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.
