Monday, December 17, 2007
Australian Dollar Climbs From 3-Month Low on Rate Advantage
The currency is headed for the biggest annual advance since 2003 as investors bet the Reserve Bank of Australia will increase rates next year, according to a Credit Suisse Group index based on trading in interest rate swaps. Australia's rate advantage over the U.S. is at a more-than-two-year high of 2.5 percentage points as the Federal Reserve cuts borrowing costs.
``The currency was a little bit oversold on Friday so it's rebounding,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``The local economy is still strong.''
The Australian dollar climbed to 86.37 U.S. cents at 1:49 p.m. in Sydney after earlier reaching 85.96 cents, the lowest since Sept. 20. It was at 86.07 cents late in New York last week and may rise as high as 88.50 cents this week, Grace said. Australia's dollar gained to 97.78 yen from 97.50 yen late on Dec. 14.
The currency reached a 23-year high last month after the Reserve Bank of Australia raised the cost of borrowing to 6.75 percent. Australian two-year bonds yield 3.50 percentage points more than the equivalent U.S. Treasuries. The spread was 1.40 percentage points at the beginning of the year.
Traders' bets that a rate increase next year is a done deal ``is providing some support to the Australian dollar,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney.
read more:Australian Dollar Climbs From 3-Month Low on Rate Advantage
Pound Peak Fuels Pessimism as Currency Mimics Dollar
The pound weakened against 12 of the world's 16 most actively traded currencies since reaching $2.1161 on Nov. 9. In the U.K., just as in the U.S., policy makers are cutting interest rates to restore calm in credit markets and home prices are declining.
``When we look at economies around the world which are exposed to similar problems as in the U.S., the U.K. is pretty high on our list,'' said Andrew Balls, a global bond fund manager at Newport, California-based Pacific Investment Management Co., which oversees $721 billion. ``Sterling is a good currency to sell.''
The pound depreciated 3.5 percent to $2.0195 after reaching the highest level since May 1981 and fell for a third straight week. It weakened 10 percent versus the Canadian dollar this year and 5.8 percent against the euro. The dollar lost 7.9 percent this year on a trade-weighted basis against a basket of six currencies that make up the Fed's U.S. Dollar Index. It reached a record low in November.
Strategists say there's more pain in store for the pound. Zurich-based UBS AG and Frankfurt-based Deutsche Bank AG, the world's biggest foreign-exchange traders, predict the currency will weaken at least 6 percent against the dollar in 2008. Pimco, a unit of Munich-based insurer Allianz SE, New York-based Merrill Lynch & Co. and Goldman Sachs Group Inc. say sterling may be overvalued by as much as 25 percent, based on the level of trading done between the U.K. and the U.S., and prices for the same goods in the countries.
read more:Pound Peak Fuels Pessimism as Currency Mimics Dollar
Yen Advances as Stocks Decline, Investors Reduce Carry Trades
The yen climbed the most against the New Zealand dollar, a favorite of so-called carry trades. Japan's currency also advanced from the lowest level in more than a month against the dollar as Japanese exporters bought yen, betting it will resume a five-month rally.
``Falling share prices are causing risk reduction,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co. Ltd., a unit of Japan's largest brokerage. ``This is buoying the yen.''
The yen rose to 113.02 against the dollar as of 7:00 a.m. in London from 113.27 on Dec. 14, when it fell to 113.60, the lowest since Nov. 7. The Japanese currency also climbed to 163.22 per euro from 163.45 on Dec. 14. Japan's currency may move between 111 and 114.30 per dollar for the rest of the year, Amikura forecast.
read more:Yen Advances as Stocks Decline, Investors Reduce Carry Trades
Friday, December 14, 2007
Australia Dollar Falls as Investors Sell Higher-Yielding Assets
The Australian dollar fell as investors sold higher-yielding assets on concern that credit- market losses will slow global economic growth.
The currency declined for a third day as the rate Australian banks charge each other for loans rose to the highest in more than a decade, suggesting the cash injection by central banks won't be enough to revive lending. Credit-market turmoil has hurt the Australian dollar as investors became less inclined to buy the nation's stocks and bonds with money borrowed from Japan in so-called carry trades.
``There will be visible signs that financial market stresses will have real economic impact, so this will weigh on'' Australia's dollar, said David Mozina, senior currency strategist in New York at Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm. ``We're negative on the Australian dollar at these sort of levels medium term.''
The Australian dollar declined to 87.77 U.S. cents as of 6 p.m. in Sydney, from 88.03 cents in late Asian trading yesterday. It traded at 87.80 a week ago in New York.
Caltex Australia Ltd., the nation's biggest oil refiner, cut its full-year profit forecast by as much as 13 percent because of a decline in the Australian dollar. The currency has slid 6.6 percent since touching a 23-year high of 94 cents on Nov. 8.
Central banks in the U.S., U.K., Canada, Switzerland and the euro region agreed on Dec. 12 to a coordinated effort to promote lending and restore confidence in money markets. Policy makers are reacting to more than $66 billion of losses tied to U.S. subprime mortgage defaults from banks this year.
Carry Trades
Read more:Australia Dollar Falls as Investors Sell Higher-Yielding Assets
Dollar's Rise May Stall at 114.42 Yen, RBC Capital Markets Says
Dec. 14 (Bloomberg) -- The dollar's 1.1 percent advance against the yen this month may stall at 114.42, said George Davis, chief technical analyst at RBC Capital Markets, a unit of Canada's biggest bank in Toronto.
The daily stochastic oscillator chart shows the U.S. currency's gains are excessive, said Davis in a research note yesterday. The dollar's 14-day stochastic oscillator was 96 today, according to data compiled by Bloomberg. A level above 80 suggests the currency has climbed too fast.
``We note that the daily studies are locked at overbought extremes,'' Davis said. Stochastic oscillator charts measure the price of a security relative to its highs and lows during a particular period to try to predict a rise or fall.
The dollar traded at 112.45 yen as of 12:28 p.m. in Tokyo from 112.21 yen late in New York yesterday. It has fallen 5.5 percent versus the yen this year.
read more:Dollar's Rise May Stall at 114.42 Yen, RBC Capital Markets Says
Yuan Heads for Weekly Advance as China Signals Further Gains
Dec. 14 (Bloomberg) -- The yuan headed for its biggest weekly advance in more than a month as Chinese officials signaled they're willing to allow faster appreciation to cool economic growth.
U.S. Treasury Secretary Henry Paulson said this week during his fifth visit to China that the Asian nation ``recognizes'' the need for greater currency flexibility. Central bank Governor Zhou Xiaochuan said China will use exchange-rate policy to prevent overheating after reports showed inflation at an 11-year high, a widening trade surplus and rising retail sales.
``China is accelerating the pace of currency gains for their own reasons and it's encouraging,'' said Patrick Bennett, a foreign-exchange strategist at Societe Generale SA in Hong Kong. ``The currency needs to take more of a tightening role.''
The yuan rose 0.43 percent this week to 7.3715 per dollar as of the 5:30 p.m. close in Shanghai, compared with 7.3692 yesterday and 7.4030 a week ago, according to the China Foreign Exchange Trade System. The currency touched 7.3640 yesterday, the strongest since a link to the dollar was scrapped in July 2005.
Stocks in Hong Kong and China fell for a third day on speculation the People's Bank of China will boost interest rates. The central bank increased its lending and deposit rates five times this year and raised the amount of cash banks must set aside 10 times.
`A Drastic Measure'
``A rate hike would be a drastic measure but it's quite reasonable for them to increase again,'' said Carlos Cheung, chief currency dealer at Bank of East Asia Ltd. in Hong Kong. ``I would not be surprised if they hiked today.''
China's consumer prices increased 6.9 percent in November, the statistics bureau said Dec. 11, while the trade surplus rose 15 percent to $26.3 billion, the third-highest monthly total, the custom's bureau said the same day. Gross domestic product expanded 11.5 percent in the third quarter, the fastest pace of the world's 20 biggest economies.
Read more:Yuan Heads for Weekly Advance as China Signals Further Gains
View of the day: Federal Reserve
The Federal Reserve’s new term auction facility – and co-ordinated action with other central banks round the world – addresses the problem of liquidity in the financial system but will do little to alleviate the credit crunch, believes David Rosenberg, North American economist at Merrill Lynch.
He says: “The facility does not do anything to prevent existing credits from going bad and won’t stop credit issues from continuing to surface.”
Mr Rosenberg says: “The size of the auctions are actually fairly small . . . and in no way does this solve . . . the massive writedowns and losses the banking sector is likely going to incur this cycle.”
He also says: “The Fed continues to underestimate the extent of the housing downturn, the heightened prospect of a consumer recession and a spreading credit crunch. In our view, this TAF does not address what is happening in the broad economy, nor does it address issues surrounding bank capital pressures and rising delinquency rates . . . from subprime to prime mortgages, credit cards, auto finance and commercial real estate, and the impact this loan quality deterioration is exerting on the availability of credit.
read more:View of the day: Federal Reserve
Wednesday, December 12, 2007
Central banks boost Kiwi and Aussie
The carry trade was back in fashion Wednesday following news of co-ordinated action from a number of the world’s biggest central banks to tackle the liquidity squeeze in global capital markets.
High-yielding currencies such as the dollars of New Zealand and Australia were driven sharply higher after the move by the central banks of the US, UK, eurozone, Switzerland and Canada helped equity markets bounce and government bond prices fall.
Charles Diebel at Nomura said the move meant markets would be able to breath a sigh of relief, at least until January. In this more stable and risk-friendly environment, carry trades flourished, sending the yen sharply lower. The trade is characterised by investors borrowing cheaply in the low-yielding Japanese currency to buy higher-yielding assets elsewhere.
The highest yielding currencies, the New Zealand dollar and the Australian dollar, were up across the board.
read more:Central banks boost Kiwi and Aussie
Dollar peg puts Qatar summit in spotlight
When the six leaders of the Gulf Co-operation Council member states open their normally unspectacular annual summit in Qatar on Monday, the attention of many in the financial world will be guaranteed.
The ostensible purpose of the meeting in Doha is to discuss plans for monetary union by 2010. But after weeks of heated debate, markets will be studying the minutiae of the GCC leaders’ words for any hint of whether key members of the organisation, including Saudi Arabia and the United Arab Emirates, will retain long-standing pegs to the weak US dollar or look to revalue their currencies.
“This is perhaps the most anticipated meeting this year in the region,” says Mushtaq Khan, economist at Citibank. “So many statements have been made over the past couple of weeks which have really increased the tempo and the market’s expectation that something is likely to happen.”
Bankers from London to Bahrain have already been betting on revaluations, pushing the UAE dirham to a 17-year high and the Saudi riyal to its strongest level since its peg was introduced in 1986, heaping unprecedented pressure on the monetary authorities. The oil-rich GCC region includes Kuwait, Bahrain, Qatar and Oman, key US allies that control more than $1,000bn (€683bn, £486bn) in reserves.
read more:Dollar peg puts Qatar summit in spotlight
Tuesday, December 11, 2007
China wants stronger dollar, says rapid yuan rise may cause repercussions UPDATE
Speaking to reporters during the Strategic Economic Dialogue, the Vice Minister of Commerce,
Chen Deming, said a rapid strengthening of the yuan would "cause repercussions" in China and around the world, and that it would not necessarily lead to a faster reduction of the US's trade deficit with China.
Chen noted that the yuan has already increased in value by more than 11 percent against the dollar, but the US trade gap with China has still grown.
Meanwhile, Chinese Finance Minister Xie Xuren said China's sovereign wealth funds would
operate transparently and would seek long-term investment returns. Xie did not answer specifically whether China supports US efforts to bring greater transparency to the operation of these funds to
ensure they are not used for political purposes.
However, Xie did say China attaches "great importance" to exchanging views on this issue with other governments, adding that China's sovereign funds would follow all laws of recipient countries when investing overseas.
The US proposed in October that International Monetary Fund members work out guidance for sovereign wealth funds (SWFs) to ensure that they focus on investment returns rather than political objectives, and argued that greater transparency in their operation would put many countries at ease.
Read more:China wants stronger dollar, says rapid yuan rise may cause repercussions UPDATE
Forex strategy
Forex - Dollar bounces back slightly after Fed's tame interest rate cut
HONG KONG (Thomson Financial) - The US dollar gained slightly against the yen and euro in Asian afternoon trade Wednesday after the Federal Reserve announced a 25-basis-point interest rate cut.
While most investors had expected the central bank to lower its fed funds rate by a quarter percentage point, some had been hoping for a deeper half-point reduction to ease the credit crunch and counter a housing and banking slump.
But a 50 bps rate cut would have been negative for the greenback as it would discourage investors from holding on to their dollar-denominated investments.
"The drop in the interest rate is not as much as some people thought" it would be, said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.
"That's why we saw some funds flowing back to US Treasuries."
At 1.00 pm (0500 GMT), the dollar was trading at 110.92 yen, up from 110.735 in Sydney this morning and from 110.62 in late New York trade. The euro was quoted at 1.4658 dollars, down from 1.466 this morning.
Following the Fed rate cut, US Treasury prices rose overnight, pushing down the yields. The benchmark 10-year US Treasury yield fell to 3.973 percent from 4.092 percent shortly before the announcement. Bond prices move inversely with yields.
Also boosting the greenback are moves by some fund managers and hedge funds to trim their holdings as the year-end approaches and hold on to their cash.
"There are some redemptions of investments and investors prefer to keep more cash. And in today's market, the major trading currency is still the US dollar," said Wan.
The dollar's strength against the yen could be short-lived though, as most analysts expect the Japanese currency to strengthen further.
The yen may climb to 109 versus the dollar by year-end, said David Mann, currency strategist at Standard Chartered Bank.
Read more:Forex - Dollar bounces back slightly after Fed's tame interest rate cut
Is Bernanke the Grinch Who Stole Christmas?
The Federal Reserve cut interest rates by 25bp today, causing US stocks and carry trades to plummet and the dollar to strengthen significantly. For the traders who were hoping for a larger 50bp rate cut and a strong stock market rally, Bernanke may be the Grinch that stole Christmas. Minutes before the interest rate decision, stocks rallied indicating that more traders were adjusting their positions for the possibility of a larger rate cut. Unfortunately, not only did the Fed fail to cut interest rates by 50bp, but they also only lowered the discount rate by the same amount (25bp). The statement reeked on caution as the Fed acknowledged the slowdown in economic growth, the intensification of the housing market correction and the softening of business and consumer spending. They still feel that inflation could rise, but the upside risks to inflation no longer balance the downside risks to growth. This has caused Rosengren to vote in favor of a 50bp rate cut. Last month’s decision was also not unanimous, but at that time, Hoenig voted in favor of leaving interest rates unchanged. The probability of a recession is at the highest level in more than 3 years according to the latest WSJ.com survey. No problems were solved with today’s quarter point rate cut and that is why fed fund futures are pricing in more easing in 2008. The dollar could rally for the remainder of the week, but we expect weakness to resume as we get closer to the end of the year because the Fed won’t be able to avoid looser monetary policy. Pimco’s Bill Gross is calling for 3 percent interest rates, which means that he expects another 125bp of easing. Wholesale inventories fell to the lowest level ever in relation to sales in the month of October. The trade balance and import prices are due for release tomorrow. We expect both numbers to be stronger as the weak dollar boosts import prices and exports.
Read more:Is Bernanke the Grinch Who Stole Christmas?
GBPUSD Bearish Below 2.0678 for the Move to 2.0000
• Japanese Yen Wave C Nearing Completion?
• British Pound 2.0500 Important Resistance
• Swiss Franc Still In Wave 4
• Canadian Dollar Bullish Bias Warranted With Trendline
• Australian Dollar Breaks Through Moving Average Resistance
• New Zealand Dollar Slowly Trending Upward
Read more:GBPUSD Bearish Below 2.0678 for the Move to 2.0000
Forex Trading
Fed Cuts by 25bp, Move Disappoints Even Though Statement is More Dovish
The Federal Reserve cut both the Fed funds and discount rate by 25bp to 4.25 percent. Even though the balance of risk statement disappeared making the tone of the FOMC statement more dovish, the move by the Fed was disappointing. Traders were looking for a larger cut of the Fed Funds rate or at least a 50bp discount rate cut. Unfortunately, the Fed’s Christmas present was too stingy.
Stocks are down sharply, carry trades have plummeted and the US dollar has strengthened across the board. The dramatic shift in price action represents a market that is readjusting its expectations. The intraday reversal however may prove to be exaggerated because the statement contained cause for concern. It reeks of caution as the Fed acknowledges the slowdown in economic growth, the intensification of the housing market correction and the softening of business and consumer spending. They still feel that inflation could rise, but the upside risks to inflation no longer balance the downside risks to growth. This has caused Rosengren to vote in favor of a 50bp rate cut. Last month’s decision was also not unanimous, but at that time, Hoenig voted in favor of leaving interest rates unchanged. The probability of a recession is at the highest level in more than 3 years according to the latest WSJ.com survey. Fed fund futures are still pricing in 2 more rate cuts in 2008. The dollar could rally for the remainder of the week, but we expect weakness to resume as we get closer to 2008. The Dow and Carry Trades should also suffer more losses this week.
Read more:Fed Cuts by 25bp, Move Disappoints Even Though Statement is More Dovish
FOMC Trims 25-bp, USD, JPY Buoyed
The accompanying Fed statement reiterated slowing economic growth due to “intensification of the housing correction with some softening in business and consumer spending”. However, the FOMC continued to highlight concerns over lingering inflationary pressure – saying “readings on core inflation have improved modestly, but elevated energy and commodity prices may put upward pressure on inflation”.
read more:FOMC Trims 25-bp, USD, JPY Buoyed
forex trading
Monday, December 10, 2007
Inflation concerns lift euro and sterling
Eurozone and UK inflation concerns were aggravated Monday, pushing the euro and sterling higher against the dollar ahead of Tuesday’s Federal Reserve interest rate decision.
Sterling saw the bigger move after an unexpected surge in producer price inflation cast doubts over future UK interest rate cuts.
Headline output prices rose to a 16-year high of 4.5 per cent, reflecting the increasing pressure on manufacturers to pass on costs to wholesalers. This was driven by a sharp rise in input prices to an annualised 10.2 per cent as fuel prices bit, the UK Office for National Statistics said.
Howard Archer at Global Insight said the data would reinforce concerns that elevated oil and food prices might push up consumer price inflation.
He added: “The Bank of England needs to be confident that slowing growth is diluting underlying inflationary risks before trimming interest rates further.”
The pound rose 0.8 per cent to $2.0480 against the dollar and added 0.9 per cent to Y228.81 against the yen. The euro fell 0.4 per cent to £0.7182.
Speculation that the European Central Bank’s next move on rates may be up was further fuelled after Joaquín Almunia, the European Union’s monetary affairs commissioner, reiterated ECB fears of higher oil and commodity prices feeding into firmer wage demands.
Meanwhile, Jürgen Stark, ECB executive board member, said eurozone inflation could be higher next year than the central bank’s current projections suggest.
Last week, ECB president Jean-Claude Trichet shocked markets by suggesting the central bank’s governing council had discussed an interest rate increase ahead of its decision to keep rates on hold at 4 per cent.
“In our view, economic data are on the verge of justifying a rate hike,” said Niels-Henrik Bjørn at Danske Bank.
Whether this is likely or not, most economists now believe eurozone interest rates will be on hold throughout next year, while the Fed is expected to cut US rates Tuesday by 25 basis points to 4.25 per cent.
Read more:Inflation concerns lift euro and sterling
Dollar Falls Against Euro, Pound, Yen
The Fed meets Tuesday to discuss interest rates, with analysts expecting the U.S. central bank to trim its key rate, now at 4.5 percent, by a quarter of a percentage point. Some have speculated about the possibility of a half-point cut.
The expected cut would be the third amid mortgage problems in the U.S. that have tripped up borrowers and caused a credit crisis among banks -- fueling wider fears about the health of the U.S. economy.
Lower interest rates can jump-start an economy, but they can also weaken a currency as investors transfer funds to countries where they can earn higher returns.
Read more:Dollar Falls Against Euro, Pound, Yen
Bini Smaghi Says Money Market Rates `Unjustifiable'
Dec. 10 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi said money-market lending rates were too high and central banks would ensure liquidity.
``Money-market rates currently reflect fears of needs for end-year liquidity, but the fears are unjustified,'' Bini Smaghi said today on the sidelines of a banking conference in Florence, Italy. ``The ECB and other central banks will continue to ensure stability in the money markets.''
There's no evidence that fallout from rising mortgage defaults in the U.S. is leading to tighter credit in the 13- nation euro economy, Bini Smaghi said. The cost of borrowing euros for three weeks rose to the highest since at least October 2001 as banks sought funding amid a credit squeeze.
``We can't come to the conclusion that there is a credit crunch currently in course in Europe,'' Bini Smaghi said in a speech. ``That doesn't mean there couldn't be a less favorable evolution going forward. It's important to keep monitoring closely.''
The three-week euro interbank offered rate, the amount banks charge each other for such loans, rose 4 basis points to 4.93 percent, the European Banking Federation said today. That's 93 basis points more than the European Central Bank's benchmark rate.
Bini Smaghi said that the ECB is more concerned about a potential inflation spiral than two years ago because the labor market is tighter than it was then, and because rising inflation may stoke salary increases.
read more:Bini Smaghi Says Money Market Rates `Unjustifiable'
Swiss Franc Falls on Rate Outlook, Stock Gains Spur Carry Trade
Dec. 10 (Bloomberg) -- The Swiss franc fell to a month-low against the euro on increased speculation the central bank won't raise interest rates this week.
The franc, the second-worst performer of the 16 major currencies tracked by Bloomberg in the past week, also declined as gains in stocks encouraged traders to resume riskier investments funded by borrowing in Switzerland. The Swiss National Bank will probably keep the benchmark three-month Libor target rate unchanged at 2.75 percent on Dec. 13, according to the median estimate of 28 economists surveyed by Bloomberg News.
``The consensus is pretty much for no change in Swiss rates,'' said Henrik Gullberg, a currency strategist in London at Calyon, the investment-banking division of Credit Agricole SA. ``In times of relatively high confidence in the markets, the franc will stay under pressure.''
Against the euro, the Swiss currency fell to 1.6595 by 5:41 p.m. in Zurich, the lowest since Nov. 8, from 1.6535 on Dec. 7. It was little changed against the dollar, at 1.1276. The franc may trade between 1.63 and 1.65 per euro for the rest of 2007, Gullberg said.
European stocks advanced, with the Dow Jones Stoxx 600 Index gaining 0.6 percent and the MSCI World Index adding 0.7 percent. The benchmark Swiss Market Index gained 1 percent.
European Union Monetary Affairs Commissioner Joaquin Almunia said wage demands sparked by rising energy costs may increase the risk of high inflation at a time of little or no economic growth.
`Spiral'
Second-round effects, such as higher wage increases to compensate for the rising price of oil, ``could set off an inflationary spiral,'' Almunia said in a speech in Madrid today. With that ``we could enter into a period of stagflation.''
ECB Governing Council member Erkki Liikanen also said he sees increasing ``upside'' risks to inflation.
read more:Swiss Franc Falls on Rate Outlook, Stock Gains Spur Carry Trade
U.K. Pound Rises After Report Shows Rising Factory Prices
Dec. 10 (Bloomberg) -- The pound advanced against the dollar and the euro after a report showed U.K. factories raised prices at the fastest annual pace since 1991 in November, adding to inflation pressures.
The U.K. currency was also buoyed versus the dollar on speculation the Federal Reserve will reduce its benchmark interest rate a quarter-percentage point tomorrow. Manufacturing- output prices rose 4.5 percent from a year ago, after a 3.8 percent gain in October, the Office for National Statistics in London said.
``Sterling has gained some attraction today as U.K. economic releases have come in on the strong side,'' said Ian Stannard, senior currency strategist at BNP Paribas SA in London.
The pound rose 0.8 percent to $2.0452 by 5:08 p.m. in London, from $2.0304 on Dec. 7. Against the euro, it climbed 0.4 percent to 71.93 pence, from 72.21 pence.
Bank of England Policy makers cut the benchmark interest rate for the first time in two years on Dec. 6 to curb economic damage from higher credit costs. The central bank said then ``upside risks'' to prices remain as companies absorb higher energy and food costs.
A separate report today showed annual house-price gains accelerated in October.
House Prices
Home values climbed 11.3 percent from a year earlier, compared with 10.8 percent in September, the Department for Communities and Local Government said. Average prices were little changed on the month, rising to 220,195 pounds ($449,000) from 220,111 pounds in September.
read more:U.K. Pound Rises After Report Shows Rising Factory Prices
FOMC Meeting Set For Tuesday - Economic Preview
Tuesday morning, data on wholesale inventories will be made public in October. Analysts expect inventories to tick 0.5 percent, less than the 0.8 percent increase in September.
At 2:15 pm ET, the FOMC will announce their decision regarding a potential rate cut. The markets have fully priced in a rate cut of at least 25 basis points, however mostly solid economic data outside of the housing markets have investors uncertain if the cut will be 25 or 50 basis
read more:FOMC Meeting Set For Tuesday - Economic Preview
Forex expert advisor
Swiss Franc, Yen Options Demand Falls as Risk Aversion Declines
Dec. 11 (Bloomberg) -- Demand is declining for options that protect against gains in the Swiss franc and Japanese yen, suggesting investors will become more comfortable holding higher yielding assets financed with loans from Switzerland and Japan.
The one-month U.S. dollar-Swiss franc option risk-reversal rate had 0.10 percentage points implied volatility premium in favor of franc calls yesterday, about one fifth of the 0.55 premium that held on Nov. 26. In dollar-yen options, the premium on yen calls was 2.18 percentage points, about one half the 4.5 percent premium on Nov. 26. Demand for calls had soared as the fallout from the collapse of the subprime mortgage market drove investor to exit so-called carry trades.
``There's been a reduction in risk-aversion,'' said Neil Jones, head of European hedge-fund sales in London at Mizuho Capital Markets. ``The fact that global stocks have performed well and that volatility has declined has been a positive.''
Switzerland's 2.75 percent interest rate is the lowest among industrialized economies after Japan's 0.5 percent, making the currencies popular funding sources in nations with higher returns. Swings in foreign-exchange rates erode profits from interest-rate differentials.
The franc is the third-worst performer of the 16 major currencies tracked by Bloomberg in the past week, trailing behind losses posted in the Swedish Krona and the Japanese yen.
The franc was little changed at 1.1280 per dollar yesterday, and is down 2.3 percent since Nov. 23. The dollar bought 111.68 yen yesterday, a decline of 3.8 percent since it touched a more than two-year high of 107.23 on Nov. 26.
Volatility Declines
Stock-market volatility as measured by the Chicago Board Options Exchange SPX Volatility Index, or VIX, declined to 20.74 yesterday, from 31.09 on Nov. 12, its highest closing price since March 2003. Volatility has dropped as stocks rallied, with the Dow Jones Industrial Average gaining 5.7 percent since Nov. 12.
read more:Swiss Franc, Yen Options Demand Falls as Risk Aversion Declines
Yen Falls to One-Month Low Against Dollar as Fed May Cut Rates
Dec. 11 (Bloomberg) -- The yen declined to a one-month low versus the dollar and the euro on speculation the Federal Reserve will cut interest rates today, encouraging investors to buy higher-yielding assets funded by loans in Japan.
Japan's currency fell the most against the Australian and New Zealand dollars, favorites for so-called carry trades, as global equities advanced and investors bet a rate reduction will support the global economy. Futures contracts show investors see a 100 percent likelihood the Fed will lower its benchmark overnight rate by at least a quarter-percentage point to 4.25 percent to keep a housing slump from sparking a recession.
``Stock markets have shown signs of stabilizing, and that will make investors more comfortable to sell the yen,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second- largest publicly traded lender.
The yen declined to 111.94 per dollar, the lowest since Nov. 9, before trading at 111.76 at 12:35 p.m. in Tokyo from 111.71 late in New York yesterday. It may fall to 112.20 today, Ito said. Japan's currency also slipped to 164.66 per euro, the weakest since Nov. 9, before trading at 164.54 from 164.33.
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Market reviews FOREX from 5.12.2007
read more:Market reviews FOREX from 5.12.2007
Forex Expert Advisor
Recent Hike In Chinese Reserve Ratio Signals Stringent Policy Decisions Ahead
Most analysts therefore, believe that the weekend decision by the Peoples Bank of China or PBOC to raise the Reserve requirement ratio or RRR to 14.5% is just the beginning of more such announcements to follow.
The DBS research group said Monday that given the strong economic data, it is likely that POBC would raise the one-year lending rate by 27bps to 7.56% and lift the one-year deposit rate by 36bps to 4.23% before the year-end.
`We continue to expect two hikes of the same magnitude in the first quarter and the second quarter next year,` the Research group said. According to the Group, the persistent cyclical strength of China should warrant a stronger exchange rate and tighter monetary policy.
Instead of the usual 50bps jump on the reserve requirement ratio seen during the course of 2007, the PBOC raised it by 100bps on last Saturday. The move reflects the central bank`s determination to contain credit growth and fight heightening inflationary risks, which persists despite raising RRR by 50bps each nine times earlier this year. The central bank also raised interest rates five times during the same period.
According to DBS research group, the acceleration of monetary tightening suggests that the authorities are not counting on a slower US economy to cool the Chinese economy significantly.
read more:Recent Hike In Chinese Reserve Ratio Signals Stringent Policy Decisions Ahead
Profitable Expert Advisor
Dollar Remains Mixed Ahead Of FOMC
In the past week, which was busy with monetary policy announcements by major central banks, the US dollar showed mixed performance against its key counterparts. The greenback closed down against the euro and the franc in the week ended December 7, reversing the previous week`s result. Against the yen and the sterling, the buck extended the gains posted the previous week and fetched new multi-week highs. The US currency also remained higher against its Canadian counterpart and leveled a 2Ѕ -month high during the past week`s deals. While the greenback closed the third straight week down against the New Zealand dollar, it showed strength against the Australian currency.
The Australian and the New Zealand central banks held the rates unchanged at 6.75% and 8.25% respectively, but their counterparts in Canada and the UK unexpectedly cut benchmark interest rate by 25 basis points each, citing downside risks to growth. The BoC set the key interest rate at 4.25% and the BoE lowered it to 5.5%. However, as expected, the European central bank did not alter its monetary policy this time, leaving the cash target at 4%.
The Biggest losers of the week were the pound and the Aussie, the former tracking the interest rate cut, and the latter on the downside risks to growth signaled in the statement released by the Reserve Bank of Australia along with its monetary policy announcement. Some of the market players expect the BoE to come with more cuts in the near future as the sub prime issue stemmed from the US housing market has caused severe damage to the British economy. The statement issued by the RBA, the first such a note from the central bank, highlighted the concern about the weakness of the global economy, and it prompted investors to pare hopes of a rate hike early next year.
read more :Dollar Remains Mixed Ahead Of FOMC
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Dollar Climbed Slightly On Job Report
The dollar edged up slightly after a report from the Labor Department showed there were more jobs added than expected, easing worries that the impact of subprime mortgage crunch and slowing housing had spread into the broad economy. The dollar rose to 111.77 against the yen, while the euro remained firm above 1.46 versus the dollar.
Non-farm payrolls rose 94k in November, above the estimate of 75k. October¡¯s figure was revised from 166k to 170k, however September¡¯s figure was downwardly revised from 98k to 44k. The unemployment rate remains at 4.7%, and average earnings rose from 0.2% to 0.5%. The better-than-expected job report reinforced the expectations that the Fed may cut interest rates by a quarter-percentage point rather than a half-percentage point at its monetary policy meeting next Wednesday.
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Friday, December 7, 2007
Carry Trade Returned, Focus on 5 Central Banks and NFP
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NFP - Which Way Will The Greenback Sway?
The JPY continued to weaken against the USD after leading indicator index continues to signal economic contraction. Japan's leading economic indicator index rose to 20, but has been below 50 for the third straight month. A reading above 50 indicates economic expansion in months ahead. Economists are predicting the JPY to remain range bound at the 110 level till the year end.
Today no news is expected from Japan, so the JPY should continue its downward trend, particularly against the high yielders, as long as carry trades are back in action. However it is also important for traders to follow the correlation between U.S equities and carry trades as this could give a strong indication as to the future direction of the JPY. Also it is important to note that the recent currency volatility could once again create risk averse sentiment and discourage carry trades, thereby rallying the JPY.
read more:NFP - Which Way Will The Greenback Sway?
Thursday, December 6, 2007
Yen Benefited From Credit Stress
One of the biggest credit rating agency, Moody’s Investors Service, said last Friday it is preparing to lower credit ratings on 105 billion of debt since the subprime mortgage financial crisis.
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USD Softer, Awaits Data
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Robust ADP Boosted Dollar, Eyes on BOE ECB
As shown in ADP report, 189k jobs were added in private sector in November, far above the estimate of 50k. Besides, ADP revised last month’s figure from 106k to 119k. The greenback was boosted by this robust job report. The market will focus on November employment report to be released by the Labor Department this Friday.
read more:Robust ADP Boosted Dollar, Eyes on BOE ECB
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Tuesday, December 4, 2007
Yen Benefited From Credit Stress
One of the biggest credit rating agency, Moody’s Investors Service, said last Friday it is preparing to lower credit ratings on 105 billion of debt since the subprime mortgage financial crisis.
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USD Softer, Awaits Data
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Sunday, December 2, 2007
GBP Pounded by BoE
Economic data from the US were largely softer than expectations. The October PPI increased by 0.1% on a monthly basis, down from a 1.1% increase previously while the annualized PPI jumped to 6.1% from 4.4% previously. Core PPI was flat on a monthly basis versus 0.1% previously, but the yearly core PPI jumped to 2.5%, from 2.0%. Meanwhile, retail sales for October were weaker with the headline report inline with estimates at 0.2%, but down from the previous month at 0.6%. The excluding-autos retail sales figure missed expectations, down to 0.2% versus 0.4% a month earlier.
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Data Caps USD Gains
Economic data released earlier in the session derailed the dollar’s rebound against the majors, pushing it toward session lows versus the euro and sterling. Industrial production for October fell by 0.5%, missing expectations for a 0.1% increase and reversing the previous month’s 0.2% increase. The decline in industrial production also marked its largest drop in over two-years, reinforcing fears that the housing slowdown continues to weigh on manufacturing. Capacity utilization was largely inline with expectations at 82.0%, down marginally from the previous month at 82.1%. The September TICs report revealed a net outflow of $14.7 billion versus a downward revised outflow of $150.7 bil
read more:Data Caps USD Gains
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Yen Fall as Global Stocks Surge
The greenback gained as US corporations squared positions to realize profits on financial statements by the end of the month. The euro dipped to lower 1.46 versus the dollar, and the sterling fell to below 2.06.
read more:Yen Fall as Global Stocks Surge
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