Posted on 30 December 2009
Dollar Gains vs. Yen in Thin Trading
The dollar gained on the yen and was supported by year end dollar buying by Japanese companies in thin holiday trading. The yen also fell against the Aussie and Kiwi dollars on Tuesday. Investors remain focused on the Fed and when it will raise rates and withdraw stimulus measures. Improved US economic data has prompted many investors and currency specialists to rethink forecasts when the Federal Reserve will raise rates. The dollar has recovered from a 14 year low against the yen. Currency markets will be watching Fed policy makers statements closely and will review other US economic data such as employment and labor market figures. Kazuyuki Takami of Bank of Tokyo-Mitsubishi UFJ stated, “The market is shifting its focus to the recently emerged theme of whether the Fed exit strategy will be sooner than expected. And it will closely scrutinize upcoming U.S. economic data.”
Positive US Employment Data Expected
After the number of US jobs lost shrunk to 11,000 in November many investors expect the December non-farm payrolls report due on January 8th to show more signs of US recovery. After a fall of about 19% in 2008 the dollar has gained 1.7% against the yen. The euro has gained 2.5% vs. the dollar in 2009. The Bank of Japan is expected to keep rates low which may put downward pressure on the currency in 2010.
Yen May Fund Carry Trades in 2010
Traders and investors say that once currency markets get a stronger sense of Fed exit timing the yen will become the currency of choice for carry trades. Tomohiro Nishida of Chuo Mitsui Trust and Banking Company said, “Yield differentials between the U.S. and Japan have started to widen slightly, showing evidence the market is conscious of the prospect of the U.S. exiting its easy policy. With that perception behind the dollar, if the U.S. heads towards the exit, the dollar-funded carry trade is expected to wane as Japan is seen as more likely to ease further.”
Posted on 29 December 2009
Euro Surrenders Early Gains
High yielders such as the euro and Aussie dollar gained on the greenback in early Tuesday trading. Later in the day the euro fell 0.2% against the dollar reversing earlier gains. The dollar gained 0.4% against the yen trading at 91.99 yen. The yen also fell against 16 other major currencies as Japanese manufacturers increased production at the fastest pace in six months in November prompting a rise in risk sentiment. The Japanese currency is widely seen as a safe haven currency and usually falls as risk appetite increases. Low Japanese rates also make the yen attractive for carry trades. The dollar was also helped by expectations that Tuesday’s consumer sentiment report will be dollar positive. Geoffrey Yu of UBS AG stated, “The U.S. is probably going to outperform many economies. That’s why we have a view on a stronger dollar. Throughout 2009, the market has been overpricing the downside U.S. economic risk.”
US Retail Sales Figures Add to Optimism
The dollar remains at a two month high against the yen in thin holiday trading. Monday’s US retail sales figures for December added to investor optimism. Australian and UK markets reopened after the Christmas holidays but trading remains thin and many Japanese companies have begun year end holidays. Rising US Treasury yields have also lifted dollar sentiment among investors. Despite Fed statements to the contrary many traders and investors are speculating that the Fed may raise rates sooner than expected and will start to withdraw stimulus measures. Johan Javeus of SEB stated, “Anything that points in the direction of the Federal Reserve raising interest rates earlier than previously thought will support the dollar — there has been no indication of this from the Fed but U.S. data recently has been coming in on the strong side.”
Aussie at Twelve Day High
The Aussie rose to a 12 day high and gained 0.8% against the US dollar trading at $0.8950 and some expect the Aussie to rise to the $0.90 level. This year the dollar has fallen against 16 of the most traded currencies with the exception of the yen. Some investors remain skeptical of the dollar’s recent gains.
Posted on 20 December 2009
Evidence of US Recovery
The greenback is now at a three month high against the euro and other major currencies. The Fed’s positive economic assessment and evidence that the US economy is starting to recover pushed the dollar higher in currency markets. The Fed also said that deterioration in the labor market is “abating,” and reported an increase in household spending. Ronald Leven of Morgan Stanley stated, “There’s a growing consensus that the dollar will do well as we go into the New Year. We’re seeing ongoing interest to build up long-dollar positions.” Most currency experts believe the dollar will extend recent gains on improving economic data.
Fed to Withdraw Emergency Measures
The Fed has indicated it will withdraw emergency measures when they expire in February 2010 prompting some to speculate that the Fed may raise rates sooner than expected. Nick Bennenbroek of Wells Fargo said, “We see the U.S. economy continuing to recover and monetary policy settings starting to move back to normal. Although our economics team does not expect actual rate tightening to take place until late in 2010, the withdrawal of non-conventional measures could start tipping the scales in the dollar’s favor.” The dollar has also benefited from year end profit taking on assets such as stocks, commodities and emerging currencies. The ICE futures’ dollar index .DXY is up 1.9% on the week, the best performance since April.
Lingering Greek Debt Concerns
The troubled euro fell 2.4% on the week against the greenback its worst performance in eight months. Persistent Greek fiscal problems have pressured the euro. Both Fitch’s and Standard and Poor’s have downgraded Greece’s sovereign debt rating and the announcement of spending cuts by the Greek Prime Minister have done little to ease concerns. Todd Elmer of CitiFX in New York said, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.” This week the US will release its third quarter GDP figures and investors are sure to be watching. Most economists expect the data to be positive.
Posted on 19 December 2009
Dollar Supported by Positive Fed Assessment
Currency experts expect the US dollar to hold onto last week’s gains. Recently the dollar has been supported by evidence of a stable US recovery and the Fed’s willingness to withdraw emergency measures in February 2010. Despite the fact that the Fed has repeatedly said it would keep rates at record lows positive US data has prompted speculation that the Fed may raise rates sooner than expected. The year end sell off of assets that have gained over the year such as stocks, commodities and emerging currencies has broadly benefited the dollar. The ICE futures’ dollar index .DXY which tracks the dollar’s value against a basket of six major currencies has been rising since early December although it has fallen 4.3% during 2009. For the week the DXY is up 1.9% the best weekly gain since April.
Pakistan Coup Rumors Trigger Safe Haven Flight
The troubled euro is on track for its worst weekly performance in eight months. The euro fell 2.4% this week against the dollar. The euro has been pressured by Greek sovereign debt concerns and a Standard and Poor’s downgrade. Austrian banking woes have also stung the euro in currency markets. Todd Elmer of CitiFX stated, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.” Safe haven currencies rose on Friday after rumors of a coup in Pakistan. Currency markets were also shaken after it was reported that 11 Iranian troops had entered Iraqi territory and raised the Iranian flag at a disputed oilfield.
US Third Quarter GDP Report Due Next Week
The flight to safe haven sent the Swiss Franc and the Japanese yen higher. The yen gained on the dollar, euro and the Aussie dollar. The Swiss franc, widely seen as a safe haven currency gained on the euro. Although the currencies regained most losses the euro was down 0.4% against the franc at 1.4957 francs and the dollar was down 0.6% against the yen at 89.46 yen. There is a slew of US data to be released this week and investors are sure to be paying close attention. Third quarter GDP reports are due along with housing data, and reports on personal income and spending.
Posted on 17 December 2009
Investors Wait For Fed Results
The US dollar fell slightly on Wednesday in advance of the ongoing Fed meeting taking place on Tuesday and Wednesday. The euro rose from a two and a half month low as traders took positions waiting for the results of the Fed meeting. The pound was boosted by better than expected UK employment data and the Aussie surrendered recent gains on weak Australian growth data. The Australian data prompted speculation that the Reserve Bank of Australia would put off raising rates. Investors remained focused on the Federal Open Market Committee’s meeting. The FOMC is expected to leave rates at record lows and investors will be searching the FOMC statement for any indication of when the Fed may tighten up its loose monetary policies. Michael Hart of Citigroup in London stated, “It had looked like the euro was breaking further lower, and the ever so slight possibility (building in the market) of the Fed tightening or winding down liquidity, which would be supportive for the dollar. But I don’t think we can expect too many fireworks from the Fed. They will be fairly cautious.”
EU Banking Concerns Pressure Euro
Concerns about the health of the Euro Zone’s banking sector have pressured the euro in recent trading sessions. A press report from Austria had said that the nation’s largest cooperative bank had been put on a watch list prompted banking concerns among investors. Lingering concerns about the Greek downgrade and the fiscal health of the EU member weighed on the euro in currency markets.
Pound Rallies on UK Employment Figures
New EU data showed that the Euro Zone manufacturing and service sector continued to improve in early December. Against the US dollar the euro last traded at $1.4578 after hitting a low of $1.4503 on Tuesday. The pound rallied as new UK employment data showed that the number of unemployment claims fell in November, the first improvement in almost two years. The pound was up 0.5% against the greenback at $1.6365 and traded at 89.05 pence against the euro.
Posted on 16 December 2009
Euro Pressured by Austrian Banking Concerns
The euro reached a two and a half month low against the US dollar as stocks fell and investors expressed concerns about the European banking sector. Lingering concerns about the fiscal health of Greece were not allayed after Greek Prime Minister George Papandreou announced spending cuts. Earlier Greece’s rating had been cut from A- to BBB+ by Moody’s. The Austrian press reported that the country’s largest cooperative bank, Oesterreichische Volksbanken had been put on a watchlist by the Austrian central bank’s financial market regulators. A spokesman for the bank said that the bank is not at risk of nationalization and that the press reports were inaccurate. Austria recently nationalized Hypo Alpe-Adria Bank International AG sparking investor concerns. On Monday the surprise announcement that Abu Dhabi would provide a $10 billion dollar bailout for Dubai Inc. eased some concerns about European banks, many of which are heavily exposed to Dubai debt. Dubai stocks .DFMGI gained as much as 3.4% after the announcement.
Improvement in US Economic Data
The US dollar hit a two month high against the euro as data showed that US industrial production gained and U.S. producer prices rose 1.8% in November. The data comes on the heels of better than expected US non farm payrolls figures which pushed the dollar higher. Camilla Sutton of Bank of Nova Scotia in Toronto stated, “What we are seeing recently is the improvement in some important U.S. data and rising sovereign risk in the euro zone. Both provide a bid tone to the U.S. dollar.” Michael Woolfolk of BNY Mellon in New York added, “We’ve had a string of very good U.S. data releases compared to Europe, and today’s data suggests inflation is picking up again, so the whisper out there is that the Fed will hike rates sooner than expected.”
Eyes on Fed Meeting
All eyes remain on the ongoing Federal Reserve meeting taking place on Tuesday and Wednesday. Investors will be watching closely for signs of early withdrawal of stimulus programs which may trigger a much wanted rate increase by the Fed.
Posted on 13 December 2009
Pound Pressured by Deficits
Last week was not a good one for the pound which fell broadly against the dollar. Investors concerns about the growing size of British deficits pressured the pound in currency markets. At a summit of asset managers several participants said the pound is their ‘least favorite’ currency and predicted the pound will be used to finance carry trades in 2010. Chancellor of the Exchequer Alistair Darling told British lawmakers that the UK’s budget deficit will hit 611 billion pounds ($990 billion USD) during the next four years. He also said the UK economy would shrink 4.75% in 2010. Earlier in the week Moody’s Investor Service had said that Britain’s finances would “test the Aaa boundaries” of the country’s rating due to rising deficits and debt concerns. Robert Stheeman, CEO of U.K.’s Debt Management Office said a day later that he was “not unduly concerned” about the possibility of a cut in the nation’s credit rating.
Gold Hits Four Week Low
On Friday gold hit a four week low, reversing recent gains as positive US data sent investors in search of riskier assets. Gold prices ranged from $1,143.40 to $1,110.20 the lowest since November 13th. Gold was pressured by the dollar’s rise against the euro and positive US retail sales and consumer sentiment data. The US retail sales report showed the largest advance in US retail sales since August although some attribute the spike to seasonal and holiday buying.
Loonie Pressured by Weaker Gold, Oil Prices
The data pressured the Canadian dollar which fell almost a full cent against the greenback. The US dollar’s rise contributed to weaker gold and oil prices which are key Canadian exports. Steve Butler of Scotia Capital Stated, “It’s starting to look like strong U.S. data is good for the (U.S.) dollar. Certainly the market reacted quickly and bought dollars. The sentiment has turned in favor of the U.S. dollar and Canada’s is weakening off on the back of that.” Investors will be watching for UK Jobless Claims which are expected to be modest and are hoping that UK jobs data will meet optimistic expectations.
Posted on 11 December 2009
Dollar Gains on Recovery Momentum
The US dollar hit a one month high against most major currencies on Friday (Dec. 11) as retail sales gains and increased consumer confidence prompted investors to speculate that the US Federal Reserve will raise rates earlier than expected. Earlier in the week Fed Chairman Ben Bernanke said that Fed rates would remain low for an ‘extended period.’ The yen fell as evidence of economic recovers spurred demand for riskier assets. Positive Chinese economic data helped to lift stock markets in Asia, Europe and the US. US retail sales rose 1.3% in November as consumers spent more on a wide range of products and goods. Boris Schlossberg of GFT Forex said, “This is another notch in the belt for the recovery bulls. It is really an unexpectedly powerful number. The report also confirmed what we saw overnight, which was very good Chinese data, suggesting that global recovery is gaining momentum.”
Asset Managers Say Pound is Least Favorite Currency
In an interesting development asset managers at a Reuters Investment Summit in New York said that the British pound is their least favorite currency. They said the pound has been damaged by tax increases, low rates and spending cuts. A luke warm recovery in the UK is expected to keep rates low. Rates now stand at 0.5% and on Thursday the Bank of England announced that rates would remain low and that the asset purchase program would remain under review. Bob Doll of BlackRock Inc stated, “The last to raise rates are supposedly the U.S. and the UK. Until then, with rates zero, it’s hard enough to think that the carry trade won’t continue.”
Aussie Kiwi Benefit From Carry Trades
Fund managers pointed out that the chief recipients of carry trades have been the Aussie and Kiwi dollars. Australia was the first of the G7 nations to raise rates. Australian rates are now at 3.75%, the highest in the industrialized world. New Zealand has not raised rates from the current 2.5% but the New Zealand central bank has indicates it would raise rates sooner than expected.
Posted on 09 December 2009
Fitch Downgrades Greece’s Rating
The US dollar rose for the third straight trading session as risk aversion was fueled by falling stocks, government deficits and the downgrade of Greece’s credit rating. Fitch’s rating agency downgraded Greece’s rating from A- to BBB+. The move followed a report by Standard and Poor’s that said Greek banks faced Europe’s biggest risks. Dubai concerns lingered after a report said that Dubai World could expect no ‘meaningful’ help from the Dubai government. The decline in risk sentiment lifted the dollar as traders and investors unwound carry trades involving the use of low rate US currency to purchase higher yielding assets. Risk appetite has already been dimmed by Fed Chairman Bernanke’s remarks who said that the US faces a prolonged recovery and that the Fed would keep rates low for an ‘extended period.’
Bernanke Says Fed to Keep Rates Low
Bernanke’s remarks dampened speculation that the Fed would raise rates sooner than 2010. The speculation was prompted by last Friday’s US non farm payrolls report that showed that US employers cut fewer jobs than expected. Markets had speculated job losses of 130,000 for November and the report showed only 11,000 job losses for November, fewer than since the global recession began. Friday’s jobs data and the dollar’s rise had prompted speculation that the yen would become the preferred source of funding for carry trades. Michael Woolfolk of BNY-Mellon in New York stated, “We’re in a period of dialing back risk, though I still think there’s a material amount of risk appetite out there.” He also said the dollar would continue to struggle until the Fed signals it is ready to raise rates.
Premature Optimism
Against the euro the dollar traded at $1.4842 after Monday’s one month low of $1.4756. The dollar traded at 88.84 against the yen, a decline of 0.8%. Jun Kato of Shinkin Central Bank Research Institute had this to say about last week’s premature optimism, “It was unreasonable that U.S. non farm payrolls for a single month alone raised such optimism, as concerns persist over Dubai debt problems and the U.S. banking sector is not necessarily in good condition.”
Posted on 04 December 2009
Figures Much Better Than Expected
The US dollar rose on Friday after better than expected non farm payroll figures showed that the US lost 11,000 jobs in November far less than the 130,000 that had been predicted by experts. The US jobless rate fell from a 26 year high of 10.2% to 10%. The surprisingly positive report prompted speculation that the US Federal Reserve my have to raise rates from present levels of near zero. The dollar is on track to hit a three week high of 90 yen and the euro fell below $1.50. Fabian Eliasson of Mizuho Corporate bank stated, “A jobs recovery is the last piece of the puzzle before we can say we’re in full recovery, so it raises the question that maybe rates will go up sooner rather than later. That’s pushed the dollar higher.”
Jobs Data ‘Too Good to be True’
The US has suffered four straight quarters of economic decline and has lost more than 7 million jobs since 2007. Eliasson said the jobs data is “almost seems to good to be true.” Eliasson stated that initially he thought the figures were a misprint. The dollar vs. yen rate was up 1.6% to 89.60 yen and the euro fell 0.9% and traded at $1.4913. The yen has been pressured by an announcement by the Bank of Japan which said that the central bank will initiate liquidity boosting programs to fight deflation. Low US rates have prompted investors to use dollars for carry trades and the Federal Reserve has said that rates are likely to remain low well into 2010. Assessing the situation Mizuho’s Eliasson stated, “But if (signs of a job recovery) continue, you may start to see the dollar rally on strong data rather than the opposite.” Many analysts believe the yen will replace the dollar for funding carry trades.
China Will Keep Dollar As Foreign Reserve
The dollar was also boosted by statements by Chinese officials who said that the US dollar will remain the anchor of China’s foreign exchange reserves. Earlier China had expressed concerns about mounting US deficits and had discussed replacing the dollar as a reserve currency. Chins has expressed concerns about the weak US dollar.
