|
 |
Apr-21-2008Dollar under pressure after Bank of America misses(topic overview)
CONTENTS:
SOURCES
FIND OUT MORE ON THIS SUBJECT
The British pound edged up to $1.9957 from $1.9940, while the dollar declined to 103.76 Japanese yen from 104.17 yen. The dollar has been weighed down by a combination of gloomy U.S. economic data and high European inflation — fueling expectations that the U.S. Federal Reserve will continue cutting its interest rates, while the European Central Bank will leave the cost of borrowing unchanged at 4 percent. Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns, while higher rates are used to curb inflation. [1] Volkswagen AG (other-otc: VLKAF.PK - news - people ) also said in March that it was scouting locations in the United States for a new production plant to help mitigate the effect of the currency differences, and BMW AG has already said it would expand production in South Carolina. The dollar has been weighed down by a combination of gloomy U.S. economic data and high European inflation - fueling expectations that the U.S. Federal Reserve will continue cutting its interest rates, while the European Central Bank will leave the cost of borrowing unchanged at 4 percent. Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns, while higher rates are used to curb inflation.[2]
"The euro's rise is only natural and (traders) will ultimately pay little heed to European officials' attempts to curb the currency's strength due to the economic conditions in Europe," said Kenichi Yumoto, a manager in foreign exchange sales at Societe Generale. German inflation appeared entrenched at high levels Friday after Europe's biggest economy reported a 4.2 percent jump in producer prices, strengthening the case for eurozone interest rates to stay on hold for much of this year. The euro has struck a series of record levels above 1.59 dollars this week as data released Wednesday showed that eurozone inflation reached an annual rate of 3.6 percent in March -- the highest since the launch of the single currency in 1999. Analysts said Wednesday's data was likely to mean the European Central Bank would hold borrowing costs at their current levels for the foreseeable future.[3] Midweek, the euro vaulted to a record peak against the dollar as record high eurozone inflation and a sharp slide in U.S. home construction highlighted the divergent growth paths in the two economies. The euro rose to $1.5968, the strongest since its 1999 launch, as data showing a record 3.6% advance in eurozone prices last month suggested the European Central Bank will not cut interest rates soon.[4] The FINANCIAL -- According to Gulfnews, Barclays Capital forecast the dollar will drop 2.5 per cent against the euro in three months as record oil prices increase the U.S. import bill and prevent the European Central Bank from cutting interest rates because of inflation.[5]
The 15-nation currency bought $1.5805 in late New York trading, below the $1.5888 it bought Thursday. That was more than a cent off the all-time high of $1.5982 it set on Thursday, as the euro zone grappled with rising inflation that has all but guaranteed no interest rate cuts by the European Central Bank (other-otc: CHPA.PK - news - people ).[2] The euro was steady at $1.5825 off a record high of $1.5985 hit on EBS last week. Many traders believe the euro is still on an upward trend on expectations that European interest rates will stand pat at 4.0 percent until later this year. European Central Bank Governing Council member Klaus Liebscher told Reuters last week that there was no room to cut euro zone rates, adding that he would not rule out a tightening.[6]
The number of regions that the BoJ downgraded was the largest since the central bank began releasing the report in April 2005. The last trading session witnessed the dollar surge to a 7-week peak against the yen to ''104.64 its strongest since late February, after Citigroup earnings contained less damage from the credit crisis. Range for previous week: ''100.77 ''' ''104.64 Range for this week: ''102.00 ''' ''105 Sterling Sterling marched higher against the yen and euro on speculation that a plan to ease mortgage market conditions would limit the scope of UK interest rate cuts.[4] The euro had hit a record high 1.5984 dollars last Thursday as the European Central Bank (ECB) warned that surging eurozone inflation could last longer than thought, reducing chances of a cut to interest rates.[7] April 21 (Bloomberg) -- The euro rose to within a cent of a record against the dollar as European Central Bank officials reiterated concern inflation has accelerated, increasing chances interest rates will stay at a six-year high.[8]
''The dollar-euro exchange rate is pressing hard on the $1.60 mark and, if you are taking on a dollar-denominated investment at the moment, you are assuming that there will be an interest rate cut by the European Central Bank which will cause the euro to weaken against the dollar. ''That is what you are buying into, and you are probably looking at a six-to-12 month horizon for it to take place,' he explained.[9]
Fresh fundamental developments for the Australian economy were nonetheless underwhelming; dovish Reserve Bank of Australia rhetoric further sunk hopes for higher domestic interest rates through year-end. The spread between the 2-year and 3-month benchmark AUD swap rates remained in clearly bearish territory at -35 basis points--near its worst levels in seven years. Such poor yield expectations would normally be enough to sink any given carry trade-sensitive currency, but similarly bearish forecasts for U.S. and Japanese interest rates have arguably kept the Aussie bid. The same remains true for AUD strength against its New Zealand counterpart; the Kiwi has clearly lost ground on expectations for fairly aggressive RBNZ rate cuts in 2008 and 2009. That said, the Australian dollar is somewhat likely to ignore developments in domestic yield expectations and instead move on general shifts in global risk sentiment.[10] The euro could rise further towards 90p sterling and above $1.60 in the months ahead, according to fore casters, although many believe a weaker eurozone economy later in the year will start to depress the currency. The euro last week reached record highs against both sterling and the dollar, as continued inflationary fears in Europe dampened hopes of an interest rate cut. Dermot O'Leary, chief economist with Goodbody Stockbrokers, said that, while the dollar was likely to decline further in the near future, its fall was already affecting trade volumes, and this would eventually bring an end to its slide.[11] Though as earnings were the driver to the reemerging of the dollar along side carry trades the key highlight to keep our eyes on today will be earnings from Bank of America, the second largest U.S. bank, might have deeper losses affected by the credit meltdown and the housing market collapse. The bank might be announcing their third consecutive profits decline, and despite the upbeat sentiment in Wall Street and for the dollar, as now losses from the credit market seem to have neared their peak, and good businesses and strong returns from abroad is thought to support the economy to rebound from the verge of recession; but to me the amount of announced cost trimming plans by massive layoffs is bothering, since the thing that'''s needed to strengthen at this point is consumer spending, which accounts for 2/3 of the total GDP, as with a shrinking labor market, record energy and food prices which is deteriorating further disposable income that the housing market already ate off American'''s wealth and all that along side rock bottom confidence is not supporting the rise in spending. On the medium-term the dollar remains week, though Philadelphia Fed President Charles Plosser was rather hawkish in his comments, saying that now interest rates are low enough to support the economy to rise once again.[12]
The dollar rose the most against the euro in more than two weeks on April 18 after Citigroup Inc., the biggest U.S. bank, reported first-quarter revenue above analysts' consensus forecasts, fueling speculation financial firms will weather credit losses. Futures on the Chicago Board of Trade show no chance the Federal Reserve will reduce the target rate for overnight lending by a half-percentage point at its April 30 meeting, compared with 42 percent odds a week ago.[8] The prospect of recession and the chaos in the financial markets which prompted the U.S. Federal Reserve to slash interest rates, prompted a significant fall in the dollar. By the middle of last week, it had reached a record low against the euro of $1.59.This compares to $1.34 a year ago, and roughly $1.20 two years ago.[9] Barclays Plc analysts led by David Woo, London-based global head of currency strategy, wrote in a research note yesterday that the dollar will weaken to $1.63 per euro in three months as record oil prices increase U.S. import costs and prevent the ECB from cutting interest rates because of inflation.[13] Europe The Euro reached a fresh record high of 1.5983 against the dollar following strong inflation data from the Euro zone and Germany, which reinforced the view that the ECB will not cut interest rates anytime soon.[14] The Euro (EURO) fell to 1 week lows against the dollar after U.S equity markets rallied on the heels of better than expected profit results from Citigroup. ECB Council member Liebscher prevented the Euro falling further against the dollar as his comments all but ruled out imminent rates cuts, going so far as to say, "no room exists to cut Euro Zone interest rates." These comments come as no surprise to many traders who believe Euro selling would likely be short-lived, as ongoing inflation pressures will likely encourage the ECB to hold rates at 4% at least through autumn.[15] Markets however feel that euro selling is likely to be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4% at least through autumn. Range for previous week: $1.5669 ''' $1.5983 Range for this week: $1.5650 ''' $1.5950 Yen Japanese consumer confidence hit a five-year low while the Bank of Japan cut its economic view for almost all of the country, in the latest signs of trouble for the World'''s No2 economy.[4]
HONG KONG (Thomson Financial) - The U.S. dollar weakened against the euro and the yen in afternoon Asian trade on Monday on worries that data released this week, including first-quarter results and housing figures, will add to signs the world's biggest economy may fall into a recession. Bank of America, Credit Suisse Group, Texas Instruments, Microsoft and AT&T; are some of the companies set to announce their results this week.[16] TOKYO (Reuters) - The dollar edged towards a seven-week high against the yen on Monday, as Citigroup's results fuelled hopes that the worst of the bank losses stemming from the U.S. housing sector are out. Citigroup, the largest U.S. bank, on Friday reported a quarterly loss of $5.1 billion, but investors welcomed its aggressive steps to resolve credit problems and felt more confident about the financial sector. Credit jitters were further soothed on efforts by Royal Bank of Scotland to shore up its balance sheet, with Britain's second-biggest bank expected to announce this week Europe's largest-ever rights issue of up to 12 billion pounds and over $10 billion of losses on toxic investments.[6] NEW YORK, April 21 (Reuters) - The dollar fell broadly on Monday after weaker-than-expected Bank of America profits damped investors' initial optimism that companies may escape the pinch of the crisis in global credit markets. Bank of America Corp (BAC.N: Quote, Profile, Research ), the No. 2 U.S. bank, reported a fall in its first-quarter profit due to write-downs and rising credit losses. Its net income fell to $1.21 billion, or 23 cents per share.[17]
"We continue to expect Gold Prices to trade inversely with the U.S. Dollar given gold's currency-like properties of being a store of value and a medium of exchange," says Jeffrey Currie, an analyst at Goldman Sachs. He raised the bank's Gold Price forecast from $850 to $920 and above for the next six months. Spot Gold has averaged $924 per ounce so far this year. Alongside the drop in Gold Market prices today, government bonds - the "safe haven" of choice for institutional investors since the banking crisis began last summer - headed for their biggest fall in more than four years according to Bloomberg data. German bund prices fell almost 1% this morning after Nout Wellink, a member of the European Central Bank's governing council, said he saw "no dampening of inflation" ahead.[18] Against the pound, the U.S. currency will weaken to $2.05 versus $1.97. "The dollar is locked in a vicious circle," they wrote. The currency's drop is causing higher oil prices as oil nations seek to preserve their revenues and "this in turn leads to further dollar weakness as the European Central Bank becomes even less likely to follow Federal Reserve easing."[5] SNB's move will come in an auction of so-called repo loans, or repurchase agreements, to renew a similar measure of $6 billion made last month in concert with the European Central Bank (ECB), the U.S. Federal Reserve and the Bank of Canada. "The bases for these tenders were developed jointly with other central banks, and we are still drawing these dollars from the Fed, but by now, not each individual offering is discussed among the central banks," said Werner Abed, spokes-man for the SNB. It is the fourth in a series of auctions by the SNB since December.[19] Under repo loans banks bid for the chance to borrow and put up securities as collateral in order to get ready cash to operate. The ECB auctioned $15 billion to European banks earlier this month in coordination with a $50 billion auction by the Fed. It was the ninth in a series of auctions by the Federal Reserve that began in December and have so far pumped $310 billion into the U.S. banking system.[19]
The ECB's benchmark rate, 4.00 percent, is already substantially higher than that of the U.S. Federal Reserve, which stands at 2.25 percent. Higher interest rates offered in the eurozone -- and the likelihood that they will not change -- makes the euro a more attractive investment than the dollar. [3] The subprime problem has knocked the stuffing out of the strong U.S. economy and relatively high interest rates--the two key elements that supported the strong dollar. This has led to the dollar being sold while the U.S. trade deficit is left untouched. U.S. Federal Reserve Board Chairman Ben Bernanke's adherence to his belief that financial policy will work has seen him lower interest rates at a tremendous speed. This has resulted in a further fall of the dollar. It would be nice if lowering interest rates actually stimulates the economy.[20] "The U.S. dollar was boosted (on Friday) by strengthening perceptions that the worst of the credit crisis is over and so the Federal Reserve will not need to cut interest rates aggressively further," noted NAB Capital analyst John Kyriakopoulos.[7]
Sydney, Australia - U.S. Dollar Trading (USD) strengthened on Friday as market sentiments drastically improved following Q1 results from Citigroup coming in better than expected, with a loss of US$5.1 billion, much lower than the US$10 billion loss during Q4. Based on this result, the market reacted as if it was an indication the worst of the credit turmoil may be over. Despite this positive sign, it is still widely predicted the Fed will cut rates by 25bps when it meets later this month. Contrary to this popular opinion, Philadelphia Fed President Plosser hinted that he felt the Fed had cut rates enough to promote economic growth. This saw the Swiss franc and yen being the most heavily sold off owing to a return to risk appetite amongst investors.[15] There's a 98 percent likelihood of a quarter- point reduction and 2 percent odds of no cut. Two-year Treasury note yields rose 0.39 percentage point this week, the most since November 2001, to 2.13 percent. That leaves the yield 1.52 percentage points higher than that of same-maturity Japanese bonds, the widest since Jan. 31. "It's a bullish component for the dollar,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. "It's part of a reflection of the adjustment of fed funds rate expectations.'' The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose for a second day, increasing to 72.228, from 71.680 yesterday. It dropped to a record of 70.698 on March 17.[13] The Australian dollar was trading at 93.81 U.S. cents at 5:00 pm (0600 GMT) Friday, well up on the previous week's 91.13 U.S. cents, ANZ senior markets economist Katie Dean said quarterly inflation figures due out Wednesday were likely to show prices rose 0.9 percent for the quarter, or 4.1 percent year-on-year. "With the inflation data due, we are preparing for a volatile week for the Australian dollar coming up," she said. She said the currency could establish a new, higher, range of 92.50 to 95.0 U.S. cents.[21]
The U.S. currency registered small volatility today, trading around the 1.5821 level against the Euro and appreciating by 0.2 percent against the Yen. David Simmons, head of currency strategy at Royal Bank of Scotland Group Plc in London, believes that '''The dollar will weaken to $1.62 or $1.63 per euro this quarter even after the G-7 statement'''.[22] The yen was at ''96.8461 to the Australian dollar, at ''82.235 in relation to the New Zealand dollar, and at ''13.461 to the South African rand. The pound and the U.S. dollar both gained on the euro with the pound trading at 78.84p to the euro while the greenback was at $1.5733 to the shared currency.[23]
The dollar slid toward a new low Monday against the euro after Bank of America Corp. reported worse-than-expected first-quarter earnings. The 15-nation currency rose as high as $1.5946 in afternoon European trading, up from S$1.5805 in New York late Friday and not far off its all-time high of $1.5982 reached last Thursday.[24] The dollar gained reprieve after data showed that U.S. producer prices rose by a faster-than-expected 1.1% in March, while a gauge of New York manufacturing activity rose in April. The dollar continued to maintain a firm foothold moving away from its record low versus the euro on Friday after Citigroup earnings sparked hope the credit crisis may be nearing an end.[4] NEW YORK -- The dollar fell to an intra-day low versus the euro Monday morning in New York after worse-than-expected earnings from a major U.S. bank stalled a trend toward improving sentiment in the dollar.[25] NEW YORK, April 21 (Reuters) - The dollar fell on Monday after unexpectedly weak profits from Bank of America dampened investors' optimism that U.S. financial companies may escape the pinch of the crisis in global credit markets.[26] Dealers added that news reports that the British central bank would announce a remedy plan to revive the credit market also underpinned the dollar and other currencies which had been actively sold amid the global credit crunch. The U.S. currency, however, was pulled lower in the late afternoon as investors locked in gains after the Bank of England revealed its rescue scheme, which was very similar to what had been reported earlier.[27]
SOUTH KOREAN WON: The won fell to 1,000.7 per dollar Friday, down 2.6 percent from a week earlier, reflecting lingering concerns over the global credit crisis, high oil prices and the country's slow economy. Offshore players cut their won positions and foreign shareholders kept selling the local stocks, driving the South Korean won down. It marked the first time since March 21 that the won fell below 1,000 won. Strategy and Finance Minister Kang Man-Soo said the economy could lose its expansion momentum in quarters to come, impeding the government's growth target of six percent. Last week central bank governor Lee Seong-Tae warned growth this year could be slower than his earlier forecast of 4.7 percent.[21] The slowing economy means New Zealand interest rates could be cut by the end of the year, although no economists expect the official rate to be lowered in a review by the central bank next week.[21] Inflation in the 15-nation euro region accelerated to 3.6 percent last month, the fastest in almost 16 years. ECB policy makers will have to "tolerate a stronger euro'' or raise interest rates if they want to bring inflation down, said Thomas Mayer, the London-based chief European economist at Deutsche Bank. "Is there a level of a euro where the economy falls apart?'' he said. "No, it's a gradual process.''[28] In Europe, hawkish European Central Bank inflation comments supported the euro after ECB Governing Council member Klaus Liebscher said there was no reason for pessimism on euro zone growth, suggesting the ECB will maintain interest rates at a six-year high.[26] Liebscher, who heads Austria's central bank, told reporters in Vienna today that inflation leaves no room for the ECB to lower interest rates even with risks to the economic outlook on the "downside.''[8]
The week ahead will likely see the Australian dollar trade lockstep with the Dow Jones Industrials Average and other key risk barometers, while ostensibly significant domestic inflation reports are less likely to force major moves across AUD pairs. Official Reserve Bank of Australia releases show that the central bank has discounted high inflation figures through the coming quarters in its current stance on monetary policy. As such, it would take a surge or a tumble in CPI figures to make a significant impact on RBA rate expectations--neither of which seem especially likely. It will be most important to watch overall developments in global risk sentiment.[10] Further weighing on the dollar are views that the European Central Bank (ECB) may resist calls to follow the Fed in trimming rates as the euro zone area continues to battle inflation.[16] The dollar dropped 12 per cent against the euro since September as the Fed cut the overnight lending rate between banks by 3 percentage points to 2.25 per cent as subprime-mortgage losses spread. ECB officials have signalled they are unlikely to cut their benchmark rate from four per cent because lower borrowing costs may further accelerate inflation. Barclays Capital revised its forecast for the euro to 79 pence in three months, compared with a previous forecast of 76 pence.[5]
Mounting inflation in the euro area may lead policy makers to consider a rate increase, the Wall Street Journal quoted ECB policy maker Erkki Liikanen as saying. His colleague, Axel Weber, who last week said policy makers will assess whether the benchmark rate of 4 percent is high enough to contain "intolerably'' fast inflation, speaks in Munich today. Traders betting on intervention by the Group of Seven nations to stem the dollar's 9 percent decline against the euro this year may be disappointed.[8] Traders may be wary of pushing the euro any higher but until there is sustained improvement in U.S. statistics there will be no turn in dollar fortunes. Futures have priced out any cut in the ECB rates this year.[29] LONDON (AFP) — The euro slid against the dollar here Friday, weakened by profit-taking, after trading close to its record high against the U.S. currency on dimming prospects for a eurozone rate cut, traders said.[3]
John Beggs, chief economist with AIB, anticipated that the current crisis in U.S. financial markets would begin to have a significant knock-on effect in Europe by the middle of this year. He too believed the ECB would have to cut interest rates. The euro trading at 90p sterling could be a possibility later this year, according to Jim Power, chief economist with Friends First.[11] Today the Euro pulled back 1.6% from Thursday's new record high of $1.5962. It also dropped 2.1% against the previously weak British Pound, falling to a two-week low despite a surge in Germany's producer price index for March - news that would support the ECB's decision not to cut interest rates.[18] In the week ahead, the Bank of Canada and the Reserve Bank of New Zealand will be conducting monetary policy meetings. The BoC is expected to cut interest rates by 50bp while the RBNZ is expected to leave them unchanged. Aside from the rate decisions, Canada will also be releasing their retail sales report while Australia will be reporting producer price growth.[30] AUSTRALIAN DOLLAR: The Australian dollar is expected to face a volatile week ahead as markets await inflation data that is likely to set the tone for the Reserve Bank's approach to interest rates, dealers said.[21]
The dollar was quoted at 103.70 yen, down from 103.88 yen. The Federal Reserve is widely anticipated to further trim its key interest rates by at least 25 basis points when policymakers meet next week. Since it began easing monetary policy in September, the Fed has slashed its rates by a cumulative 300 basis points.[16] I'm worried about the future of the dollar-denomination of oil prices. In 1979, when the dollar fell sharply, Arab oil-producing countries discussed whether they would stop denominating oil prices in dollars. To prevent this move, the Federal Reserve Board even raised the short-term interest rate to 22 percent to defend the dollar.[20]
The price increase supported the central bank's case for keeping interest rates at a 12-year high of 7.25 percent, compared with 2.25 percent in the U.S. The Aussie rose 0.7 percent to 94.17 U.S. cents and increased 0.6 percent to 97.43 yen.[8] The U.S. Federal Reserve is slashing interest rates, while the European Central Bank is refusing to budge.[9] Earlier today, International Monetary Fund Europe Director Michael Deppler said the European Central Bank may need to cut interest rates within six months to bolster the economy.[31] European Central Bank Governing Council member Klaus Liebscher said record-high oil prices are beginning to push up wages and noted that'second-round effects are appearing in some countries in the euro area.' Liebscher said that even though risks to the euro zone economy were on the 'downside,' there is no room to cut rates.[32]
No other currency is close. The United States is both the world's largest economy and largest trading nation. That is unlikely to change in the near future. That implies central banks will not be indifferent to the value of the bilateral exchange rate against the dollar.[20] Over the past 3 trading days, the British pound has rallied over 300 pips on the hope that the Bank of England will come and save the day. The central bank is expected to officially announce a plan that would allow them to take over mortgages from lenders to increase liquidity. In return they hope that these mortgage lenders will be more willing to extend new loans to potential homeowners. This is the only reason why the British pound is higher because the UK economy faces the same risks as the U.S. Job losses are continuing to build and many of the layoffs in the financial sector are expected to happen in London.[30] Net income fell to $1.21 billion, or 23 cents per share. Analysts said Bank of America's results suggest the fallout from the credit crisis may not be over as some have speculated, chilling risk appetite as such problems were expected to continue weighing on the U.S. economy and the dollar.[26] The dollar perked up after a Wall Street rally on Friday generated optimism that the worst of the credit crunch may be over. That was dampened Monday as Bank of America (nyse: BAC - news - people ) said its profit fell 77 percent in the first quarter, hurt by trading losses and a $3.3 billion increase in reserves for problem loans.[24] New York/London: The dollar rose the most against the euro in more than two weeks as Citigroup first-quarter revenue beat analysts' estimates, fuelling speculation financial firms will weather credit market losses. The yen fell against all of the major currencies, dropping to the lowest level this year against the euro, on speculation traders increased purchases of assets funded by loans in Japan.[33] The dollar-selling trend, which sent the U.S. currency to the 95 yen level in mid-March, weakened following the release of first-quarter earnings reports by U.S. financial institutions including Citigroup Inc., currency dealers said. "Financial institutions posted hefty losses last week, but their sizes were mostly in line with market forecasts," Masaki Fukui, senior market economist in the foreign exchange division at Mizuho Corporate Bank said. He added that steps taken by U.S. financial institutions to deal with the U.S. subprime mortgage crisis also prompted dollar buying.[27] The U.S. dollar rose has risen towards a 7 week high against the Yen and stayed away from an all time low against the Euro overnight as Citigroup's results (released last Friday) fuelled hopes that the worst of the bank losses stemming from the U.S. housing sector are now 'on the table'.[34] The euro rose 0.6 percent to 164.01 yen, from 163.03 yesterday. It reached 164.68, the highest since Dec. 31. The greenback was little changed against the euro this week after reaching the all-time low of $1.5983 yesterday. It advanced 2.8 percent against the yen, the biggest gain since December 2004. The yen is down 2.8 percent against the euro this week, the largest drop since Aug. 24. The pound appreciated 1.3 percent this week to within a cent of $2 on speculation the Bank of England may take mortgages off lenders' balance sheets.[13]
The Euro dropped two cents from Thursday's high of $1.5964, while soft commodity prices dropped around 1% on average. Rice jumped yesterday above $1,000 per tonne for the first time ever on news the world's largest rice importer, the Philippines, failed for the fourth week running to buy as much rice as its government bid for. Bangladesh failed to secure any rice imports this week, says the Financial Times. "Gold has a little bit of help from the Dollar," says Jeremy East, head of the commodities desk at Standard Chartered in London, "as the currency looks like it's heading towards $1.60 vs. the Euro.[18]
"Bank of America's results obviously don't help the dollar and we also have the ECB making comments suggesting rates may remain steady." The euro zone single currency rose to a record $1.5983 on April 17, its highest since its inception in 1999, according to Reuters data.[26] If there is going to be any change in the rate differential between the ECB and the Fed over the next six months it will only come from the Americans. That is the reason for the far more volatile effect of U.S. statistics on the currency market'change, even dramatic change in the U.S. economic situation or Fed policy is expected, little but economic gradualism and rate status quo is anticipated from Europe. The euro and dollar have been in a range since early March from 1.5350 to 1.5850 with only this recent spike to 1.5980.[29]
Expectations of a rate cut next week trimmed back again to 25 bp, though we cannot say the economy will rise until we see considerable evidence from the heart of economic activity and not base assumptions on corporate earnings. This week we can judge from expectations to see March existing and new home sales have continued to fall despite seeing mortgage applications rise, while the other considerable economic data is durable goods orders which are expected to have remained unchanged buoyant by overseas demand. The sentiment will have its major role in determining the Yen'''s path, which is clear; the dollar will play a role though more affecting will be equities performance.[12] The ZEW survey of Swiss sentiment improved very slightly to -71.4 in April, as investors remain jittery given the broad risks in the markets. This week, Swiss data is expected to give the Swiss National Bank far more leeway to cut rates - though they are not anticipated to do so in the near-term - as producer and import price growth is forecasted to slow, while the trade balance is likely to narrow.[10] The pound would be put into action at the very start of the week when the March PPI numbers crossed the wires much higher than expected, elevating inflation concerns only a week after the Bank of England cut rates for a third meeting. This data would ultimately drive a 200-plus point rally in GBPUSD, but where fundamentals would initiate the move, it would also end it.[10]
The outlook for the Federal Reserve was quite different, especially after reports showed a sharp slide in March U.S. housing starts and unexpectedly low consumer price inflation. The Fed has already cut benchmark rates by 3 percentage points since September and is widely expected to reduce them again, to at least 2%, when it meets on April 29 where as eurozone rates have been at 4% for more than a year.[4] The Federal Reserve, meanwhile, is expected to cut rates further from the current 2.25 percent. More Fed rate cuts would help keep euro zone rates well above those in the United States, maintaining the euro's yield appeal.[6] The Federal Reserve, on the other hand, is seen cutting rates further from the current 2.25%. More U.S. cuts would help keep euro zone rates significantly above those in the United States, keeping the Euro's yield appeal intact.[35]
The U.S. rate and economic cycles are ahead of the Europeans and as the cycle intensifies U.S. GDP and the dollar should outstrip the EMU and the euro. This has been the long term scenario ever since the Federal Reserve began cutting rates last September.[29] With the one exception of 2005 when the Federal Reserve was raising rates and the ECB was not, the euro has gained against the dollar for six years. Any recovery in the usd must be put into this context.[29]
The pound weakened to 80.20 pence per euro from 79.17 and 0.8 percent to $1.9811 from $1.9979. Lehman Brothers Holdings Inc. today recommended investors sell the pound against the dollar as the worst housing slump in 30 years will force the BOE to cut its target lending rate by 1 percentage point to 4 percent by January.[8] April 21 (Bloomberg) -- Traders betting on intervention by the Group of Seven nations to stem the dollar's 9 percent decline against the euro this year may be disappointed. Finance ministers are less concerned about the currency's relative value than the risks from "sharp fluctuations'' in exchange rates, their April 11 statement shows. Those swings, as measured by JPMorgan Chase & Co.' s index of implied volatility on dollar options, are abating.[28] The euro rose for the first time in three days amid a growing view that the ECB is in no hurry to cut interest rates from 4.0 percent for now due to nagging inflation risks.[26] The single European currency was supported by a growing view that the ECB is in no hurry to cut interest rates from 4.0 percent for now due to nagging inflation risks.[17]
The euro got a boost when ECB official Klaus Liebscher said that despite downside risks to growth, there was no room for interest rate cuts.[36]
Futures markets were indicating that the chances of a 0.50% rate cut at the FOMC meeting had fallen to below 10%. In this environment, the dollar has secured a correction on yield and risk appetite grounds. ECB members maintained a tough stance on inflation during Friday and this will tend to limit the scope for Euro selling in the short term.[37]
The initial details of the plan centers around the Bank of England taking loans over from mortgage lenders to free up capital and risk for companies like Halifax and Nationwide. This is similar to the Fed'''s recent moves in accepting mortgage backed securities in return for U.S. Treasuries and because of that, the concerns are similar as well, which is that the UK is giving up its safe and secure gilts for riskier assets. Hawkish comments from Bank of England economists Charles Bean that British inflation is likely to rise above 3% this year also boosted sentiment towards sterling. Sterling even managed to hold its ground against a resurgent dollar, which rallied with encouragement from the Citigroup earnings news.[4] Results from the U.S. investment banks were again under closely scrutiny and there were no major negative surprises. Overall risk tolerances remained higher during the day and this maintained a weaker tone for the Japanese currency with the dollar challenging the 102.70 level in U.S. trading.[38] The dollar held above the 102.0 level against the Japanese currency in Asian trading on Friday with yen demand still at reduced levels. Domestically, the Bank of Japan lowered its assessment of the economic view while consumer confidence was slightly weaker than expected which will reinforce unease over the economic trends.[37]
Japan The Japanese Yen is still linked to the risk appetite of the investors and the movements of the equity markets. The currency plummeted on Friday to its lowest level in 7-weeks and traded at the 104 levels against the Dollar after Citigroup earnings' report.[14] JAPANESE YEN: The yen fell back against the dollar as quarterly earnings reports by U.S. financial institutions during the week came within market expectations amid the global subprime credit market turmoil.[21] The Japanese yen fell 2.6 percent against the U.S. dollar last week as traders piled back in to risky assets.[10]
The U.S. dollar has rallied significantly against the Japanese Yen and the Euro as risk appetite returns to the market.[30]
The dollar has declined about 8.2 per cent versus the euro and Japanese yen in 2008 as oil prices rose to an all-time high of $115.54 a barrel compared with $95.98 on December 31.[5] In other trading, the British pound climbed to $1.9940 from $1.9916, and the dollar rose to 104.17 Japanese yen from 103.09 yen.[2]
In European trading on Monday, the euro changed hands at 1.5864 dollars against 1.5814 late Friday, at 164.34 yen (163.96), 0.7991 pounds (0.7914) and 1.6061 Swiss francs (1.6102).[7]
U.S. dollar moves dominated in European and U.S. trading and the Australian currency dipped to lows below the 0.93 level as the U.S. currency gained ground while gold prices came under pressure.[37] The Australian dollar hit resistance close to the 0.94 level against the U.S. dollar during Friday, but corrections were generally limited in local trading as the currency retained a firm tone.[37]
To take in the longest view, the euro began trading on the world currency markets at 1.1591 against the dollar on the first business day of 1999. It reached its low against the U.S. currency 22 months later in October of 2000 at just below 0.8500.[29] A rally on Wall Street Friday that followed upbeat U.S. earnings data "is being taken by many as a sign that the worst of the credit crunch may now be behind us," said Gary Thomson, head of sales trading at CMC Markets in London. That has prompted pressure on the euro; while the European currency has recovered some ground, "the scale of the rally does suggest there's a degree of conviction amongst traders that the U.S. may be out of the worst," Thomson said.[1] With a quiet USD calendar today, earnings reports from Wall Street will take centre stage in the minds of currency traders with positive results from Citi, Caterpillar and Google leading the way. The Loonie is trading heavy again this morning as traders digest a softer-than-expected wholesale sales report for February and declining commodity prices. February saw a decline in Canadian wholesale activity of 1.8%, offsetting January's gain of 1.8%, that was also revised lower from 2.6% this morning.[39]
On balance however, today's data, along with the retreat in commodity prices has USDCAD trading with an offered tone, likely to push the pair higher on the day. The CAD is retreating after taking yet another run towards parity with the Dollar this morning, failing to break the Dollar's support around that psychologically and technically important level. Options traders have placed significant triggers just over parity and the last few days have seen vigorous defence of those levels.[39]
Bond traders pushed the yield on two-year bunds up to 3.73%, some 33 basis points higher for the week. Japanese bond prices closed lower in Tokyo for the third week running after new Bank of Japan chief Masaaki Shirakawa also dashed hopes for a rate-cut, repeating his view that "moderate growth" will soon return but consumer prices will also keep rising. The Bank of Japan has held its target interest rate at 0.5% since March 2007. It's been held below 1.0% since 1995 as Japan has struggled to climb out of the depression caused by its late '80s real estate and financial boom.[18] "We are seeing a relief rally in financial markets,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. "It's a real possibility that the worst of the financial crisis is over.'' Among major currencies, the dollar posted its biggest gain today against the yen as traders moved away from the currency, regarded as a haven during turmoil.[13] Japan's 0.5 per cent target lending rate, the lowest among developed nations, compares with 11.5 per cent in South Africa and 5 per cent in the UK. "A number of people have reopened carry trades," said Chris Furness, London-based head of currency strategy at 4Cast, a research company that counts central banks among its subscribers. Among the major currencies, the dollar posted its biggest gain against the Swiss franc as traders moved away from the Swiss currency, regarded as a haven in times of turmoil.[33] The central bank had set the yuan central parity rate at 7.0006 to the dollar Friday, compared with 6.9895 on Thursday.[21]
The euro could slip from its recent record highs against the dollar amid a schism between the European Central Bank and the Continent's political leaders.[40] In Europe, hawkish European Central Bank inflation rhetoric supported the euro after Governing Council member Klaus Liebscher said there was no reason for pessimism on euro zone growth.[17] If the CAD is going to take another run at par, it will have to do so with some significant event related momentum to break the resistance. European Central Bank Governing Council Member Erkki Liikanen, the Governor of the Bank of Finland, stated this morning that Euro Zone inflation will likely fall below the 2.0% target sometime in 2009.[39]
The Euro got a brief boost on remarks by European Central Bank Governing Council member Klaus Liebscher.[35]
The dollar was involved in 86 percent of all foreign exchange trades, according to the 2007 triennial survey conducted by central banks and tabulated by the Bank for International Settlements.[20] The Aussie now trades over three percent improved against the Yen, and it is likewise one of only three G10 currencies to move higher against the U.S. dollar on the week's trade.[10] Sterling is up 2.1 percent against the euro since April 16, when it touched the all-time low of 80.99 pence. It's the biggest two-day gain since September 2001. The yen fell 1.7 percent versus South Africa's rand and 1.4 percent against the pound as a gain in U.S. stocks encouraged investors to resume carry trades, in which they get funds in a country with low borrowing costs and invest where returns are higher.[13] Sterling strengthened one per cent to 79.09 pence per euro. The yen fell 2.4 per cent versus South Africa's rand and dropped 1.7 per cent versus the pound as a gain in U.S. stock futures encouraged investors to resume carry trades, in which they get funds in a country with low borrowing costs and invest where returns are higher.[33]
Citigroup, the largest U.S. bank, posted a quarterly loss of $5.1bio and pretax write-downs of $6bio. Shares in the company rose as investors were appeased by efforts being made to get past its credit problems and drive down costs. EurUsd fell 0.57% on Friday at 1.5815 after posting intraday low 1.5712, its steepest decline in nearly three weeks, well away from a record peak of 1.5983 hit earlier in the week and posting. UsdJpy rose 1.27% to 103.68, after reaching its strongest since late February at 104.65. UsdChf rose to a five-week high at 1.0285 and last traded at 1.0183, up 1.26%, posting its largest daily increase since April 1. [35] LONDON (SHARECAST) - The dollar rose from record lows against the euro on Friday and gained against most other currencies on optimism that the worst of the credit market crisis may be over. U.S. banking giant Citigroup posted more than a $5bn loss and write-downs of $6bn but its shares rose as sentiment grows that the worst of credit crunch is nearing an end.[41]
Crude oil dipped one dollar from yesterday's new record high above $115.50 per barrel as the U.S. currency rallied from new record lows in the forex market.[18]
At around 11 a.m. in New York, the yen traded at ''104.4050 to the U.S. dollar, at ''164.2603 to the euro and at ''208.3504 to the British pound.[23] The dollar was at $1.5931 per euro by 10:33 a.m. in New York, from $1.5817 on April 18. It was at 103.24 yen, from 103.67.[28] The euro increased 0.4 percent to $1.5881 at 11:37 a.m. in New York, from $1.5817 on April 18. Europe's currency reached $1.5983 on April 17, the highest level since its 1999 debut. It appreciated for a sixth straight day against Japan's currency, increasing 0.2 percent to 164.29 yen, from 163.96.[8] The dollar rose 0.6 percent to $1.5809 per euro at 4:24 p.m. in New York, from $1.5908 yesterday.[13]
Shares in the FTSE banking sector - down by more than one-fifth from April 2007 - rose today on rumors of a £10 billion ($19.9bn) rights issue from the UK's second-largest bank, the Royal Bank of Scotland. Its shares rose 2.5% today. Citigroup reported a $5.1 billion loss for the first quarter in New York this morning. Its stock rose 4% in pre-market trade. Overnight, the NY attorney-general subpoenaed 18 Wall Street banks and securities dealers in his investigation into the "auction-rate" market - a move suggesting that "somebody has made up their mind there really were abuses" in the way these high-yield securities were marketed and sold to retail investors, says one former U.S. regulator.[18] NEW ZEALAND DOLLAR: The New Zealand dollar ended the week at 79.10 U.S. cents, down from 79.91 U.S. cents the previous Friday. Dealers said investors were caught between a returning enthusiasm for higher yielding currencies such as the New Zealand dollar on one hand and the darkening picture for the local economy on the other.[21] The Sterling (GBP) rose against the dollar due to short covering. Many investors have been shorting the pound on the back of a weakening UK economy but news that the BoE may be planning to support the mortgage market this week has caused them to change their sentiment.[15]
Several emerging markets currencies strengthened in relation to the U.S. dollar on Wednesday afte. The U.S. dollar strengthened this week on new, stronger than expected data from both the manufac.[23] Following the earnings report, U.S. equity futures and overseas bourses fell to session lows, the U.S. dollar neared an all-time low against the euro and Treasuries briefly rallied before continuing last week's sell off.[32] BERLIN (AP) — The euro moved higher on Monday against the U.S. dollar, which pulled off all-time lows at the end of last week thanks to a rally in stocks.[1]
The Swiss currency weakened sharply on Friday with lows near 1.0280 against the U.S. dollar while the franc also weakened to lows beyond 1.6150 against the Euro.[37]
Euro-group head Juncker stated that the markets had not understood the G7 message on exchange rates. These comments temporarily pushed the dollar stronger on renewed speculation that there could be a decisive move to intervene and support the U.S. currency. The more likely outcome for now is that they concentrate on verbal intervention to keep dollar selling in check, but there will be reservations over pushing the Euro aggressively higher.[38]
The euro has jumped 8.4% to the Dollar this year on the view European interest rates will stay put at 4% until later this year.[35] The higher eurozone interest rate makes the euro a more attractive investment than the dollar, analysts said.[7]
Domestically, the monthly Tankan index weakened to a 5-year low for April which will maintain a lack of confidence in the economy. There are, however, reduced expectations that the Bank of Japan will cut interest rates in the near term and this may provide some degree of support to the currency.[38] Any credible agreement would underpin Sterling on an easing of fears over the housing sector, especially with reduced expectations that the central bank will have to cut interest rates rapidly.[38] The Bank of England is likely to accept around GBP30bn in mortgage-related securities in exchange for government bonds. If such measures can ease money-market rates this would ease pressure on the central bank to sanction a further aggressive near-term cut in interest rates.[37]
Fear over inflation has dampened speculation that the Reserve Bank will be in a position to cut interest rates over the next few months.[38]
The worry stands that a weak U.S. currency is contributing to global inflation, hampering consumer spending and complicating policy decisions for central bankers who might otherwise lower interest rates further to avert a serious economic downturn.[4]
Bearish rate forecasts will, all else remaining equal, weaken the currency through the medium term. Such a scenario will likewise depend on rate expectations for major forex counterparts. Markets expect that the Reserve Bank of New Zealand will leave interest rates unchanged at its upcoming announcement, but any indication that the RBNZ stands to take rates lower through 2008 will almost certainly force a sell-off in the high-yielding domestic currency.[10] Some optimism that the credit crunch could be easing also increased speculation that the Federal Reserve would be less inclined to cut interest rates aggressively at the end-April meting. These expectations were also fuelled by the more cautious remarks from Fed officials over the past 24 hours.[37] Stocks rallied today on company results, pushing the Standard & Poor's 500 Index up 1.8 percent. Futures on the Chicago Board of Trade show no chance the Federal Reserve will cut its 2.25 percent target lending rate by a half-percentage point on April 30, compared with 46 percent odds a week ago.[13] Standard & Poor's 500 Index futures expiring in June added 1.2 per cent. Futures on the Chicago Board of Trade show a 10 per cent chance the Fed will cut its 2.25 per cent target rate for overnight lending between banks by a half-percentage point this month, down from 46 per cent a week ago.[33]
Later-week Consumer Price Index data likewise printed a shade worse than previously predicted and only worsened outlook for the future of domestic interest rates. The key 2 year-3 month NZD swap spread now trades at a dismal -77 basis points--near its worst levels in at least 10 years. [10] Followed Wednesday's news that Eurozone consumer prices rose 3.5% in the year to March - plus Eurogroup chairman Jean-Claude Juncker saying on Thursday that volatility and strength in the EUR/USD exchange are "undesirable" - Wellink's comment dented what few hopes remained for lower ECB interest rates anytime soon.[18] Consumer prices in the 15-member euro zone rose to 3.5 percent in March from a year earlier, the highest since June 1992. Unlike the Fed, the ECB has maintained its rate at a six-year high since June.[16]
The pound fell against the euro on speculation the Bank of England's plan to swap government bonds for mortgage-backed securities won't be enough to revive lending between banks. "The ECB is so hawkish on inflation that they are going to keep the rate on hold for the next couple of meetings,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto.[8] Yen traded at 103.85 against the Dollar at 7:00am GMT. The Pound is recovering from last week'''s losses, as the Bank of England said it would intervene and revive the credit market, swapping about 50 billion pounds of government bonds for mortgage-backed securities.[22] The U.S. currency was weakening against the euro and the yen Monday following the announcement of a big writedown and increased provision for credit losses at Bank of America BAC.[42] The U.S. currency remained lower against the euro as Bank of America Corp., the second-largest U.S. bank, reported a 77 percent drop in first-quarter profit.[8]
BERLIN (AP) - The euro moved back within sight of its all-time high against the U.S. dollar on Monday after Bank of America Corp. reported worse-than-expected first-quarter earnings.[43] GbpUsd rose 0.35% to 1.9977. Despite the Dollar's gains, analysts cautioned that although U.S. bank earnings this quarter have not been as good as some had expected, there are still indications the credit crisis is far from over.[35] For details, see. Analysts said BoA's results suggested that the fallout from the credit crisis may not not be over as some have speculated, chilling risk appetite as such problems were expected to continue weighing on the U.S. economy and the dollar.[17] We face many difficult issues, including the future of the U.S. economy, the U.S. economy's influence on the world economy, rising prices of natural resources, methods for evaluating finance-led capitalism, confidence in the dollar, and trends in the Japanese economy and the yen.[20] I believe it will revalue the yuan's exchange rate against the dollar by 15 percent or so upward. The yen's appreciation will cause Japanese firms to see falls in their profits on a yen basis, and also a drop in their stock prices. This doesn't mean the competitiveness of the nation and firms will be weakened.[20]
The single European currency edged up 0.2 percent to 164.30 yen On Friday, the euro had risen as far as 164.68 yen on EBS, the highest since late December, as receding concerns about the financial sector and a rise in global stocks rekindled investor's risk appetite.[6] The yen fell versus all of the major currencies, dropping more than 1.4 percent against the South African rand and British pound, as investors increased purchases of higher-yielding assets funded in Japan. The dollar posted its biggest weekly advance against the yen since 2004 as yields on two-year Treasury notes reached a 2 1/2-month high.[13] After two days of gains against the U.S. dollar, the yen weakened on Tuesday after investors ret.[23] Besides gains against the yen, the Australian and New Zealand currencies also gained versus the U.S. dollar, which traded at 92.76 cents U.S. to the Aussie and at 78.70 cents U.S. to the New Zealand dollar.[23]
The New Zealand dollar fell modestly against its U.S. namesake to finish the week's forex trading, as disappointing economic developments sunk forecasts for the future of domestic growth.[10] 'There is a lot of caution ahead of another week of heavy earnings releases and some economic data,' said Thomas Lam, senior treasury economist at United Overseas Bank. At 1:00 p.m. (0500 GMT), the euro was trading at $1.5826, up from $1.5808 in Sydney this morning.[16] "There is a lot of caution ahead of another week of heavy earnings releases and some economic data," said Thomas Lam, senior treasury economist at United Overseas Bank. "Because of this, some market participants are paring back their positions." Bank of America, Credit Suisse Group, Texas Instruments, Microsoft and AT&T; are some of the major companies set to announce their results this week.[7]
The board also agreed to maintain the Bank's "basic thinking on monetary policy for the future," suggesting that decisions will continue to be made with the aim of maintaining price stability. Looking ahead to this week, inflation data will remain unsettling as National CPI is forecasted to edge up to an annualized 1.2 percent pace, as energy and food prices skyrocket globally.[10]
The dollar index is now at what currency traders call "a wave 5 bottom." The hawkish Fed is flapping their gums again, meaning they might actually care about fighting inflation again. It seems the market agrees the euro is destined for 1.65. Gold adjusted its price yesterday.[44] Today's commentary is by Jack Crooks, Editor of World Currency Option and The Money Trader. When I woke up at my usual 4:30 this morning, I was greeted by a very unusual move in the lowly greenback. The dollar had made its biggest move against the euro in more than two weeks.[44]
Just as the dollar is benefiting from lowered expectations, the euro may be vulnerable to heightened ones. Therefore any slip in the data could pull the pair lower as traders start to anticipate the spillover effects from the U.S. slowdown.[10] Positive U.S. economic data, '''knocked the wind out of dollar bears''' who have been searching for a reason to push the euro towards an all-time high around $1.60.[4]
The securities unit of Barclays, the UK's third- biggest bank, predicts the dollar will fall to $1.63 per euro, compared with a previous estimate of $1.50, analysts led by David Woo, London-based global head of currency strategy, said.[5] "The lines have been drawn, and there is a war of rhetoric that has begun between the ECB and the constituent ministries of the European Union over monetary policy," said Michael Woolfolk, currency strategist at the Bank of New York Mellon. That rhetorical war inflicted some damage on the euro Thursday, with the.[40] In late trade, the European single currency slumped to 1.5730 dollars from 1.5910 late Thursday in New York.[3] LONDON (AFP) — The dollar slid on Monday against the European single currency in cautious trade ahead of vital economic data and earnings news in the United States, dealers said.[7]
The Australian dollar moved significantly higher against the Japanese Yen and other major counterparts, as a resurgence in carry trade demand boosted demand for the high-yielding currency.[10] For most of the day, equity gains in Japan and other Asian countries prompted investors to resume yen-carry trades, which underpinned the U.S. currency and other currencies with higher yields compared with the Japanese yen, dealers said.[27]
Against the Japanese currency, the Aussie struck a fresh seven-week high of 97.65 yen, before trading at 97.50 yen, up 0.8 percent on the day on carry trades. In carry trades, market players use low-yielding currencies such as the yen to finance buying of assets offering higher returns elsewhere.[6] A resurgence in the global currency carry trade made the NZD a significant gainer against the low-yielding Japanese Yen--climbing an impressive 2.3 percent through Friday's New York close.[10]
Austin Hughes, chief economist at IIB Bank, said there was still more bad news to come for the British housing market, which would lead to further currency depreciation, predicting that sterling would trade at 82p or 82.5p against the euro over the next two to three months.[11]
The low of the day at 1.5710 did not even approach the first Fibonacci retracement at 1.5550 (23.6%) of the rise since February. Since last August and the credit crisis the U.S. currency has forfeited almost 20% of its value against the euro. One could say this is not a new situation.[29] NEW YORK - The dollar gained sharply against the euro on Friday after Citigroup reported results which bolstered speculation that financial markets are at or near the bottom of the credit crisis.[45] The Euro again made a push towards the 1.60 level against the dollar on Thursday, but was unable to sustain the advance and was generally weaker in New York trading.[38] The Euro stalled close to the 1.5950 level against the dollar on Friday and weakened sharply in early U.S. trading.[37] Sterling found support near 0.81 against the Euro and strengthened sharply to highs near 0.7975 in U.S. trading while it also rallied to highs above 1.99 against the dollar.[38]
The dollar was mixed against major currencies in trading Friday, bouncing off a record low against the euro it reached the previous day after Europeans expressed concern that the euro's strength was becoming harmful.[2] KUWAIT CITY : The dollar hit a one-month high against the yen to reach 104.23 but on the other hand rose further away from the record low versus the Euro on Friday after Citigroup results contained less damage than some had expected.[14] The Dollar climbed to a seven-week peak against the Yen and moved further away from a record low versus the Euro on Friday after Citigroup's results sparked hope that the worst of the credit crisis has passed.[35]
The currency touched 1.9997 against the dollar. It also rose against the Yen and the Euro to 208.20 and 0.7893, respectively.[14] April 18 (Bloomberg) -- The dollar rose the most against the euro in more than two weeks after Citigroup Inc.' s first- quarter results fueled speculation that financial firms will weather credit market losses.[13] TAIWAN DOLLAR: The Taiwan dollar rose 0.12 percent in the week to April 18 to close at 30.284 against the U.S. dollar.[21] A weaker dollar benefits the U.S. by giving a boost to exports, which increased 2 percent to a record $151.4 billion in February, according to the Commerce Department.[28] The initial jobless claims edged higher last week at 37,000 applications from 355,000 close to the expected 375,000, indicating that labor market conditions are still deteriorating. Citigroup, the largest U.S. bank posted a quarterly lost of $5.1 billion, adding to its previous quarter losses, and pre-tax write downs of $6 billion.[14] According to the Colombian Central Bank, nation's economy expanded 7.5% in 2007 and the foreign direct investment rose 40% last year, reaching $9.03 billion.[31] Zurich: The Swiss National Bank (SNB) will offer up to $6 billion in short-term credit to ease strains in jittery financial markets, the central bank said on Friday.[19]
Here in London, the British government today reported a record public-sector borrowing figure for March of £10.2 billion ($20.2bn). The UK Treasury is now looking to issue up to £50 billion ($99.5bn) in new government gilts, the Financial Times reports, so the Bank of England can lend them to private banks unable to raise funds in the open market. The banks will be able to park their hard-to-sell mortgage and credit-card bonds at the Bank of England, using the government bonds lent in return as collateral for cash loans elsewhere.[18] The dollar slipped to a 2-week low of 2.0026. The Bank of England grabbed headlines when it launched the much-hyped GBP50 billion Special Liquidity Scheme to allow banks to swap temporarily their high quality mortgage-backed and other securities for UK Treasury Bills. Acknowledging an 'overhang' of illiquid assets, mortgage-backed ones in particular, on banks' balance sheets, the BoE said their financial position has been stretched by this that banks have been reluctant to make new loans, even to each other.[36]
Deutsche Bank AG and UBS AG, the two biggest currency traders, say the decline in volatility means the likelihood of buying or selling currencies in concert to halt the dollar's slide has diminished even with the greenback at record lows.[28] "If the bank's earnings are within expectations, the dollar will likely rise further," said Mitsuru Sahara, senior trader at Bank of Tokyo-Mitsubishi UFJ. If the report card contains some nasty surprises, investors will likely see no fundamental changes in the long-term downward trend in the dollar, he said.[6] Any indication that banks known to have large securitized portfolios were in danger could cause great damage to investor and trader confidence, particularly now as the fear has begun to recede. Conversely, if those same banks with large positions report smaller write-downs than expected or simply do not produce any unexpected negative surprises the result bolsters market confidence. The second great fear, at least for the equities, and Friday the currency markets took their cues from stocks, is that shrinking consumer spending will curtail corporate profits.[29]
UK After a very vulnerable week, the Sterling Pound gained broadly on Friday on news that the UK authorities are planning to support the mortgage market. The currency was further supported by reports that the Royal Bank of Scotland, the UK's second largest bank, was set to launch a massive rights issue to rebuild its capital reserves.[14] Bank of New Zealand currency strategist Danica Hampton said an increasing number of market participants were talking about a recession, which had encouraged the selling of the New Zealand dollar.[21] "Bank of America's results obviously don't help the dollar, but the comments by the ECB earlier today were very hawkish and it clearly indicates the bank is very concerned about inflation and will avoid cutting rates," said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto.[17]
Dealers said the euro could strike new highs past the 1.60 dollar level in the short term owing to surging inflation in the 15-member eurozone.[3] The euro zone's inflation rate accelerated to 3.6 percent in March, the highest level in almost 16 years, a report said on April 16.[8]
Swiss retail sales rose an adjusted 3.3% in the year to February, but the ZEW economic expectations index remained at a depressed level of -71.4 for April which was little changed from the previous month. National Bank President Roth stated that the economic risks were to the downside even though he expected growth to remain relatively robust. He also remarked that the franc over the past few months had corrected some of the recent weakness against the Euro.[38] The fact that gold is falling tells us that risk appetite is improving because gold is often times seen as a safe haven during times of a recession. The move in the comm. dollars conflicted with economic data because Australian import prices increased more than expected while Canadian leading indicators and wholesale sales both deteriorated.[30] There were no significant data releases during the day with the main focus on asset markets. The results from Citigroup contained a lower than expected figure for debt write-downs and this boosted confidence that Wall Street banks could manage the credit and economic risks.[37]
For the time being the decoupling thesis remains in place and on the fundamental basis the euro is not only benefiting from relatively buoyant economic performance in the EZ but also from hotter than expected inflationary data which is likely to keep the ECB stationary for quite some time. This week however may the moment of truth for the euro bulls as both Manufacturing and Services PMI data are expected to hit the screen on Wednesday. Analysts forecast a slight decline in both gauges but expect them to remain above the key 50 boom/bust level. If, however, they contract sharply and perhaps even fall below 50, that may be just the type of catalyst the market is looking for to push the pair lower, especially if the IFO report that follows on Thursday confirms the downward trend.[10] Despite the dual headwinds of high exchange and interest rates, the economic data from the EZ continued to favor the euro last week.[10] Countries will have to tolerate a stronger currency or cut interest rates, in order to maintain prices low.[22] Given the stimulus from a weaker currency, the remarks suggest a reluctance to cut interest rates aggressively which will curb short-term Sterling selling.[38]
The yen, one of the most popular currencies for funding carry trades due to Japan'''s 0.5 percent interest rate, weakened against all major currencies as the number of carry trades increased.[23] The depreciation of the yen was the result of Japan's abnormally low interest rate.[20]
Japan's experience illustrates that once a sharp fall of asset value worsens the balance sheets of banks, companies and individuals, the economy becomes immune to the effects of lowered interest rates.[20] 'The rhetorical tug-of-war between some euro officials and the ECB on interest rates is making some market players cautious,' Lam said.[16]
ECB governing council member Alex Weber, who last month called for higher rates in the euro area to bring down inflation, will be holding a news conference later today.[16] Analysts said the market was taking a breather ahead of 1.6000 and market participants said Euro selling would likely be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4% at least through Q3.[35]
Previous rhetoric suggests that the bank expects inflation will moderate through the longer-term, but currently above-target CPI levels are cause for concern. It will thus be important to gauge whether or not the RBNZ--a strict inflation-targeting monetary policy body--will be free to cut rates as domestic expansion slows.[10] There's a 96 percent chance that policy makers will cut by a quarter-percentage point and 4 percent odds of no cut. The Fed has lowered the benchmark rate 3 percentage points since September to prevent widening financial company losses from pushing the economy into a recession, while the ECB has kept its target unchanged since June.[8] The Bank of Japan's nine policy board members reiterated the need to pay close attention to increased downside risks to the Japanese economy given the intensifying slowdown in the U.S. and persistent instability in the global financial markets.[10] Bank of America strategist Tomoko Fujii said: "Investors want to confirm if the worst of the credit crisis is over or not." "In financial markets next week, players will focus on whether the pessimism over the global credit unrest and economy will continue to be revised," the economic journal Nikkei said in its Internet edition.[21] The British pound was very volatile last week and rightly so - not only was the economic calendar populated by a number of top market moving indicators; but the ongoing disruption in global financial markets has pushed the UK's yield and economy to the edge.[10]
Siemens AG Chief Executive Officer Peter Loescher said March 4 the currency's level is "not easy'' for the company. MTU Aero Engines Holding AG, the largest independent provider of jet-engine maintenance, said this month the dollar's decline will reduce profit this year. "Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7's finance ministers and central bankers said in a statement after the talks in Washington on April 11. [28] The dollar had gained some support late on Thursday after eurozone chairman Jean-Claude Juncker warned markets against underestimating the Group of Seven industrialised countries' recent statement on currencies. Last weekend the G7 said they were concerned about the impact of recent currency fluctuations on economic and financial stability. Responding to Juncker's comments made Thursday, Commerzbank economist Antje Praefcke said: "At this stage, we do not expect any active intervention in (foreign exchange) markets by central banks."[3]
In the metals market, gold prices were rising, driven up by the weaker dollar and the added financial uncertainty surrounding the problems at BofA. Benchmark bullion futures were tacking on $5.60 at $920.80 an ounce in recent action on the Comex division of the New York Mercantile Exchange.[42] The dollar rose to 1.5807 at 4:39 p.m. in New York compared to $1.5908 late Thursday.[45] In early morning deals, the euro rose to 1.5864 dollars from 1.5814 late Friday in New York.[7]
The euro traded at $1.5878-5881 and 164.07-11 yen, against late Friday's quotes of $1.5813-5823 and 163.88-98 yen in New York, and $1.5948-5951 and 163.44-48 yen in Tokyo.[27] The 15-nation currency bought $1.5835 in morning European trading, up from $1.5805 in New York late Friday but still well short of the all-time high of $1.5982 it reached last Thursday.[1]
The local currency closed at 30.319 a week ago. THAI BAHT: The Thai baht rose against the dollar this week but trading was thin throughout the three-day trading week, with markets closed Monday and Tuesday for a holiday, dealers said.[21] According to Stephen Taylor, an equity analyst with Dolmen stockbrokers, buying into the U.S. is one investment strategy investors should consider. ''We could see the dollar weaken slightly more after this week but, in the longer term, we anticipate it will regain some of its strength, probably by the end of the year,' he said.[9] While the value of the U.S. dollar against the euro has been declining steadily over the last few years, recent months have seen that trend accelerate.[9] The U.S. dollar was stronger versus the euro on Tuesday on a report from the Commerce Department.[23]
U.S. financial markets are larger and more liquid than European or Asian markets. The one competitor of the dollar in this area is the euro.[20] Luxembourg Prime Minister Jean-Claude Juncker, the head of the euro finance ministers' group, told reporters that the common currency was moving in a "direction I don't consider desirable." Anton Boerner, the head of the BGA federation of German exporters and wholesalers, was quoted by the Bild newspaper as saying that auto and aviation companies could start moving their manufacturing operations to the U.S. to avoid the high euro and take advantage of the weak dollar.[2] Short term the U.S. currency may pick up more support but it is too early to say the Trend has definitely changed with our model showing the Euro still in a buy Trend against the dollar.[34]
The pound was little changed versus the U.S. dollar at 50.11p to the U.S. currency.[23] The UK currency found support close to the 0.80 level against the U.S. dollar on Friday and pushed to highs around 0.7875 before correcting weaker to 0.7920.[37]
The U.S. dollar weakness was a significant factor in local trading on Thursday while there was further strong support from the extended gains in commodity prices.[38] With oil at a record high, betting against intervention might prove unwise for traders, said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. The U.S. may have consented to the change in the G-7 language because the falling dollar is pushing up the price of oil, threatening foreign investment in U.S. stocks and other assets, he said.[28] Implied volatility on one-month dollar-yen options fell to 12.95 percent, the lowest since Feb. 29, indicating traders see fewer price swings in the coming month. The benchmark volatility index for U.S. stock options fell to the lowest this year.[13]
The pound dropped 1.4 percent against the euro, the most since March 17, fueling euro buying against the dollar, traders said.[8] The dollar has declined 17 percent against the euro and has fallen 14 percent versus the yen in the past 12 months.[28] The G-7 last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95 yen.[28] The dollar fell against the Japanese currency, dropping to 103.30 yen from 104.17 yen.[43]
The Japanese unit stood at 102.46-49 to the dollar at the end of daytime trading in Tokyo on Friday, down from 101.80-82 to the dollar a week earlier. It touched the week's low of 102.57 to the dollar earlier in the day.[21] INDONESIAN RUPIAH: The rupiah ended the week's trading at 9,190/9,195 to the dollar compared with 9,178/9,188 to the dollar a week earlier.[21] HONG KONG DOLLAR: The US-pegged Hong Kong unit was trading at 7.793 to the dollar from 7.788 a week earlier.[21]
HONG KONG: Key Asian currencies ended the week mixed against the dollar following U.S. earnings reports in line with expectations amid the global credit crunch.[21] The wholesale sales report marked a sharp 1.8 percent drop in business to business sales as retailers and other second buyers prepared for a slowdown in consumer spending. While last week's indicators may have had limited impact on the Canadian dollar, they will have another chance at moving price as leading indicators for this week's numbers.[10] The three-month London interbank offered rate, or Libor, for dollars advanced 1 basis point, or 0.01 percentage point, to 2.92 percent, the highest level since March 7, after climbing almost 20 basis points last week, the British Bankers' Association said today.[8] Implied volatility on options for the dollar fell to 11.28 percent after the G-7 meeting on April 11. It was 14.5 percent on March 17, the same level at which the G-7 stepped into the market in 1995 to influence prices.[28] "A fall in bond prices, for example, would change the picture completely. That's not what we are seeing.'' The dollar will weaken to $1.62 or $1.63 per euro this quarter even after the G-7 statement, according to Simmonds. He declined to speculate on what level might bring G-7 intervention.[28] The euro jumped to as high as $1.5948 versus the dollar after the report came out, putting it.[25]
''Although the US's biggest trade deficit is with Asia, Asian governments tightly control the exchange rate, while the dollar floats freely against the euro, which is why the euro has appreciated,' Beggs explained.[9] What's really important is how the dollar's status will change in the next few years. The sharp fall of the dollar is a result of the U.S. trade deficit. Efforts to erase this deficit have been put off for too long.[20]
Renewed interest in carry trades pushed the yen sharply weaker with lows near 104.65 against the dollar as Wall Street opened higher.[37] SPOT GOLD PRICES dumped 3.4% to $912 per ounce in the first-half of London trade on Friday, falling to a five-session low of $916 per ounce as both commodity and bond prices fell, but European stock markets rose.[18]
Producer prices in Germany grew 0.7 percent last month, which was the fastest pace of growth in 15 months. This has raised red flags throughout the ranks of the European Central Bank.[30] Maintaining price stability is "of paramount importance,'' European Central Bank President Jean-Claude Trichet said in Frankfurt on April 15.[28]
'There is a risk we see nothing at all from the European central bank through the next few months,' said Shaun Osborne, chief currency strategist at TD Securities.[32]
There was, however, evidence that central bank Euro buying had eased significantly on Friday with a possible perception that the Euro offered little value at current levels.[37] The central bank said the preliminary size of the plan is likely to be around '50 billion, with an asset swap permitted for a period of one year, which may be renewed for a total of three years.[32] The minutes from the Bank of Japan's March meeting indicated that the central bank would likely continue to leave rates on hold in coming months.[10] The new 28-day offer will be made on Tuesday and renew the previous offer due to expire April 24, the central bank said.[19]
The BofA news raises further concerns that the continuing troubles in the banking sector will spread to the wider economy and slow growth in the U.S. As a result, the Federal Reserve will probably lower rates again, many analysts believe. That could mean lingering pressure on the greenback. [42] The U.S. Federal Reserve Board has eased monetary policy aggressively--providing support for the U.S. economy but making returns on dollars less attractive.[20] Interest-rate cuts by the Federal Reserve to keep the U.S. economy out of a recession have also reduced demand for dollar-denominated assets.[5]
The International Monetary Fund recently cut the 2008 economic forecast for the U.S. to 0.5 percent from 1.5 percent due to the widening credit crisis arising from unpaid housing mortgages. The IMF has also not discounted the possibility that the United States may suffer a 'mild recession' this year. [16] Later that same day, market participants were reminded why the MPC has been turned to a dovish regime. The leading BRC retail sales monitor reported its first drop in two years while the RICS House Price Balance offered its worst reading since records began back in 1978 with a -78.5 percent read. After this early flood of data though, the influence of the calendar faded with less market moving data and weaker economic surprises.[10] The Australian dollar was supported after data showed a record jump in Australia's producer prices in the first quarter sparking suggestions that consumer prices could also prove higher than expected.[6] The Australian dollar climbed as a government report showed producer prices rose by a record in the first quarter.[8]
On the London Bullion Market, the price of gold rose to 916.69 dollars per ounce from 908.75 dollars late on Friday.[7]
The dollar rose 1.2 percent to 1.0185 against the franc, another refuge currency.[13] The dollar will probably have to depreciate by 1 percent for three to four consecutive days before policy makers consider intervening, said Ricardo Zulliger, who heads fixed-income, currency and commodities sales in North America at Dresdner Kleinwort.[28]
Google Inc. said April 17 that first-quarter international sales, which jumped 55 percent, would have been $202 million lower without the benefit of a depreciating dollar. While Treasury Secretary Henry Paulson has said he is a "very strong'' supporter of a "strong dollar,'' one of his predecessors, Paul O'Neill, described that policy as "vacuous'' in a Bloomberg Television interview last week.[28]
Analysts said the euro wilted against the dollar on profit-taking, which often occurs at the end of the week, as well as on a return of risk aversion, which tends to favour the dollar.[3] Risk appetite continues to be the dominant driver of the Yen crosses and will continue to be in the coming week. Bank of Japan Governor Shirakawa said today that he believes growth will regain momentum after a temporarily slowdown. The price action in the Yen indicates that the market does not believe him.[30] Japanese consumer prices are due for release next week and given the recent strength of the Yen, CPI growth is expected to slow.[30]
The biggest driver of day-to-day price action in the Japanese yen pairs remains risk trends, and downside potential for USD/JPY remains broadly to the downside.[10] The Japanese Yen (JPY) weakened sharply against the greenback following on from strong U.S equity markets, resulting in an increased risk appetite amongst investors.[15] Like the Japanese yen, the Swiss franc lost out as increased risk appetite led carry trades and equity markets to surge higher.[10]
The Yen however has been unquestionably weak again today, continuing a sell-off that has seen USDJPY break through significant resistance amid heavy stop-loss selling pressure with considerable leverage being applied via carry trades being put back on in earnest. Many investment houses are now adjusting their USDJPY forecasts higher, with an increasing level of risk acceptance in financial markets and a cloudy economic outlook in Japan.[39]
Lately, troubles at U.S. financial firms have been triggered by weakness in the housing market, but Citigroup's earnings have tempered worries about the sector and boosted risk appetite, supporting Dollar.[35]
Given the lack of any major economic data to threaten the latest rebound in the U.S. dollar, the rally could continue.[30] The pound sterling was down 1.70 cents to 1.9812 USD and the Australian dollar was higher by 0.70 cents to 0.9413 USD. The U.S. Dollar Index was down 0.184 points to 71.74.[32] Like most of the dollar-based majors, the USDCAD saw incredible volatility last week - though the pair is still within the confines of a broad range. Looking back over the past week, the it was clear that the loonie is struggling to hold its ground against the significantly oversold U.S. dollar.[10] "How to get richer regardless of whether stocks, bonds and the U.S. dollar are sinking or soaring."[44]
The dollar again found support below the parity level against the franc and strengthened to highs near 1.0090 in U.S. trading.[38] As of now, the dollar-Colombian peso pair is trading at 1781.80. U.S. President George Bush repeated his call for Congress to act on the Colombian Free Trade Agreement while speaking in his weekly radio address on Sunday. He also described "a strategic imperative" to the trade agreement. The Colombian peso is now trading at its highest level since July 1999 as foreign investment has rushed into Colombia.[31]
The Nikkei share average was up 1.3 percent in late afternoon trade, tracking a rally late last week on Wall Street on reassuring U.S. earnings reports.[6]
The U.S. currency increased 1.2 percent to 103.74 yen, from 102.48 yesterday. It touched 104.65 yen, the highest level since Feb. 29.[13] The U.S. currency increased 1.6 per cent to 104.09 yen, from 102.48 on Thursday. It touched 104.43 yen, the highest level since February 29.[33]
The U.S. currency also rose against the yen as it traded at 103.70 yen from 102.48 yesterday.[45]
"Right now we have a calmer market,'' said Nick Bennenbroek, head of currency research in New York at Wells Fargo & Co., in an interview on Bloomberg Radio. "But it's more of a blip than a sustained turnaround. As far as news about the U.S. economy goes, it's going to be a little while before we see an improvement.''[13] Ironically enough, late last week the market was looking for any vulnerability in EZ data assuming that U.S. data would prove predictably dour. U.S. economy registered several positive surprises last week with Empire Manufacturing and Industrial Production both printing far better than expected.[10] A labor market at full employment has fueled consumer spending and optimism that the economy can withstand the U.S. slowdown, but with price pressures building significantly, disposable income may only be able to remain robust for so long.[10] Looking ahead, it will be a very busy week for the British pound with the minutes from the latest monetary policy meeting due for release along with retail sales and GDP. As house prices fall and the labor market deteriorates, consumer spending could suffer.[30]
With the government's assurances of a plan to help out the burdened mortgage and credit market, investors will quickly absorb any hard policy that could reasonably mend the market and turn the news into a pound advance. Data will certainly have its place in price action as well.[10] With little economic data set for release on Monday, the news flow has been dominated by the Bank of England's launching of a plan to thaw frozen credit markets in the UK.[36]
Important data will come from Britain today, as the President of BoE will speak, revealing the details of the plan to boost credit market in the country. To finish, later today will be revealed the monthly foreign securities purchase in Canada, which if the forecast of 1.5 billion becomes true, the Canadian Dollar will increase value; foreigners have to buy the country'''s currency before they can buy their assets.[22] Despite the dollar's hefty gains in the past few sessions, investors were not sure how long the currency's firmness thanks to easing credit fears will last.[6] The dollar has been the dominant currency in recent decades, in part because corporations, investors, government agencies, individuals and other economic agents use it to conduct cross-border transactions.[20]
The dollar was up versus the Swiss franc to 1.0252. In their post-meeting statement, the G7 nations changed the usual language on currencies and touched upon the detrimental effect that sharp currency moves can have on economic and financial stability.[14] I believe the current financial and economic problems afflicting the United States will last for some time. Whether the dollar can retain its position as a key currency will be an enormous challenge.[20]
Euro The biggest surprise from the weekend'''s events was the stark warning from the G7 that volatile foreign exchange markets posed a threat to economic and financial stability. It was the strongest signal since 2000 that world leaders were unwilling to stand idly by as the dollar dropped.[4]
"The dollar started Monday on a weak note, while the euro got a lift from ECB hawkish comments," said Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto.[26] Currency analysts said that despite the dollar's gain Friday, the currency remained fragile and could fall further against the euro in the coming days.[3]
The euro changed hands at 1.5730 dollars against 1.5910 late Thursday, at 164.40 yen (163.06), 0.7885 pounds (0.7986) and 1.6144 Swiss francs (1.6004).[3] The dollar edged up 0.2 percent on the day to 103.85 yen not far from a seven-week high of 104.66 yen hit on trading platform EBS on Friday.[6] The Dollar inverted its positive trend of the last days, trading against the Euro at 1.5831 at 7:00 am.[22] In other late New York trading, the dollar nosed up to buy 1.0182 Swiss francs from 1.0064 Swiss francs, but slipped to 1.0058 Canadian dollars from 1.0127 Canadian dollars.[2] The dollar eased versus the yen Monday morning in New York, pulling back from Friday's 7-week high of 104.63.[36] At 5 p.m., the dollar was quoted at 103.31-34 yen, compared with Friday's 5 p.m. quotes of 103.62-72 yen in New York and 102.46-49 yen in Tokyo.[27]
Strength against the Yen notwithstanding, the New Zealand dollar showed fresh signs of weakness against major forex counterparts.[10]
"One has to expect a drastic moving of jobs to the U.S. in the car and aviation industries because of costs," Boerner was quoted as saying by Bild. He added that might not happen, however, if the industries found new markets in Russia and Asia. To underscore that, on Thursday night Audi AG chief executive Rupert Stadler told reporters his company was considering whether to start producing engines and gearboxes in the U.S., in part to keep the luxury car maker more independent from dollar fluctuations.[2] For loonie, the key commodity move was the jump in crude to a new record high just above $117 a barrel. As we have said before, this factor alone will act as an anchor for USDCAD as Canada is the largest energy supplier to the U.S. Therefore, until crude falls significantly, loonie traders will hesitate in joining any major USDCAD rally.[10] The $330 billion auction-rate market - in which U.S. municipalities, student-loan companies and money-market-style funds raise capital - effectively shut down in February, "leaving some issuers paying rates as high as 20% and investors frozen in the debt," according to Bloomberg.[18] Sterling weakened as the Bank of England's plan to swap 50 billion pounds ($100 billion) of government bonds for mortgage- backed securities disappointed investors.[8] The Bank of England is expected to announce later in the day a plan to swap 50 billion pounds of government bonds for riskier mortgage debt to ease the credit crunch.[6]
Citigroup is expected to cut another 9,000 jobs. The bank slashed its dividends and raised more than $30 billion in capital.[14] Citigroup, the largest American bank by assets, announced a larger than expected first quarter loss of $5.11 billion and the stock rose almost 4.5%.[29]
The biggest U.S. bank Citigroup said it incurred write-downs of more than $15 billion in the January-March period in connection with the subprime mortgage crisis, and noted it would reduce the firm's workforce by an additional 9,000.[27] Bank of America Corp., the largest U.S. retail bank, on Monday posted a 77% drop in first-quarter net income. It boosted its credit-loss provision nearly fivefold and recorded at least $1.91 billion in write-downs.[25]
At $13.9 billion the losses to Citi's vast portfolio were in line with predictions but barely half the highest estimates circulating through the market before the release. Coupled with Google's better than predicted earnings, these results put the two outstanding problems in the American economy in an improved light and the equities and the dollar rallied strongly. [29] Any indication that the United States economy is recovering, even if it is from a statistic that does not normally affect the currency markets, has the potential to improve the standing of the dollar.[29]
The last possible argument of dollar bulls - namely that the weakness in the currency would fuel growth in U.S. manufacturers offsetting some of the downward pressures in finance and housing sectors - turned out to have some merit and helped keep dollar from collapsing further.[10] Prospects of a dollar recovery ''The dollar has fallen for a number of reasons,' said John Beggs, chief economist at AIB. ''A long-term decline has been under way for some time now, primarily due to the U.S. current account deficit. In the 1990s, investors piled into the U.S. following the technology boom.[9] Learn how to maintain seamless business continuity while migrating from traditional voice mail, to unified communications. The dollar, however, slipped into the lower 103 yen zone toward the end of the Tokyo deals as investors adjusted their holdings with the entrance of European players.[27] The yen slipped back after hitting a two-week high of 100.45 to the dollar on Monday when investors were disappointed by a weekend meeting of world finance chiefs, which showed growing concern about the dollar's recent slide.[21]
Euro traded at 164.39 against the Yen at 7:00 am GMT. Yen is depreciating, as stocks''' good performance gives investors the confidence to invest in higher-yielding currencies with funds from Japan.[22]
The euro rose to the 164 yen range for the first time in over 15 weeks in Tokyo.[27]
The last time the G-7, which comprises the U.S., Japan, Germany, Britain, France, Italy and Canada, intervened was Sept. 22, 2000. It bought euros after that currency tumbled 27 percent from its 1999 debut.[28] European exports to the U.S. fell in 2007 for the first time in four years as the U.S. currency's decline made goods from the region more expensive for Americans.[28] For 11 years until 2006, global financial assets grew from 60 trillion dollars to 150 trillion dollars, with the United States and European countries obtaining most of the increase.[20] Recent, unpredictable changes toward higher food and grain prices have been observed, too. In addition to these changes, with its post-1995 strong dollar policy, the United States has increased the value of financial assets, such as stocks, by attracting money from all around the world.[20]
No doubt acting as a last line of defense for many Canadian dollar bulls, energy and commodity prices are still used as a solid reason to hold onto the currency.[10] The UK currency was helped out by a report that the Bank of England will move to relieve lenders of up to ''20 billion in bad mortgages, even though no details of what the plan might entail were forthcoming.[23] "The Bank of England's plan of injecting 50 billion pounds is not a lot compared with the 1.2 trillion pound mortgage market in the U.K.,'' said Rafael Martorell, chief dealer of spot foreign exchange at BNP Paribas in New York.[8]
The euro came under pressure on concern that the currency is becoming too strong and dampen exports. Late Thursday, Luxembourg Prime Minister Jean-Claude Juncker told reporters that he was concerned the euro was moving in a direction that wasn't desirable. He was joined by several other influential business figures who expressed concern about the rising cost of manufacturing products in Europe. Sterling rallied on Friday on speculation that the Bank of England could step in to help banks with the current lending squeeze by allowing them to exchange mortgage-backed securities for government bonds.[41] In foreign exchange, the euro strengthened following Liebscher's comments and continued to gain following the Bank of America earnings report.[32] For more clues, investors were awaiting earnings reports from Bank of America, the No.2 U.S. bank, due later in the day.[6]
Bank of America Corp (BAC.N: Quote, Profile, Research ), the No. 2 U.S. bank, reported a fall in first-quarter profit due to write-downs and rising credit losses.[26] ''While I wouldn't be surprised to see the dollar rally in the short term, there are still fundamental concerns about the American market itself. The current credit crisis has its origin in the U.S., but the U.S. market has actually fallen far less than the markets in Europe to date.[9] U.S. banking heavyweight Merrill Lynch announced on Thursday a first-quarter loss of 1.96 billion dollars due to nine billion dollars in mortgage-related write-downs.[21]
The Chinese yuan's exchange rate against the dollar appreciated by 7 percent last year and 3 percent two years ago. [20] JPMorgan Chase & Co.' s index of implied volatility on dollar options has fallen 0.53 percentage point to 11.33 percent since the G-7 meeting on April 11, when finance ministers expressed concern exchange rates were fluctuating sharply.[8]
According to International Monetary Fund data, the dollar accounts for 63.5 percent of aggregated reserve holdings.[20] I believe the dollar's role in reserve portfolios remains large at more than 60 percent.[20]
I won't be surprised at all if the dollar reaches the 85 yen level. Major Japanese companies such as Toyota Motor Corp., Sony Corp. and Matsushita Electric Industrial Co. will remain competitive in that environment. [20] The dollar found support below the 101.80 level against the yen on Thursday and secured a firmer tone over the day.[38]
Despite the continuing fall of the dollar, the yen and the Chinese yuan had not appreciated much until recently. That was because yen had overly declined in recent years.[20] The dollar has been inching higher versus the yen since hitting a 12-year low of 95.70 in March.[36]
Even though the economy may take many more months to really pull out of it, stocks tend to start rallying at the bottom/trough of an economic cycle when the news is at its worst and the economy hasn't "technically turned around yet." The smart money goes in and snatches up value stocks when they feel the economy and corporate earnings as a whole are only about six months from turning around. They tend to lead the recovery. What does this do for currencies? Of all currencies, it mostly impacts the Japanese yen.[44] All of the Japanese Yen crosses rallied on the back of the 200 point rise in U.S. stocks.[30]
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Yen.[30] For additional resources related to the USD/JPY pair, visit the Japanese Yen Currency Room.[10]
Japanese consumer confidence surprised traders to the upside with a reading of 37.0 in March compared to February's result of 36.4, though department store sales fell 0.7% to 161.4B Yen after robust gains posted in the previous month.[39]
Traders are betting the ECB will keep the main refinancing rate at a six-year high. The yield on three- month Euribor contracts expiring in December rose to 4.405 per cent yesterday, the highest this year.[5] With the cooling in CPI last week, traders are confident that the BoC will act with another large rate cut.[10] With rice prices hitting $1000 a ton for the first time ever and oil prices breaking $117 a barrel, the pocketbooks of consumers are getting pinched by the day. It certainly doesn't help that this is coming at a time when job security is a premium. Layoffs continue to build. This morning, Citigroup announced 9000 job cuts while earlier this week Merrill Lynch announced 4000 layoffs, matching the slashes at AT&T.; This does not include potential layoffs by JPMorgan - Bear Stearns and Delta - Northwest.[30]
The policy decision is the event risk with the greatest market moving potential with economists expecting another 50bp rate cut. At its last policy meeting, the Canadian policy group took the seemingly dramatic step of cutting its benchmark lending rate a half percent to 3.50 percent.[10] The ECB's benchmark rate, 4.00 percent, is substantially higher than that of the Fed, which stands at 2.25 percent.[7] The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 18 basis points more than the ECB's benchmark rate from 1999 until August.[5]
The ECB has come under pressure from union groups and manufactures to slow down the rapid rise of the euro, which is trading near Friday's record high at 1.5950 Monday morning.[31] Against the euro, the Australian currency lost ground after hitting a 5-week high of 1.6795 at about 2:45 am ET. Currently, the euro-aussie pair is trading at 1.6908, compared to Friday's close of 1.6929.[36] The franc was able to regain some ground later in U.S. trading with the currency over-sold on a short-term view.[37] By the Wall Street open today, 10-year U.S. Treasury yields stood 27-basis points higher from Monday's start, trading up to a six-week high of 3.77%. The 10-year yield hit a five-year low of 3.34% this time last month.[18]
Citi's revenue exceeded consensus expectations though it was still down more than 48% y/y. A moderately stronger bid tone for the Dollar overnight has morphed into an outright rally, as the all of the majors are solidly retreating with the EUR trading down more than 2 cents and the Pound giving back its hard earned gains achieved on the strength of rather robust mortgage lending numbers.[39] The British pound, however, was slipping in value against the dollar, with one pound selling for $1.9832 vs. $1.9933 in the prior session.[42] The pound traded within a cent of $2 on speculation the Bank of England may take mortgages off lenders' balance sheets.[33] The pound was lower Monday after the Bank of England, in a bid to address fallout from the U.S. subprime mortgage crisis, announced a 50 billion-pound plan to allow banks to swap mortgage-backed securities for Treasury bills.[43]
Worse than expected Q1 2008 results of Bank of America further added to the dollar weakness. [46] Before the G-7 meeting in Washington, strategists including Stephen Jen, head of currency research at Morgan Stanley, speculated that the world's richest nations might intervene. "It's not about levels but the volatility,'' said Geoffrey Yu, a foreign-exchange strategist in Zurich at UBS. "If the dollar drops in a gradual fashion, they are unlikely to act.[28] The dollar rose to 1.9824, up sharply from an overnight level near 2 dollars.[36] The core consumer price index (CPI), which excludes volatile food and energy prices, rose in line with expectations by 0.2% month on month and 2.4% year on year. March housing starts fell by 11.9% from a revised 1.075 million to 0.947 million annual units, their lowest level since 1991.[14] Swiss retail sales more than doubled expectations of a 1.6 percent gain with a 3.3 percent surge in February. This was the 21st consecutive month of growth and the highest since September 2007. Looking at the complete breakdown, there were improvements in furniture, electronics and household goods, which shows that consumers are still spending their discretionary income. The majority of the gain was in food and beverage sales - and since this index is not adjusted for inflation - it is clear that the index benefited from record commodity prices.[10] The week opens with the Rightmove housing inflation indicator (and the nationwide number is scheduled sometime over the coming week). After the RICS dropped to its lowest level on record, the market will no doubt keep a close eye on the health of the housing market.[10] Bank of England Chief Economist Bean stated that growth was likely to slow further, but he also warned that inflation was likely to rise above the 3.0% level.[38] Comments from BoE economist Charles Bean that UK inflation is expected to rise above 3% in 2008 also boosted the currency.[41]
March inflation was revised up to 3.6% year on year from a preliminary 3.5%, the fastest pace since the introduction of the euro and in fact the highest in 16 years.[14] A strong Euro, despite pushes European exports down, benefits the Euro zone in terms of controlling inflation.[22]
Sterling was steady at $1.9992 after gaining sharply against the euro and the yen the previous session on short-covering. [6] Gary Thomson, head of sales trading at CMC Markets, said that while the euro had so far failed to reach $1.60 "it remains foolish to think a successful test cannot be seen in the coming weeks."[2] Oil climbed to $117.05 a barrel for the first time in New York, the highest since futures began trading in 1983.[28] Formerly editor-in-chief of Futures Magazine, Darrell Jobman has been writing about financial markets for more than 35 years and has become an acknowledged authority on derivative markets, technical analysis and various trading techniques for currency futures, currency future trading and commodity currency future trading.[38] As forex specialist, ACM provides only currency and precious metals trading via highly professional forex trading software. All customers are aware that this information or any part thereof has been prepared without taking account of your objectives, financial situation and/or needs. This information is not intended as personalized investment advice and does not constitute a recommendation. It is not an offer or solicitation of any offer to purchase or sell any financial instrument.[35]
You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.[35] Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.[22] Site visitors hereby acknowledge that: Trading foreign exchange on the margin carries a high level of risk, and may not be suitable for all investors.[35]
Gold (XAU) prices fell on Friday as U.S investors risk appetite returned, seeing long gold positions unwound and put into equities. [15]
On the London Bullion Market, the price of gold fell to 908.75 dollars per ounce from 946 dollars late on Thursday.[3]
There have been no big misses like the one reported by General Electric at the end of last week and instead there have been nice upside surprises from companies like Google. This has been the primary reason why the dollar is higher and could be the reason why the dollar continues to rise in the coming week.[30] A reminder of the impact of the credit crunch on the UK banking sector came with news that Royal Bank of Scotland was set to announce a rights issue next week.[4] Weekly Treasury Update World finance leaders concluded a whirlwind session last weekend with a new plan to clean up banks and a fresh resolve to rein in foreign exchange markets, with little hope that the credit crisis was nearing an end.[4] Gulf Times ''' Qatar'''s top-selling English daily newspaper - Finance & Business Weekly Treasury Update World finance leaders concluded a whirlwind session last weekend with a new plan to clean up banks and a fresh resolve to rein in foreign exchange markets, with little hope that the credit crisis was nearing an end.[4]
There were indications that the Reserve Bank of New Zealand was again attempting to restrain th. [23]
The Federal Reserve stance on interest rates will be an increasing focus ahead of the late April decision.[38] The global market environment triggered investment in currencies with higher interest rates and yen-carry trade.[20] Contrasting data, which soon followed suite helped change the norm suggesting the Fed may not continue cutting interest rates quite so aggressively.[4] Fed hawk talk, evidenced by the move in two-year notes, throws a bit of a monkey wrench into the idea the Fed will be cutting interest rates as far as the eye can see.[44]
Markets will be expecting interest rates to be left on hold in the short term.[38]
Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/purchase or as an invitation or solicitation to do so for any securities of any entity. ICICI Bank and/or its Affiliates ("ICICI Group") make no representation as to the accuracy, completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. ICICI Group or its officers, employees, personnel, directors may be associated in a commercial or personal capacity or may have a commercial interest including as proprietary traders in or with the securities and/or companies or issues or matters as contained in this publication and such commercial capacity or interest whether or not differing with or conflicting with this publication, shall not make or render ICICI Group liable in any manner whatsoever & ICICI Group or any of its officers, employees, personnel, directors shall not be liable for any loss, damage, liability whatsoever for any direct or indirect loss arising from the use or access of any information that may be displayed in this publication from time to time. [46] A better-than-expected first quarter earnings report from Citibank has put the run on the USD bears this morning as traders trim short Dollar positions in both currencies and commodities.[39] The move came amidst surprisingly strong first quarter corporate earnings reports from firms like Google and IBM. However, given the massive $5.1 billion net loss at Citibank, it is clear that the subprime crisis and subsequent credit crunch has taken a hefty toll on the balance sheets of financial institutions.[10] Citigroup reported that it lost $5.1 billion in the first quarter tied to losses in the housing and credit markets. However it also said that its revenue fell to $13.2 billion, higher than a consensus estimate of $11.1 billion, according to a Bloomberg poll of analysts.[45]
Citigroup reported a first-quarter net loss of 5.1 billion dollars as well as at least 12 billion dollars in write-downs amid soured subprime investments and rising credit costs.[3]
The company announced writedowns of $6.01 billion and CEO Kenneth Lewis said second-quarter U.S. GDP growth will be "minimal at best." [32] The current U.S. financial situation is similar to Japan's in 1995, and the U.S. real economy closely resembles the Japanese one of 1992.[20] There have also been generally favourable U.S. corporate results over the past 24 hours, notably from Google, which has boosted optimism in the wider economy and U.S. financial markets.[37]
With growth still promising for the economy and financial markets relatively stable, a 25bp cut could be easily justified.[10]
At noon, ECB Governing Council Member Axel Weber will address financial markets and the economic outlook for the euro zone at Germany's Ifo institute.[31] Elsewhere, the British pound weakened after the Bank of England said it would allow high street banks to swap mortgage-backed assets in exchange for government bonds, in an effort to improve financial market conditions.[7]
The UK currency also gained support from an improvement in risk tolerances while there was speculation that the Royal Bank of Scotland rights issue would boost demand for Sterling given the extent of overseas ownership of the shares.[37] Global risk tolerances will tend to remain dominant in the short term. U.S. corporate earnings results were generally close to or above expectations with lower debt write-downs than expected and this improved risk appetite.[37] World News Gold tumbled more than 3% to a one-week low at $904.35 an ounce on Friday, as better than expected earnings from Citigroup boosted the greenback.[14] Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault - where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.[18] Investors interested in the U.S. should also watch the financial sector for signs of a recovery.[9]
The U.S. stock market has been rallying even in the midst of more bad news like General Electric's bad quarter or Goldman Sach's recommendation to "sell short Washington Mutual." It's been my experience that when stocks rally on "bad data days," we may be experiencing a market bottom. Or at the least, the worst may be behind us. Market bottoms always have something catastrophic in them. I'd say this one will be remembered for the Bear Stearns blow up and the Fed helping J.P. Morgan to pick up the pieces. [44] The U.S. will also release last month's data for existing and new home sales on Tuesday and Thursday, respectively.[16] The U.S. economic calendar is relatively sparse with only housing and durable goods numbers due for release. Mortgage applications have rebounded and this suggests that sales of existing or new homes could have actually increased during the month of March.[30]
An early-week Retail Sales report showed that spending fell a disappointing 0.7 percent through February--worse than all 11 analysts' estimates as reported by Bloomberg News.[10] Two major fundamental announcements are scheduled for release over the coming days - Tuesday's Bank of Canada rate decision and Wednesday's retail sales report.[10]
The People's Bank of China allows a trading band of 0.5 percent on either side of the midpoint.[21] There was no fresh economic data during Thursday, but there was further speculation that there would be an agreement between the government and Bank of England over support measures for the mortgage sector.[38] Although tertiary in nature, today's Euro Zone data has actually been quite supportive of the currency.[39] The Swiss currency also tested the 1.60 level against the Euro for the first time since late February.[38] If the data continues to confound the bears and continues to be positive another run at 1.6000 will most likely occur as euro longs will be emboldened to take out the barriers at that key level once again.[10]
As central bankers appear inclined to stand firm on rates, many politicians are looking for looser monetary policy and a weaker euro.[40] In terms of the yen's real effective exchange rate, the 100 yen-to-the-dollar level is the one before the Plaza Accord.[20] Yen trends will continue to be dominated by levels of risk aversion in the short term.[37] The yen has been used as a "risk gauge" in the financial markets for months now.[44]
Then I see the yen pulling back a bit below the 100 mark. That's in the short-term. in the long-term, if stocks (in particular the Dow and Nikkei) were to take out new lows, then the yen would have a "license" to head for new all-time highs later this year. [44] The housing numbers are forecast to dip below the key 5MM annual run rate once again, but given the low expectations are not likely to have any meaningful impact on price action.[10]
Asia will play an important role in the world economy. As such, Japan needs to seek cooperation from other Asian countries in the fields of trade and currency. [20]
SOURCES
1. The Associated Press: Euro moves higher against dollar
2. Dollar mixed in late trading, rises against euro - Forbes.com
3. AFP: Euro wobbles on profit-taking
4. Gulf Times ''' Qatar'''s top-selling English daily newspaper - Finance & Business
5. The FINANCIAL, News That Makes Money, Business News & Multimedia - Barclays Capital sees dollar dropping 2.5% against euro
6. Investing | Africa - Reuters.com
7. AFP: Dollar on backfoot against euro
8. Bloomberg.com: Japan
9. Sunday Business Post | Irish Business News
10. Dollar: 1.60 Does Not Fall. Yet.
11. Sunday Business Post | Irish Business News
12. Dollar favoring short-term! - Forex News | IBT FX Center
13. Bloomberg.com: Worldwide
14. Arab Times :: Dollar hits 1 mth high against yen as euro reaches fresh record peak
15. U.S dollar boosted by improved financial profit results. - Forex News | IBT FX Center
16. Forex - Dollar weaker in afternoon trade in Asia ahead of more earnings, data - Forbes.com
17. FOREX-Dollar slips broadly as BoA results cools optimism | Markets | Markets News | Reuters
18. ForexHound.com trading news from the FX world
19. Gulfnews: Swiss central bank to offer 6b in shortterm credit to markets
20. YOMIURI INTERNATIONAL FORUM / Will dollar lose position as key currency? ( 2/ 2) : Business : DAILY YOMIURI ONLINE (The Daily Yomiuri)
21. Business News
22. The Dollar inverted its positive trend of the last days
23. Carry trades weaken yen
24. Dollar nears record low on Bank of America write-downs - Forbes.com
25. Free Preview - WSJ.com
26. FOREX-Dollar falls on Bank of America results; euro up | Markets | Markets News | Reuters
27. Dollar briefly recovers 104 yen level on eased credit worries+
28. Bloomberg.com: Worldwide
29. It's not the little things
30. Will Dollar Strength Continue?
31. RTTNews - Currency Trading, Currency Market Update, Trading Opportunities, US Market Update .
32. Canadian Economic Press - Welcome
33. Gulfnews: Dollar rebounds to twoweek high
34. FX Trend Trader -The Day ahead - Forex News | IBT FX Center
35. ForexHound.com trading news from the FX world
36. RTTNews - Currency Trading, Currency Market Update, Trading Opportunities, US Market Update .
37. ForexHound.com trading news from the FX world
38. Daily currency analysis - Apr 20 - Forex News | IBT FX Center
39. Articles
40. Free Preview - WSJ.com
41. ShareCast - News you can use
42. Gold Prices Rise; Dollar Is Mixed | Currencies | FXB FXE FXY GLD IAG NEM - TheStreet.com
43. Euro higher against US dollar as bank earnings disappoint
44. My Two Cents: Full Moon or Pope's Visit? 10 Reasons Why the Lowly Buck Is on the Move Today
45. Dollar Gains Sharply after Citigroup Results Relief - Forex News | IBT FX Center
46. The Euro rose against the Dollar
GENERATE A MULTI-SOURCE SUMMARY ON THIS SUBJECT:
Please WAIT 10-20 sec for the new window to open...
You might want to EDIT the default search query below:
Get more info on Dollar under pressure after Bank of America misses by using the iResearch Reporter tool from Power Text Solutions.
 |
|  |
|
