The U.S. Dollar

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Dollar gain continues after trade deficit shrinks
Tuesday August 12, 2008
Dollar upsurge continues after trade deficit shrinks and oil prices slide


The dollar upsurge continued Tuesday after Washington said the U.S. trade deficit shrank and exports rose to a record high, and as oil futures slipped back under $114.
In late New York trading, the 15-nation euro came off an early bump to fall back to $1.4916 from $1.4928 late Monday. Earlier, the euro zone currency hit a new six-month low of $1.4813.


The 15-nation euro fell below $1.50 on Friday for the first time since February.

The British pound, meanwhile, fell to $1.8997 from $1.9120. Earlier in the session, it dropped to its lowest point since November 2006 at $1.8967.

The Commerce Department reported the U.S. trade deficit fell unexpectedly in June to $56.8 billion from $59.2 billion in May, the smallest imbalance in three months, even as oil imports rose. U.S. exports jumped to a record $164.4 billion.

A historically weaker dollar earlier this year helped spark the rise in exports abroad, propping up U.S. gross domestic product. But fears of a global slowdown and a stronger greenback means the trend may not hold.

The dollar slipped to 109.40 Japanese yen from 110.03 yen.

Meanwhile, oil fell to a new three-month low and settled at around $113 a barrel, even after oil company BP PLC said it shut down a 90,000-barrel-a-day pipeline running through Georgia as a precaution. The pipeline is closed indefinitely.

This year, oil and the dollar have tended to trade in opposite directions. A weakening dollar drove investors to oil, and boosted the commodity's price. Now sagging oil is making the greenback look more attractive.

The International Energy Agency, a Paris-based energy watchdog, said in a monthly report that oil prices would remain high. Demand for the commodity in developing countries could help offset the slowing demand in the developed world, and it is too early to say whether the recent drop in oil prices is the start of a downside trend.

The euro's slide began last week after the European Central Bank and the Bank of England kept their key interest rates unchanged. ECB President Jean-Claude Trichet acknowledged economic slowdown in the euro zone, with more troubles to come.

He gave no signal that a rate hike was planned despite problematic inflation. The British economy has also seen sliding home prices and growing inflation, while the Japanese government has said its economy is weakening as its prices climb.

On Tuesday, the British government said consumer price inflation grew to 4.4 percent in July from 3.8 percent in June. That is double the government's target rate of 2 percent.

Britain and the euro zone are in a bind, as raising interest rates to fight inflation would further tax their economies, while cutting rates in hopes of sparking growth would increase inflation.

Higher interest rates can prop up a currency, as they make a country's assets look more attractive. Investors earn a higher return on their funds there, and can pull money out of assets from countries with lower interest rates.

In other late New York trading, the dollar fell to 1.0621 Canadian dollars from 1.0687, but edged higher to 1.0880 Swiss francs from 1.0857 francs.



below are the 1 year and 6 month charts...

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Dollar up despite retail data; soars vs. pound
Wednesday August 13, 11:18 am ET 
Dollar rolls on despite retail data, oil's edge higher; rout of pound continues


NEW YORK (AP) --The release of U.S. retail sales and oil's turn up didn't halt dollar momentum Wednesday, and the rout of the British pound continued amid England's economic woes.
The 15-nation euro slid to $1.4875 in New York Wednesday morning from $1.4916 late Tuesday. The euro fell below $1.50 on Friday for the first time since February and is well off its high of $1.6038 set on July 15.


The British pound, meanwhile, sank to $1.8662 from $1.8997 the night before. The currency is at its lowest point against the dollar since October 2006.

On Wednesday, the British government said the jobless rate grew, while the Bank of England said that inflation will jump to 5 percent before retreating. The central bank finds itself in a bind: Cutting interest rates may send inflation higher, but tightening rates to fight it could slow economic growth -- dangerous in the face of rising unemployment.

Higher interest rates can prop up a currency, as investors earn higher returns on their investments, while cutting interest rates often sends currencies spiraling lower.

On this side of the Atlantic, July retail sales fell by 0.1 percent, the first decline since February. It was a worse report than expected. The Commerce Department also said Wednesday that businesses added to their inventories in June at a 0.7 percent pace, the fastest rate in five months.

But the disheartening reports, which pulled Wall Street lower, couldn't burst the dollar bubble.

"Last week was a watershed week for the dollar," said Meg Brown, senior currency strategist at Brown Brothers Harriman. "The trend has changed against the euro."

And the soft retail sales, while indicative of slower growth, didn't suggest a contraction, or recession in the U.S., she said, while other countries do seem to be contracting.

The dollar's skyrocket against the euro began last week after the European Central Bank and the Bank of England kept their key interest rates unchanged.

ECB President Jean-Claude Trichet acknowledged an economic slowdown in the euro zone, and concern over high inflation, but gave no signal that a rate hike was planned.

But the greenback fell to 1.0871 Swiss francs from 1.0880 francs and slumped to 108.57 Japanese yen from 109.40 yen, despite the announcement from the Japanese government that its gross domestic product contracted in the April-June period for the first time in a year.

GDP contraction often heralds a recession, but Japanese officials said the downturn won't be as severe as the "lost decade" cratering of the 1990s.

"Japanese domestic factors haven't been what's driving the yen," Brown said. "There's been a sell-off in the yen crosses, it has weighed on the euro and it's certainly weighed on sterling."

Currencies are traded in pairs. Investors who bet that the euro or pound would strengthen while the yen weakened are curtailing those bets, driving up the yen in comparison to the dollar.

In other New York trading this morning, the U.S. currency rose to 1.0675 Canadian dollars from 1.0621, even as oil rose jumped almost $2.

Canada's currency, the loonie, saw many gains last year on the back of rising oil and gold prices. Canada is a big exporter of commodities.

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Dollar's prospects may be brighter after long drop
Friday August 15, 2008
After long decline, dollar's rally has some believing the currency's prospects are improving


                                              The buck may be turning into a bull. 
The U.S. dollar extended its recent rally against major currencies on Friday as commodities fell and European and Japanese economies faltered. After sliding for years, the dollar may finally be on the way back up, some analysts argue.


The currency rose against the pound for the 11th straight day on Friday, to $1.85 -- its longest winning streak in 37 years. As recently as July, one pound would buy two dollars. At the same time, the dollar climbed to its strongest level in almost six months against the euro, which fell to $1.47, and to near a seven-month high versus the yen.

So far, the trend has helped push oil prices lower. Long term, a stronger dollar has a range of consequences. It makes imports cheaper for Americans, and makes it more expensive for foreign companies to buy U.S. assets such as Anheuser-Busch Cos., which is being sold to Belgian-based brewer InBev for $52 billion.

A stronger dollar would probably come as a relief to many European businesses, too, since it makes their exports to the key U.S. market more price-competitive.

The dollar reached an all time low on July 15 of $1.60 to the euro, down from a peak of 82 cents to the euro in 2000. The dollar's decline is blamed on the large U.S. trade and budget deficits, investment flows out of the United States, and lately by interest rate cuts by the Federal Reserve.

Some think it's only up from here. The dollar is now benefiting from the widespread sense that prices for commodities such as oil and gold are on the brink of a massive fall, as traders gamble that a slowing global economy could lead to diminished demand.

"There's a fear that the whole commodity boom is going to end, that the bubble is going to burst," said James Hughes, market analyst at financial traders CMC Markets. "That's giving the dollar a bit of cheer."

Oil dropped below $112 a barrel on Friday -- down almost 24 percent from its all-time high of $147 a month ago. A rising dollar typically pushes oil lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut their losses. A stronger greenback also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand.

Gold, silver and copper are also trading at multi-month lows, with the spot price of gold falling as far as $789 an ounce -- its lowest since December. Prices for vegetable oil, corn, wheat and rubber are falling, too.

As a result, investors who pulled money out of dollar-denominated investments and poured it into commodities are now reversing course -- and buying dollars again.

The dollar is also profiting from weakness among many of the rich nations' economies.

On Thursday, the European Commission said the economy in the 15 countries that use the euro shrank by 0.2 percent in the three months to June, as inflation driven by higher commodities prices wiped out growth. It is the first time since the launch of the euro that the region of 320 million people has suffered negative growth. Japan also reported economic shrinkage last quarter.

Meanwhile, fears that Britain is heading for recession -- amid plummeting house prices, plunging consumer confidence and rising inflation -- worsened on Wednesday after Bank of England governor Mervyn King predicted that the British economy would stagnate for the next year.

"The U.S. was the first economy to hit trouble" in the current global economic and financial crisis, said Tim Clayton, chief strategist at currency advisory consultancy Investica. "Now people are realizing that the problems aren't limited to the U.S. In some places they might even be worse."

An HSBC research note published Friday agreed: "The USD's upward momentum is developing freight-train-like qualities, shredding those who attempt to fade the move but rewarding those on board."

It said any temporary dollar dips would be limited by strong fundamentals -- "primarily the notion that the rest of the world is finally following the U.S. down the tubes."

President Bush and Treasury Secretary Henry Paulson say they favor a strong dollar, but the key may be the shifting stance of the Fed. It's clear, economists say, the Fed is done cutting interest rates for now with inflation at a 17-year high of 5.6 percent. Cuts boost growth, but can worsen inflation.

Lower rates would weaken the dollar by causing deposits in the currency to become less profitable and triggering investors to sell it. And now it's Europe's turn to face the prospect of lower rates, as the Bank of England and European Central Bank may need to cut to boost flagging growth.

There is less consensus on whether this is the beginning of a long upswing, or a correction of runaway pessimism about the dollar that will flatten out at around these levels.

"We have seen the lows of this multiyear cycle, but I don't see the dollar going on a long bull-run at this point," said Investica's Clayton.

Others, like CMC's Hughes, argue that there is good evidence, looking at historical cycles, that this could be the start of relatively steady long-term dollar gains.

"The cornerstone of technical analysis is that history repeats itself," he said. "In that case, this could be the start of the bull-run that leads us up to a strong point at the end of the decade."

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Dollar gains ground on Friday
Friday August 22, 2008


The dollar staged a rebound Friday, after a report on the United Kingdom's economy showed lower-than-expected growth.
Comments by Federal Reserve Chairman Ben Bernanke that persistent problems in the financial markets threaten the nation's economy did little to change the dollar's upward move.


The 15-nation euro traded at $1.48, down from $1.49 late Thursday. The greenback bought ¥110.08, up from ¥108.44.

Global economies slow: The dollar was sharply higher versus the pound after the United Kingdom's 2nd-quarter gross domestic product was revised to no growth, below economists' forecast of a 0.2% increase, according to Tom Benfer, director of foreign exchange at Bank of Montreal.

The pound was trading at $1.8526 Friday, sharply below $1.8778 late Thursday. When "one currency moves that far, the other currencies follow to an extent," said Benfer.

This follows reports showing economic declines in the quarter in both Japan and the euro zone, said Vassili Serebriakov, currency strategist at Wells Fargo.

"We have seen strong evidence that economic growth is slowing globally," he said.

As other economies struggle, the dollar has had an opportunity to climb. "A number of economies are slowing sharply - that has helped the U.S. dollar over the past couple weeks," said Serebriakov.

The dollar has been trending higher for the past 2 weeks. "The events of the previous 2 weeks strongly suggest that we have seen the cyclical bottom in the U.S. dollar," said Serebriakov.

Bernanke: The Fed Chairman spoke about the economy at an annual Jackson Hole, Wyo., symposium sponsored by the Kansas City Federal Reserve.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole [last August] has not yet subsided," Bernanke said. "Its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."

"The initial reaction as far as the dollar is concerned is muted," according to Benfer. The stock market firmed after the speech, however, and he said that is "generally supportive of the dollar."

"He did indicate that the Fed is watching developments very, very closely - they are not taking their eye off the ball," said Benfer.

"The markets are looking for a blueprint, a battle plan, a sense of direction," said Benfer. "If the markets get some sense that the central bank, the Treasury have their arms around this - even if it takes a long time - that will be a positive."

Dollar and oil: Oil prices tumbled by the 2nd-largest 1-day drop ever, in dollar terms, on the back of the stronger dollar. Crude futures closed $6.59 per barrel lower to settle at $114.59 on the New York Mercantile Exchange.

The drop in the price of oil was the biggest single-day fall in dollar terms since Jan. 17, 1991, when oil fell by $10.56.

On Thursday, the dollar lost ground on fresh concerns about the financial sector. As the dollar weakened, investors moved their funds into the commodity market, helping oil prices jump more than $6 a barrel.

"The key short-term driver [for the dollar] has really been the oil price," said Serebriakov.

High oil prices hurt U.S. companies and consumers, affecting economic growth.

"Higher oil prices have significant effect on the U.S. growth - that is the primary reason why oil is bad for the dollar," said Serebriakov.

In addition, a weaker dollar makes oil cheaper to foreign investors, because crude oil is traded in U.S. currency globally. In addition, when investors watch the dollar fall, commodities appear to be a safe haven for their assets.

"The oil and the dollar have moved together, but it is not a simple answer as to what is driving what," said Serebriakov. "They go hand in hard, and it is the chicken-and-the-egg problem."

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Dollar climbs back as Bernanke speaks, oil drops
Friday August 22, 2008
Dollar rises as Bernanke touts inflation control and oil edges lower

The dollar turned up against major currencies Friday as Federal Reserve Chairman Ben Bernanke said he would "act as necessary" to control inflation at an economics conference and as oil retreated again. The British pound dropped to a 25-month low.


The euro fell to $1.4775 in late New York trading from $1.4877 late Thursday.

At the economic symposium in Jackson, Wyo., Bernanke said the "financial storm" in the U.S. "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."

He also said the inflation outlook is uncertain but will probably moderate later this year.

While the Fed can try to contain inflation by raising interest rates -- which could also support the buck by making American investments more attractive -- growing unemployment and concerns about economic growth may stop it from doing so.

Lower interest rates can undermine a currency as investors transfer their funds to assets with better returns.

"The dollar has taken back some of its losses. We've got information that indicates, 'Look, no matter how bad things are going in the U.S., things look worse elsewhere,'" said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

The British pound, meanwhile, erased Thursday's gains, dropping to $1.8519 from $1.8751. Earlier in the day, the pound had fallen as far as $1.8503, its lowest point since July 2006.

On Friday, the British government said economic growth in the U.K. was flat in the second quarter, the first time the economy didn't grow for almost 16 years. Economists say contraction in the July-September period is likely, meaning Britain could be in a recession. The U.K. housing market is the worst in 30 years, while inflation is twice the recommended government limit.

The Bank of England and the European Central Bank early in August left their interest rates unchanged, at 5 percent and 4.25, respectively. The Fed cut its rates seven times from September to June. Its next meeting is on Sept. 16, and many economists believe that the U.S. central bank is leaving the rate steady for the near future.

"The Fed has already moved interest rates a lot," said Watt. "With each passing day we are one step closer to both (European) central banks cutting interest rates."

Meanwhile, light, sweet crude oil futures fell $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange. On Thursday, oil rose almost $6, while gold gained more than $22.

Investors have used oil as a hedge against a slumping dollar. The prices of oil and gold tend to move inversely to the dollar.

The dollar also rose to 110.03 Japanese yen, from 108.65 yen Thursday; climbed to 1.0985 Swiss francs from 1.0881 francs; and rose to 1.0479 Canadian dollars from 1.0456 Canadian dollars.

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US Dollar Rebounds From Key Support, Bernanke Remains Complacent
Friday August 22, 2008


The US dollar staged a solid recovery on Friday, as the dollar index bounced from key trendline support that formerly served as resistance from late 2005 – 2007.



Meanwhile, Federal Reserve Chairman Ben Bernanke spoke on financial stability at the Kansas City Fed's annual Jackson Hole conference. His commentary didn't necessarily reveal anything new, though he did say that "the recent decline in commodity prices, as well as the increased stability of the dollar, has been encouraging. If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year." However, the rest of Mr. Bernanke's speech was status quo, as he said "the inflation outlook remains highly uncertain" and that the "FOMC is committed to achieving medium-term price stability and will act as necessary." Nevertheless, despite the fact that the financial health of the two US mortgage giants Fannie Mae and Freddie Mac remain a major concern in the markets, Mr. Bernanke said nothing about them. It appears that when it comes to that sensitive issue, Mr. Bernanke will allow US Treasury Secretary Henry Paulson to do all the talking.

Looking ahead to next week, the US dollar faces heavy event risk as S&P/Case-Shiller home prices, consumer confidence, durable goods orders, and Q2 GDP revisions will all hit the wires. However, the minutes from the Federal Reserve's August meeting may be the event to watch, especially if the commentary signals any sort of bias within the FOMC.

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Dollar Boosted By GDP, But Will NFPs Do The Same?
Friday August 29, 2008


Event risk this past week boasted a significant probability of volatility and potentially a breakout from the dollar's recent congestion. Looking at the week ahead, the potential for a major greenback move are doubled with a number of first tier indicators anchored by the market's top billed non-farm payrolls release.


Fundamental Outlook for US Dollar: Bearish

- Strong 2Q GDP revision puts recession fears on hold; but is the outlook really so bright?

- FOMC minutes suggests members "generally" anticipate next policy change would be a hike

- Housing, confidence and consumer data deteriorating despite a smattering of modest improvements

Event risk this past week boasted a significant probability of volatility and potentially a breakout from the dollar's recent congestion. Looking at the week ahead, the potential for a major greenback move are doubled with a number of first tier indicators anchored by the market's top billed non-farm payrolls release. Looking at this end-of-the-week gauge first, the labor report will have a greater influence on the fundamental outlook on the US economy (and its currency) than usual. This time around, the leading economic indicator will be measured against last week's strong 2Q GDP revision and the hawkish comments from the FOMC minutes. If, as expected, payrolls contract for an 8th consecutive month; the market would certainly have to review their positive outlook for growth through the second half. Considering the fact that 3.1 percentage points of the 3.3 percent annualized pace of growth was won by trade, there is clearly room for skepticism about activity in the second half. As employment and wage continue to sink, consumer spending (accounting for 70 percent of the market) will add huge weight to the housing recession. And, should the growth outlook fade, forecasts for an aggressive period of Fed hikes would certainly follow.

Before the financial markets head into the volatility explosion that is the NFPs, the dollar will need to first shake the lethargy from the extended holiday weekend in the US. History shows liquidity and market activity rise significantly after the Labor Day holiday; and there will be plenty of data and exogenous event risk ready to jump start the rebound. Starting with the scheduled releases, the combination of the ISM's manufacturing and service sector activity reports will give a far more timely read on economic activity than the GDP revision did this past Thursday. And, considering both sectors are steeped in a long-term downtrend, the outlook is not promising. Other sleeper releases are likely to the 2Q mortgage delinquencies and the ICSC chain store sales figures – for good readings on the housing recession and health of consumer spending respectively. Outside of the safe confines of the docket, there is also be the lingering threats from Hurricane Gustav and the possibility that Freddie Mac/Fannie Mae or a major US bank may go under. Either event could have its own devastating impact on economic activity.

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Dollar Rallies After Better Than Expected GDP
Thursday, 28 August 2008

- Dollar Rallies After Better Than Expected GDP
- Euro Has A Second Chance At Event Risk With Inflation Expectations
- Pound Falters As Earnings Reports Show Housing Strain, Event Risk Picks Up Thursday
- Oil Drop Competes With Canadian And Australian Data For Forex Action
- Yen Looks To Key Japanese Data For Action As Long As Carry Is Quiet


Dollar Rallies After Better Than Expected GDP
Today, the U.S. dollar recovered from yesterday's losses after a government report showed that the U.S. economy expanded faster than previously estimated. In the second quarter of 2008, Gross domestic product increased at a 3.3 percent annual pace, compared with an initial estimate of 1.9 percent, the Commerce Department said today in Washington. The U.S. economy has been helped by a favorable exchange rate of the U.S. dollar against its major trading partners and a surge in exports contributed the most to U.S. growth in almost three decades. In fact, during Q2 of 2008, the U.S. trade deficit narrowed to $376.6 billion and added 3.1 percentage points to growth, the most since 1980. Yet, beyond some improvements on international trade, the U.S. economy remains relatively weak. Today, the U.S. Labor Department said that 425,000 Americans filed initial claims for unemployment during this week, well above the 321,000 average of last year. This brings the total number of people unemployed but actively looking for a job to more than 3.4 million, the highest number since November 2003. Nonetheless, the rapid weakening of economic growth outside the United States is likely to continue to help the U.S. dollar. Indeed, a more accommodative monetary policy could be needed to prevent Europe from falling into a recession and lower interest rate differentials could make the euro and the sterling less attractive to foreign investors.

Euro Has A Second Chance At Event Risk With Inflation Expectations
With heavy-hitting economic data populating the European economic docket, event risk traders were ready to dive into the market Thursday. However, with the data coming in at opposite ends of the spectrum and a major US release breaking the fundamental flow, there would end up being no consistency to the euro's price action Thursday. Looking at the data triggers from the docket this morning, we began with a bullish tone. German unemployment dropped four times faster than economists had expected. The number of jobless tumbled by 40,000 to 3.2 million – notably shrinking the jobless rate to a 16-year low 7.6 percent. While this was clearly a strong report, market participants seemed less than impressed. As the 32nd monthly contraction in joblessness, improvements in this area of the economy seemed to be priced in for the foreseeable future. What's more, with business confidence at a three-year low and the German economic contracting through the second quarter, it seems only a matter of time before labor trends follow suit. Consumer spending seems to have already succumbed to the economic malaise with the German retail PMI number slipping to an 8-month low just minutes later. Looking ahead to Friday, the euro may not go quietly into the weekend. After most of its major member economies have released their respective employment figures, Euro Zone officials plan on reporting labor health for the entire region. More interesting though is the EZ CPI estimate. With ECB members calling market speculation for a rate cut premature, traders will want to find some confirmation on the presence of inflation. And, even though consumers have a habit of over stating the outlook for their cost of living, the consensus is looking for the estimate to pull back from its more than 12 year high.

Pound Fundamentals Deteriorate Fast As The Currency Pushes 13 Month Lows
The health of the UK economy seems to deteriorate with each economic release – the British pound is paying for it. Today, the currency dropped to a fresh 13-month low against its US counterpart while testing a major level of support read in a 38.2 percent retracement of a seven year trend at 1.83. And similar to today's price action representing just another step forward in a nine-month trend, the event risk crossing the wires seemed just further confirmation that the economy was sinking quickly. The morning's activity began with the Nationwide Housing Price data for the August. The second of the major residential inflation indicators for the month, the indicator reported a drop in home prices that was more aggressive on a monthly and annual basis than the markets were expecting. With the BoE in mind, the 10.5 percent deflation through the year (the fastest pace of contraction in 18 years) is certainly the more pressing number. Later in the London session, the CBI retail data proved there was reason to doubt the ONS's report of a rise in retail sales through July. The less volatile report revealed sales activity was the weakest it has been in 25 years. With UK activity tumbling and the US data finally showing signs of improvement, GBP/USD's direction comes as little surprise.

Oil Drop Competes With Canadian And Australian Data For Forex Action
The Commodity Bloc was volatile Thursday. Influencing the Canadian, Australian and New Zealand dollars equally was a sharp drop in key raw material prices. The Reuters/Jeffries CRB Commodity Price Index dropped 1.9 percent with notable contributions from industrial metals, agriculturals and the energy complex alike. A particular driver for the loonie and Aussie dollar though was the pull back in crude from $120.50/barrel to below $116 after the IEA chief said he would release strategic reserves in the US should Tropical Storm Gustav disrupt production in the Gulf of Mexico. As a market driver, oil's volatility was certainly a headliner; but it wasn't the only influence for the commodity bloc. From Australia, event risk traders were taking in the business investment report for the second quarter and the Conference Board's leading economic index. The private investment gauge doubled expectations with its jump, but the growth forecast in the composite was more interesting. Forecasting a decline in growth for a fifth consecutive month, this data certainly supports expectations of a 25bp rate cut from the RBA next week. Out of Canada, the 2Q current account balance came up short thanks to a drop in investment income flows. Looking ahead to tomorrow, the Canadian docket will offer the top event risk for the day with a second quarter GDP number.

Yen Looks To Key Japanese Data For Action As Long As Carry Is Quiet
There was a lot of cross currency activity jostling the risk-sensitive yen crosses Thursday; but a global rally in equities and pull back in fear indicators (like the VIX) helped to steady currency. For fundamentals from Japan, a report from the Ministry of Finance reported Japanese investors netted their biggest weekly sale of foreign debt since at least 2001 in the period through August 23rd on fears of ongoing FX volatility and a potential bank collapse in the US. Over the final trading hours for the week, the economic calendar will heat up. Indicators for employment, consumer spending, factory activity and inflation will take an in depth reading of the economy's health.

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Dollar pops on possible gov't plan for banks' debt
Thursday September 18, 2008
Dollar pops higher amid broader market rally after report of possible new gov't debt entity


The dollar popped Thursday following a report that the government was considering another market rescue in the form of relieving banks of their real-estate-related debt.
Just before the CNBC report, the 15-nation euro traded at $1.4370 in the late afternoon in New York, slightly down from $1.4376. The British pound slid to $1.8192 from $1.8245, while the dollar dropped to 104.93 Japanese yen from 105.24.


But after CNBC reported that Treasury Secretary Henry Paulson was considering creating an entity akin to the Resolution Trust Corp. set up during the savings & loan crisis of the 1980s, the Dow Jones industrial average leaped more than 400 points and the dollar gained strongly across the board.

The buck traded up to 105.65 yen, while the pound slid to $1.8172 and the euro fell to $1.4323.

The dollar had seen volatile trading against the major currencies as investors continued to flee to short-term government debt, oil and gold -- so-called "safe" assets amid the meltdown in global equities.

Earlier on Thursday, the Federal Reserve and other central banks across the world pumped dollars into money markets to try to relieve a credit crunch. The New York Federal Reserve injected $55 billion into the domestic system, while the Fed transferred up to $180 billion worth of dollars abroad.

"The dollar is rallying due to reports of what appears to be a remarkable intervention by the U.S. authorities," said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York. He added, however: "The gains from each of these announcements have proven to be very short-lived."

Laidi referred to the Fed's bailout of American International Group Inc. earlier this week and today's pumping of liquidity into global markets.

In other New York trading around 3 p.m., the dollar was unchanged at 1.1005 Swiss francs, and edged higher to 1.0691 Canadian dollars from 1.0672.

Later, after the report of a possible new government facility for banks' bad debts, the dollar jumped to 1.1066 francs, but fell to 1.0612 Canadian dollars.

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CNNMoney.com
Dollar jumps on euro, pound
Wednesday February 4, 9:14 am ET
By David Goldman, CNNMoney.com staff writer


The dollar rose strongly against the euro and pound Wednesday, after weak economic reports from the region supported many investors' beliefs that the regions' central banks will cut interest rates on Thursday.


A report from Eurostat, the European Union's statistical agency, showed December's retail sales in the region fell 1.6% from a year ago. Weak consumer spending has helped derail the European economy, which has been in a recession since the second quarter of 2008.

As a result, some economists believe the European Central Bank will again cut its key interest rate from 2% on Thursday, despite earlier hints from the ECB that the central bank would hold rates steady for some time.

The 16-nation euro fell to $1.2852, down 1.4% from Tuesday's close of $1.3040.

The dollar also rose against the British pound, after a service sector industry survey showed that the U.K. sector shrank again in December, with companies cutting jobs at a record pace. A separate report from The National Institute of Economic and Social Research said the British economy will likely continue to shrink through October.

Accordingly, many economists forecast the Bank of England will cut interest rates to a record low of 1% from 1.5% at its meeting on Thursday.

The pound fell to $1.4429, down 0.2% from Tuesday's close of $1.4459.

Still, some analysts believe traders' reaction to the rate cuts has been more muted than in normal market conditions.

"The marginal reaction to rate cuts is worrying," said Neil Mellor, currency strategist at Bank of New York Mellon in London. "Rate cuts are having a decreasing impact, as central banks' measures are becoming more radical and more common."

Russian downgrade: Also supporting the dollar on Wednesday was Fitch Ratings' downgrade of Russia's long-term currency ratings to "BBB" from "BBB+."

The downgrade pressured the euro, as Russia will likely be forced to sell off euros to balance its portfolio of currencies. Russia, like many foreign countries, had sold dollars in exchange for its local currency - the ruble - which resulted in a net rise in euros in proportion to its reserve ratios.

"A number of central banks had been selling dollars, but now you're seeing the reverse: central banks are selling euros to reweight their portfolios," said Mellor. "The problem is, if you've got two awful currencies, you can't sell them against each other."

Yen trades higher: The dollar continued to fall against the yen, however. The yen has generally been in an upward trend against European currencies for the past several months, especially as the economic situation in Europe has deteriorated.

The U.S. currency has recently fallen against the yen when it has traded higher against the euro - and the dollar has risen against the yen when it is down against the euro. Traders tend to borrow the yen to fund investments in higher-yielding currencies, but when those currencies weaken, and investors reverse their positions, they are forced to buy back the yen, raising its value.

The dollar fell to ¥89.06, down 0.4% from Tuesday's close of ¥89.43.

[setravis]

Dollar climbs as Obama unveils housing plan
Dollar climbs amid bleak economic reports as Obama unveils $75 billion mortgage relief plan
Wednesday February 18, 2009


NEW YORK (AP) -- The dollar climbed against most major currencies Wednesday as President Barack Obama unveiled a $75 billion mortgage relief plan, amid a downgrade on economic growth from the Federal Reserve and bleak reports that industry production and construction of new homes in the U.S. have plunged to record lows.

The 16-nation euro fell to $1.2555 in late New York trading from $1.2615 late Tuesday. Earlier in the session, the euro hit its lowest point since late November at $1.2511.

Meanwhile, the British pound slipped to $1.4224 from $1.4266, and the dollar rose to 93.76 Japanese yen from 92.42 yen.

The Federal Reserve on Wednesday said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth.

The Fed's latest outlook, if true for 2009, would mark the weakest year of economic activity since 1982.

Earlier in the day, Obama announced a $75 billion plan meant to help prevent foreclosures for up to 9 million Americans.

The plan is more expensive than initially expected and aims to aid borrowers who owe more on their mortgages than their homes are currently worth, as well as those on the verge of foreclosure.

Separately, the Fed said Wednesday that production at the nation's factories, mines and utilities fell to a record low of 1.8 percent last month. Many economists expected a smaller 1.5 percent decline. The Fed's report showed that factory production dropped by 2.5 percent in January, with shutdowns at plants making autos and related parts figuring prominently in that decline.

Another report from the Commerce Department said construction of new homes and applications for future projects both plunged to record lows in January.

Also Wednesday, the European Commission said France and Germany will see their budget deficits go way above the ceiling of 3 percent of gross domestic product, a maximum fixed by rules designed to boost the stability of the euro. The EC said it will cut countries -- both in and out of the 16-nation euro zone -- some slack in complying with the bloc's sound finances rules.

The euro dropped Tuesday after ratings agency Moody's said that faltering economic conditions in eastern Europe would hit the local subsidiaries of major Western banks and potentially hurt their corporate parents, primarily in Austria, Italy, France, Belgium, Germany and Sweden.

"It is clear that the dollar has been benefiting from weak economic data, both at home and abroad, as well as rising risk aversion," said Michael Woolfolk, an analyst at Bank of New York Mellon. "We're seeing safe haven flows to the U.S. dollar, and we've seen the dollar now move into a new trading range."

In other late trading Wednesday, the dollar was flat at 1.2644 Canadian dollars, and advanced to 1.1762 Swiss francs from 1.1695 francs late Tuesday.

[setravis]

US Dollar Mixed as Obama Announces Housing Program, Fed Releases Bleak Economic Outlook
Terri Belkas, Currency Strategist [email protected]
Wednesday February 18, 2009, 3:46 pm EST


Euro Consolidates Losses, British Pound Remains Range Bound Despite BOE Minutes Signaling BOE Buying of Gilts

- Japanese Yen Down as Carry Trade Gain, Threat of Risk Aversion Lingers Ahead of BOJ Rate Decision



US Dollar Mixed as Obama Announces Housing Program, Fed Releases Bleak Economic Outlook

The US dollar saw a mixed day of trading on Wednesday, gaining against the euro, Swiss franc, and Japanese yen while falling versus the commodity bloc. Based on broad losses for the Japanese yen, the moves signaled slight improvements in risk appetite. There was a flurry of economic releases, as well as news from President Obama and the Federal Reserve. First, US housing starts and building permits both fell by more than 50 percent in January from a year earlier to their lower levels ever, with record keeping having begun in 1955. At the same time, import prices fell negative for the sixth straight month in January while the annual rate hit a fresh record low of -12.5 percent, thanks to a stronger US dollar and lower commodity costs. Additionally, industrial production contracted for the third straight month at a rate of 1.8 percent while capacity utilization hit a nearly 26-year low of 72 percent, as manufacturers slashed output on the back of waning demand.

Meanwhile, President Obama announced a $275 billion program that will move to cut mortgage payments by matching reductions lenders make to interest payments to 31 percent of the borrower's monthly income. The Treasury will also buy up to $200 billion of preferred stock in Fannie Mae and Freddie Mac, and detailed guidelines are due to be released on March 4. Finally, the Federal Open Market Committee's (FOMC) meeting minutes from January yielded few surprises, but in an effort to be more transparent, the central bank started to issue longer-term forecasts for growth, unemployment, and inflation. FOMC members apparently discussed on January 16 the prospect of creating an inflation target, and while they did not make a decision, today's press release shows that many FOMC members "judged that a longer-run PCE inflation rate of 2 percent would be consistent with the dual mandate," which is in line with the inflation targets of other central banks, such as the Bank of England and European Central Bank. Another notable factor was that "some FOMC members saw some risk for deflation," which is a timely comment because Friday's release of US CPI is forecasted to fall negative for the first time since 1955.

Looking ahead to Thursday, signs of deflation may continue to emerge at 8:30 ET as the US Producer Price Index (PPI) is forecasted to rise a slight 0.3 percent in January, while the annual rate may tumble to a nearly 7-year low of -2.4 percent. Meanwhile, the measure that excludes volatile food and energy costs could slow to an annual pace of 3.8 percent from 4.3 percent. Overall, the news would suggest that input costs are falling dramatically with declining commodity prices, which should translate into lower consumer prices. At 10:00 ET, the Conference Board's US leading indicator for the month of January is forecasted to fall flat, after rising 0.3 percent in December. However, any strength in the index may be contained to M2 money supply as a result of the Federal Reserve's efforts to boost liquidity. As a result, the headline reading may ultimately be deceiving and it will be important to look at the breakdown as well, including the components gauging average workweeks, jobless claims, consumer goods orders, orders for non-defense capital goods, and building permits. At the same time, the Philadelphia Fed index for the month of February could slump to -25.0 from -24.3, but if the report fares as the Empire Fed index, it could break below the November lows of -39.8. Indeed, the US manufacturing sector has been hit particularly hard by the recession, as both domestic and foreign demand has fallen.

Related Article: US Dollar Weekly Trading Forecast

Euro Consolidates Losses, British Pound Remains Range Bound Despite BOE Minutes Signaling BOE Buying of Gilts

The euro and the British pound both drifted lower for much of the day Wednesday, with EUR/USD consolidating losses after breaking below key support at 1.2725 on Tuesday while GBP/USD remains contained to a tight range of 1.4150 - 1.4300. There were few key European economic releases, though data showed that Euro-zone construction output failed to rise for the tenth straight month during December. However, the British pound faced major event risk on the release of the minutes from the Bank of England's February meeting, and immediately plunged to the bottom of its latest trading range. The minutes showed that all Monetary Policy Committee (MPC) members voted for a cut, though David Blanchflower dissented in favor of a more aggressive 100 basis point cut (the BOE only cut by 50 basis points to 1.00 percent), but the more notable factor was that all MPC members agreed that BOE Governor Mervyn King should ask Chancellor of the Exchequer Alistair Darling for permission to buy gilts in order to boost money supply. At the same time, the MPC suggested that they may avoid cutting rates to zero since it may discourage lending as bank profit margins would be cut dramatically. By the end of the day, UK gilt yields tumbled amidst prospects for lower interest rates, and with the odds increasing for additional rate cuts by the BOE, there is still potential for GBP/USD to break below noted support at 1.4150.

Related Articles: British Pound Weekly Trading Forecast,  Euro Weekly Trading Forecast

Japanese Yen Down as Carry Trade Gain, Threat of Risk Aversion Lingers Ahead of BOJ Rate Decision

As mentioned in the US dollar section, the Japanese yen ended Wednesday broadly lower, signaling at least a slight improvement in sentiment. However, event risk will pick up overnight, leaving the currency prone to volatility. The Bank of Japan is widely expected to leave rates unchanged overnight at 0.10 percent, but subsequent commentary will be watched closely for clues as to where the central bank thinks the economy and financial markets are headed next. As we saw on Sunday, the Japanese economy contracted in Q4 by the most since 1974 as exports fell a record 13.9 percent, and things are only expected to get worse. However, with few options available for dealing with the economy, the Japanese government and BOJ have been trying to grapple with liquidity issues. Currently, the BOJ is buying corporate debt and banking shares in an attempt to get them to lend, while the ruling Liberal Democratic Party proposed issuing zero-interest bonds last week in return in exchange for a cut to future inheritance taxes so that they can fund stimulus measures. Overall, the rate decision shouldn't be hugely market-moving, though extremely dour forecasts or signs of concerns about the appreciation of the Japanese yen could spur volatility.

[setravis]

Dollar turns lower on banking intervention concern
Dollar gives up earlier gains on market worry over US banking sector; gold soars past $1,000
Friday February 20, 2009, 4:25 pm EST


NEW YORK (AP) -- The dollar sagged in volatile late trading Friday amid a huge sell-off in U.S. bank stocks and talk about further drastic actions the government may take in the financial sector.


The 16-nation euro swung in a big range Friday, trading at $1.2841 late in New York, up from $1.2684 late Thursday. Earlier in the day, the euro fell as low as $1.2555 on continuing fears that financial chaos in Eastern Europe would hurt the broader region.

Meanwhile, the British pound rose to $1.4442 from $1.4302, while the dollar fell to 93.10 Japanese yen from 94.40 yen late Thursday.

Rumors swirled about the possible nationalization of Citigroup Inc. and Bank of America Corp., sending their shares plunging more than 20 percent in the early afternoon until White House press secretary Robert Gibbs reinforced that a "privately held banking system is the correct way to go."

Gibbs would not say directly, however, that President Barack Obama would never nationalize banks.

"There's a sudden increase of unknowns," said David Solin of Foreign Exchange Analytics in Essex, Connecticut, with investors abroad concerned about possible actions by the U.S. government in the banking sector this weekend.

Gold benefited from the uncertainty, soaring past $1,000 an ounce as investors sought safety in the precious metal.

Also helping the euro were media reports that Germany was working on possible rescue options for weaker members of the 16-member euro zone, said Ron Leven, currency strategist for Morgan Stanley in New York. German officials, however, have denied this.

And in Europe, European Central Bank President Jean-Claude Trichet told reporters at the European American Press Club in Paris that there are no countries that are a "weak link" in the euro zone.

"I consider that it is extremely important that each government is fully responsible for its own policies, and of course for its own fiscal policies particularly," Trichet said.

Marco Annunziata, chief economist at UniCredit, said that "Central and Eastern Europe has come under heavy fire from investors and commentators, triggering a sharp depreciation of currencies and a flurry of analyses and articles arguing that the region is doomed, set to collapse bringing Western Europe with it -- largely via the euro-zone's banking system."

In Mexico, meanwhile, the dollar hit a record 14.9822 Mexican pesos before closing at 14.7605 Friday from 14.6825 late Thursday.

The Mexican central bank cut interest rates by a quarter percentage point to 7.5 percent, the second cut this year. The bank auctioned off $121 million in foreign reserves to help support the peso. The country has sold off more than $15 billion in reserves to help prop up its currency, but the peso has lost more than 26 percent of its value in the past year.

In other late trading Friday, the dollar slid to 1.1548 Swiss francs from 1.1733 francs late Thursday, and dropped to 1.2484 Canadian dollars from 1.2555.

[setravis]

US Dollar Ends on Mixed Note as CPI Contracts for First Time Since 1955
Wednesday April 15, 2009, 5:26 pm EDT


Euro Loses Nearly 1% Against British Pound on Divergent ECB, BOE Rate Expectations

- Canadian Dollar the Strongest of the Majors, New Zealand Dollar Faces CPI on Thursday

- Japanese Yen Slips as DJIA Recovers 1.38%



US Dollar Ends on Mixed Note as CPI Contracts for First Time Since 1955

The US dollar remains mixed across the majors as the currency has broken lower against the Canadian dollar, but has generally held to well-defined ranges versus the euro and New Zealand dollar. When it comes to the US dollar index, it is clear that price remains in an uptrend, unless we see a drop below 84.00. The forex markets didn't show much of a response to this morning's release of the US consumer price index (CPI), despite the fact that the headline reading contracted for the first time since 1955 on an annualized basis. Indeed, CPI fell 0.1 percent in March, dragging the annualized rate down to -0.4 percent, as energy prices fell by 3 percent. However, excluding food and energy, core CPI actually rose 0.2 percent and the annualized rate held steady at 1.8 percent. All told, this should be somewhat comforting to the Federal Reserve, as the minutes from the Federal Open Market Committee's (FOMC) last meeting showed that "a few" members were concerned about deflation risks. Ultimately, we will need to see the core CPI results reflect similar declines to the headline readings before it can be said that the US is in the midst of deflation. That said, there is still the risk looming that it a protracted period of contracting prices will occur in late 2009 or 2010. The truth of the matter is that demand, especially for discretionary goods, is likely to fall much further as the unemployment rate climbs. In fact, the unemployment rate hit a more than 25-year high of 8.5 percent in March, and with initial and continuing jobless claims showing no signs of abating, the rate could ultimately breach the upper range of the FOMC's projections of 9.2 percent, and perhaps reach double-digits.

Looking ahead to Thursday, US housing starts and building permits are projected to reflect a steep drop in demand during March, which would mark a major reversal after starts surged 22.2 percent and permits rose 3.0 percent in February. Meanwhile, initial jobless claims are forecasted to have risen to 660k during the week ending April 11, while continuing jobless claim may have hit another record high of 5893k during the week ending April 4. Finally, the Philadelphia Fed's survey of manufacturing sector conditions is anticipated to have risen to -32 in April from -35, which would still mark a contraction in activity, albeit a less aggressive one.

Euro Loses Nearly 1% Against British Pound on Divergent ECB, BOE Rate Expectations

The euro generally ended the day lower on Wednesday, as the currency lost ground to majors like the US dollar, Australian dollar, British pound, and Canadian dollar. Meanwhile, the British pound was the second-strongest of the day, losing out only to the Canadian dollar. Once again, there really wasn't much in the way of fundamental news to drive price action for either the euro or British pound, but there were a few high-profile comments that have the potential to shape interest rate expectations for the European Central Bank (ECB). ECB Governing Council member Axel Weber said the bank needs to establish a floor for the benchmark lending rate, and has also indicated that he would prefer to not cut rates below 1 percent. Meanwhile, ECB Governing Council member Miguel Angel Fernandez Ordonez said that they could cut rates further, and that "it should not be forgotten that there are ways to use non-conventional measures" which they "are going to discuss this at the next board meeting." All told, these clues that the ECB will move to make monetary policy more accommodative in May adds to downside risks for the euro, especially against the British pound since the Bank of England has suggested they will leave rates at 0.50 percent going forward.

Looking ahead to Thursday's European event risk, Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 0.6 percent annual pace during March, which would mark the lowest since recordkeeping began in 1991. More importantly, though, the data would highlight that inflation remains well below the ECB's 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, or revises the results to the downside, the euro could pull back sharply. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may pause in their efforts to make monetary policy more accommodative.

Canadian Dollar the Strongest of the Majors, New Zealand Dollar Faces CPI on Thursday

The Canadian dollar beat out all of the majors on Wednesday, as the currency rallied 1.3 percent against the New Zealand dollar, Swiss franc, and Japanese yen. The currency also gained almost 1 percent versus the greenback as USD/CAD extended its bearish break from a multi-month triangle formation. The Australian dollar also held up fairly well, but the New Zealand dollar was hit hard and fell against every major currency, with the exception of the low-yielding Japanese yen and Swiss franc.

Pairs like NZD/USD could come under further pressure during the next 24 hours as New Zealand's consumer price index is forecasted to have risen 0.3 percent during Q1, which would bring the annual rate down to a more than one year low of 3.0 percent from 3.5 percent. During Q4 2008, prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on April 29. As it stands, a Bloomberg News poll of economists is reflecting expectations for a 50 basis point cut to 2.50 percent, while Credit Suisse overnight index swaps are forecasting a 25 basis point reduction to 2.75 percent. As a result, this upcoming inflation report could be highly market-moving for the New Zealand dollar, but if inflation pressures prove to be stronger than anticipated, the currency could rally.

Related Articles: New Zealand Dollar/US Dollar Monthly Forecast, US Dollar/Canadian Dollar Monthly Forecast

Japanese Yen Slips as DJIA Recovers 1.38%

Forex carry trades managed to recoup some of their losses on Wednesday, leaving the Japanese yen as the weakest of the majors. In fact, the low-yielding yen tumbled 1.40 percent versus the Canadian dollar and just over 1 percent against the British pound and Australian dollar. There are signs that the currency could appreciate in the near-term, though, as the latest FXCM SSI figures – a contrarian indicator - show that traders are net long USD/JPY. However, these moves will be contingent upon risk appetite remaining low, as a resurgence in Asian and European equities overnight could easily send carry trades higher once again.

[setravis]

Dollar mixed as consumer prices dip unexpectedly
Dollar mixed as consumer prices dip, inflation falling at fastest pace in half-century
Wednesday April 15, 2009, 5:08 pm EDT


NEW YORK (AP) -- The dollar advanced against the euro and yen but slipped versus the pound Wednesday after a report showed consumer prices falling at the fastest pace in more than a half-century.

The 16-nation currency bought $1.3191 in late New York trading, compared with $1.3293 Tuesday, while the British pound inched up to $1.4961 from $1.4940. The dollar rose to 99.20 Japanese yen from 98.85 yen.

The Labor Department said Wednesday that consumer prices edged down 0.1 percent last month. Over the past 12 months, consumer prices have fallen 0.4 percent, the first 12-month decline since a similar drop for the year ending in August 1955.

Meanwhile, the Federal Reserve said Wednesday its latest survey of business conditions nationwide found five of its 12 regional banks reported a moderation in the pace of the economic decline.

The Fed said several regions "saw signs that activity in some sectors was stabilizing at a low level ... (but) overall economic activity contracted further or remained weak."

In other late trading Wednesday, the dollar rose to 1.1441 Swiss francs from 1.1356, but slipped to 1.2072 Canadian dollars from 1.2128.