or lower over the next several months."

The somewhat improved outlook on inflation comes on the heels of data Wednesday showing that inflation cooled more than expected in June.  

The consumer price index rose 0.2% last month after edging up 0.1% in May, with annual inflation also slowing to a 3.0% pace from 4% a year earlier, marking the slowest pace of price pressures since March 2021.

On the labor market, while demand remained healthy, multiple districts reported that "wage increases were returning to or nearing pre-pandemic levels." 

By Sheila Dang

AUSTIN (Reuters) - Rapid advancements in artificial intelligence have the potential to exacerbate societal problems and even pose an existential threat to human life, increasing the need for global regulation, AI experts told the Reuters MOMENTUM conference this week.

The explosion of generative AI - which can create text, photos and videos in response to open-ended prompts - in recent months has spurred both excitement about its potential as well as fears it could make some jobs obsolete, upend economies and even possibly overpower humans.

"We are flying down the highway in this car of AI," said Ian Swanson, CEO and co-founder of Protect AI, which helps businesses secure their AI and machine learning systems, during a Reuters MOMENTUM panel on Tuesday.

"So what do we need to do? We need to have safety checks. We need to do the proper basic maintenance and we need regulation."

Regulators need look no further than at social media platforms to understand how unchecked growth of a new industry can lead to negative consequences like creating an information echo chamber, said Seth Dobrin, CEO of Trustwise.

"If we expand the digital divide ... that's going to lead to disruption of society," Dobrin said. "Regulators need to think about that."

Regulation is already being prepared in several countries to tackle issues around AI.

The European Union's proposed AI Act, for example, would classify AI applications into different risk levels, banning uses considered "unacceptable" and subjecting "high-risk" applications to rigorous assessments.

U.S. lawmakers last month introduced two separate AI-focused bills, one that would require the U.S. government to be transparent when using AI to interact with people and another that would establish an office to determine if the United States remains competitive in the latest technologies.

One emerging threat that lawmakers and tech leaders must guard against is the possibility of AI making nuclear weapons even more powerful, Anthony Aguirre, founder and executive director of the Future of Life Institute, said in an interview at the conference.

Developing ever-more powerful AI will also risk eliminating jobs to a point where it may be impossible for humans to simply learn new skills and enter other industries.

"We're going to end up in a world where our skills are irrelevant," he said.

The Future of Life Institute, a nonprofit aimed at reducing catastrophic risks from advanced artificial intelligence, made headlines in March when it released an open letter calling for a six-month pause on the training of AI systems more powerful than OpenAI's GPT-4. It warned that AI labs have been "locked in an out-of-control race" to develop "powerful digital minds that no one – not even their creators – can understand, predict, or reliably control."

"It seems like the most obvious thing in the world not to put AI into nuclear command and control," he said. "That doesn't mean we won't do that, because we do a lot of unwise things."

(This story has been corrected to say Seth Dobrin is CEO of Trustwise, not president of the Responsible AI Institute, in paragraph 5)

By Jihoon Lee and Joyce Lee

SEOUL (Reuters) -South Korea's central bank on Thursday held interest rates steady for a fourth straight meeting, as expected, faced with softening but still high inflation and heightened financial uncertainty.

The Bank of Korea (BOK) said its seven-member monetary policy board voted to keep the base rate unchanged at 3.50%, as it did in meetings in February, April and May.

Domestic markets showed muted reaction as the decision was in line with the unanimous forecasts of 46 economists surveyed by Reuters.

The BOK has kept monetary policy unchanged since its last interest rate hike in January and its tightening campaign, which began in August 2021, is widely expected to be over.

South Korea's annual consumer inflation has eased since peaking at a 24-year high of 6.3% in July 2022. The rate stood at 2.7% in June this year, although it is still higher than the central bank's medium-term target of 2%.

The decision comes amid heightened worries about a sluggish property market that has weighed on liquidity conditions of financial institutions.

South Korea's heavily trade-reliant economy has been losing momentum this year due to a slowing global economy, weak chip sector and still sluggish demand from China, although consumer sentiment ticked up in June to its highest in just over a year.

By Asif Shahzad

ISLAMABAD (Reuters) -The International Monetary Fund's board approved a $3 billion bailout programme for Pakistan which will immediately disburse about $1.2 billion to help stabilise the South Asian ailing economy, the lender said on Wednesday.

Pakistan and the Fund reached a staff level agreement last month, securing a short-term pact, which got more than expected funding for the country of 230 million, which faced an acute balance of payments crisis with only enough central bank reserves to cover barely a month of controlled imports.

The board's approval was mandatory before disbursing the first tranche, with the rest to arrive later in instalments.

The IMF executive board "approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 percent of quota) to support the authorities' economic stabilization program," the lender said in a statement.

It said Pakistan faced "a difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers in FY23."

The deal, a lifeline for Pakistan, which has been on the cusp of default, came after eight months of tough negotiations over fiscal discipline.

Prime Minister Shehbaz Sharif said the bailout was a major step forward in the government's efforts to stabilise the economy and achieve macroeconomic stability. "It bolsters Pakistan's economic position to overcome immediate- to medium-term economic challenges, giving next government the fiscal space to chart the way forward," he said.

Terming it a milestone, Sharif said it was achieved against "the heaviest of odds & against seemingly impossible deadline."

Sharif's coalition government is due to face a national election this year and must undertake more painful fiscal discipline measures to satisfy the IMF. It included the central bank raising its policy interest rate to a record high of 22% while ordinary Pakistanis struggle with inflation running at about 29% and the government raising 385 billion rupee ($1.39 billion) in new taxes.

POLICY ANCHOR

The IMF said the fresh funding will provide a policy anchor for addressing domestic and external imbalances and a framework for financial support from multilateral and bilateral partners.

"The program will focus on implementation of the FY24 budget to facilitate Pakistan's needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending; a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages," it said.

The IMF said it wanted Islamabad to ensure a tight monetary policy aimed at disinflation and further progress on structural reforms, particularly in the energy sector, state-owned enterprises governance and climate resilience.

The deal, which has already brought some relief to investors in the country's stocks, exchange rate and bonds, will unlock more external financing.

Longtime allies Saudi Arabia and United Arab Emirates have deposited $3 billion in Pakistan's central bank in the last two days. Sharif said China had rolled over $5 billion in loans in the last three months to save his country from default.

Fitch credit rating agency on Monday upgraded Pakistan's sovereign rating to CCC from CCC-.

($1 = 277.0000 Pakistani rupees)

PARIS (Reuters) - With the exception of Canada, countries with digital services taxes have agreed to hold off applying them for at least another year as a global multinationals tax deal to replace them was pushed back, the OECD said on Wednesday.

More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinationals that are widely considered to be outdated as digital giants like Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) can book profits in low-tax countries.

The first part of the two-pillar deal aims to reallocate taxing rights on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.

The more than 30 governments that have or plan national digital services taxes had agreed to put them on ice under a standstill clause until the end of this year, or drop them altogether once the first pillar takes shape.

The second pillar calls on governments to put an end to tax competition between governments to attract investment by setting a global minimum corporate tax rate of 15% from next year.

While the second pillar is moving ahead with over 50 countries already in the process of implementing it, some countries have concerns about a multilateral treaty underpinning the first pillar, the Organisation for Economic Cooperation and Development said after talks in Paris.

The plan is therefore now to nail down the details so governments can sign off before the end of the year with the aim now for the treaty to enter force in 2025, instead of in 2024 as previously planned.

If at least 30 countries sign, then the freeze on national digital taxing rights will be extended through 2024 with an option to further extend through 2025 if needed, the OECD said.

Out of the 143 countries that are party to the deal, only five countries - Belarus, Canada, Pakistan, Russia and Sri Lanka - were not in a position at the meeting to offer their support, OECD head of tax Manal Corwin said.

"Canada was not in agreement with the standstill," Corwin told journalists, citing the only country among the five holdouts with a digital services tax.

But even once governments sign the treaty, ratification will be no easy task, especially in the United States where a two-thirds majority in the Senate is needed.