Dec. 30 -- The dollar climbed to a three-month high against the yen on speculation the Federal Reserve will withdraw stimulus measures as the economy recovers, pushing bond yields higher.
The dollar rose versus the euro and headed for its first monthly advance since June as an index of U.S. business strength reached the highest level in almost four years. Currencies of raw-material producers including the Canadian and Australian dollars weakened as commodity companies led declines by stocks.
“The massive monetary easing is beginning to show up in terms of an improved economy,” said Joseph McAlinden, a fund manager at Catalpa Capital LLC in New York, in an interview on Bloomberg Television. “The foreign-exchange market should begin to look ahead to a better return on dollar assets. The dollar is a strong currency for 2010.”
The dollar gained 0.6 percent to 92.52 yen at 10:10 a.m. in New York, from 92 yesterday. It touched 92.56, the highest level since Sept. 9. The dollar appreciated 0.4 percent to $1.43 per euro, from $1.4354. It reached $1.4291, the strongest since Dec. 23. The euro increased 0.2 percent to 132.29 yen, from 132.05.
The Canadian currency declined 1 percent to C$1.0540 per U.S. dollar, and the Australian currency weakened 0.2 percent to 89.31 U.S. cents. The MSCI World Index fell 0.5 percent, with the materials sub-index declining 1 percent, the biggest drop among the 10 groups that make up the benchmark stock gauge.
Dollar Versus Euro
The dollar has appreciated 4.9 percent versus the euro this month, trimming its 2009 decline to 2.3 percent. The greenback has fallen 30 percent against the euro in the past 10 years.
The Institute for Supply Management-Chicago Inc. said today its business barometer increased this month to 60, the highest level since January 2006. The median estimate of 53 economists in a Bloomberg survey was for a reading of 55.1. Readings above 50 signal expansion.
The dollar rose as the yield premium offered by 10-year Treasury notes over similar-maturity Japanese bonds stayed near the widest in more than two years, making U.S. debt more appealing than Japan’s securities. It reached 2.53 percentage points on Dec. 24, the highest level since December 2007 based on closing prices, and was at 2.50 percentage points today.
“The markets are anticipating that the Fed will raise rates,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “There’s little chance of Japanese monetary authorities shifting their policy towards tightening. That’s positive for the dollar.”
Demand for the yen waned as Reuters reported that Standard & Poor’s said Japan’s AA credit rating could be threatened if policies fail to stabilize and gradually reduce the nation’s huge debt burden.
S&P is focusing on Japan’s medium-term fiscal trajectory and the feasibility of the government’s policy for fiscal consolidation, Takahira Ogawa, director for sovereign ratings at S&P in Singapore, said two weeks ago. The deteriorating trend for Japan’s credit quality doesn’t warrant a change in the nation’s rating outlook or a downgrade, he said.
Aug. 26 -- The dollar may extend its gain versus the Canadian dollar, the Norwegian krone and the Brazilian real after a drop in oil prices reduced demand for the currencies of commodity producers.
The greenback pared its decline versus the euro yesterday as the Treasury’s sale of two-year notes received higher demand from a group including foreign central banks. The yen appreciated against all of its major counterparts including the real and South African rand as U.S. stocks pared increases, encouraging investors to take refuge.
“We saw the Canadian dollar under a little bit of pressure in the early afternoon here as the U.S. dollar was posting some decent gains,” said JP Blais, vice president of foreign- exchange sales at BMO Capital Markets in Toronto. “With the equity market losing a little bit of the steam that it had, oil is having a harder time making some new highs.”
The dollar was little changed at $1.4298 per euro at 6:15 a.m. in Tokyo. The U.S. currency traded at 94.19 yen after dropping 0.4 percent. The yen was at 134.67 per euro following an increase of 0.5 percent.
The Canadian dollar declined for the first time in six days, weakening 1 percent to C$1.0868 per U.S. dollar. The drop this week will probably be capped at C$1.0975 versus the greenback, according to Blais.
The currency known as the loonie also fell as Timothy Lane, deputy governor of the Bank of Canada, said in a speech in Kingston, Ontario, that the strength of the currency presented an “important risk” to growth. The Canadian dollar advanced 20 percent from a four-year low reached in March.
Weaker Krone
The krone dropped 0.7 percent to 6.0501 versus the dollar, while the real lost 1.1 percent to 1.8410. Crude oil for October delivery decreased 3.5 percent to $71.76 a barrel, paring its rally this year to 60 percent. Norway is the fifth-largest oil producer, and oil is Canada’s biggest export. Commodities account for two-thirds of Brazil’s exports.
The yen appreciated 1.5 percent to 50.66 versus the real and 0.5 percent to 12.05 against the rand as U.S. stocks pared gains, reducing demand for higher-yielding assets. Japan’s target lending rate of 0.1 percent compares with 8.75 percent in Brazil and 7 percent in South Africa.
The euro rose earlier versus the dollar on speculation a German report today will show the fifth monthly expansion in business confidence. Government spending helped lift Germany out of its worst recession since World War II, according to a Federal Statistics Office report yesterday confirming a 0.3 expansion in the second quarter.
‘European Recovery’
“I’m more interested in what’s happening in Europe,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The U.S. is going to settle for the next few months. The European recovery is coming more quickly than people expected.”
The dollar declined to near the lowest level versus the euro in two weeks on reduced demand for safety as U.S. economic reports showed a gain in consumer confidence and slower drop in home prices. The dollar traded within a fifth of a cent of $1.4376 reached on Aug. 21, the weakest since Aug. 7.
“This data was firm,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “The euro got to that $1.4360 level, it wasn’t really able to break to new highs.”
The S&P/Case-Shiller index of property values in 20 U.S. metropolitan areas decreased 15.4 percent in June from a year earlier after a 17 percent drop in the 12 months ended in May. The median forecast of 31 economists in a Bloomberg News survey was for a 16.4 percent reduction.
The New York-based Conference Board reported that its consumer confidence index increased to 54.1 in August from 47.4 in the previous month. The median forecast of 67 economists in a separate Bloomberg News survey was for an advance to 47.9 from a previously reported 46.6.
Indirect bidders, which include foreign central banks, bought 49.4 percent of the $42 billion in two-year Treasury notes auctioned today, up from 33 percent in July.
Aug. 24 -- The dollar advanced against the euro for the first time in five days as U.S. stocks erased gains, reviving demand for relative safety.
The pound declined to an 11-week low versus the euro as two-year gilts yielded near the least relative to comparable- maturity German notes since January. The euro earlier gained versus the yen as a report showed European industrial orders climbed the most in 19 months.
“People are seeing negative equities and running back to the safe-haven guys,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “This market’s thin enough that you could move the market” just by closing some trades.
The U.S. currency appreciated 0.2 percent to $1.4296 per euro at 4:09 p.m. in New York, from $1.4326 on Aug. 21. The yen traded at 135.14 against the euro, compared with 135.21. The dollar rose 0.2 percent to 94.55 yen, from 94.38.
Stocks erased advances as financial institutions slumped after SunTrust Banks Inc. said lenders face more credit losses and commercial real estate may falter through 2010. The Standard & Poor’s 500 Index was little changed after rallying 2.2 percent last week.
Sterling dropped against 14 of the 16 most-traded counterparts tracked by Bloomberg on speculation the Bank of England will depress yields on gilts, making the U.K.’s assets less attractive to foreign investors.
The U.K. two-year note yielded 44 basis points less than the equivalent German security. The spread reached 48 basis points on Aug. 21, the widest since Jan. 2.
Pound Versus Euro
Sterling dropped as much as 0.6 percent to 87.28 pence per euro, the weakest level since June 8. The pound dropped 0.6 percent to $1.6411.
The euro erased its gains versus the yen today as Treasury yields fell and the European Central Bank Governing Council member Yves Mersch warned against “succumbing to optimism” with regard to the economic situation, Luxembourg’s Wort reported, citing an interview to be published tomorrow. fxisforex.blogspot.com
Orders at industrial companies rose 3.1 percent in June from the prior month, the biggest increase since November 2007, the European Union’s statistics office said. The production and income category of the Chicago Fed’s National Activity Index increased last month, a report showed.
German business confidence probably advanced in August for a fifth month, according to the median forecast of 41 analysts in a Bloomberg News survey before the Munich-based Ifo institute’s report on Aug. 26.
‘Key’ Ifo Data
“We’ve got Ifo coming out this week, and that’s going to be quite key,” said Lauren Rosborough, a currency strategist in London at Westpac Banking Corp. “I get the feeling that improvement in Europe has not been completely priced in.”
The euro will probably gain versus the dollar, approaching $1.4450 in a month, she predicted.
Speaking at the annual central bankers’ symposium in Jackson Hole, Wyoming, last week, Bernanke and ECB President Jean-Claude Trichet said the global economy is pulling out of its deepest recession since the 1930s.
“Prospects for a return to growth in the near term appear good,” while “critical challenges remain,” including possible further losses for financial firms, Bernanke said Aug. 21.
Trichet said at the conference the following day there are signs confirming that the economy “is starting to get out of the period of freefall.” This “does not mean at all that we do not have a very bumpy road ahead of us,” he said.
“Bernanke was the cheerleader of growth, Trichet expressed cautiousness on the growth outlook,” Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank, wrote in a note today.
The global economy is showing “clear” signs of a rebound, and interest rate policies are likely to stay accommodative for many months, John Lipsky, the International Monetary Fund’s first deputy managing director, wrote on the Washington-based lender’s Web site today.
Aug. 18 -- The euro rose for the first time in three days against the yen as a report showed German investor confidence jumped to the highest level in more than three years, adding to evidence an economic recovery is taking shape.
The pound increased from near a one-month low versus the dollar after a report showed the U.K. inflation rate was higher in July than forecast as the nation’s recession eased. The dollar erased its loss against the euro as a report showed U.S. housing starts unexpectedly dropped, reviving demand for the greenback’s safety.
“The German confidence report is a positive for the euro, suggesting Europe is coming out of recession,” said Sacha Tihanyi, a currency strategist at Scotia Capital Inc. in Toronto. “Then the currency market took some negative tone after the housing data, keeping dollar selling much restrained. You get a feeling the market is questioning whether there will be a further sustained move in risky assets on the upside.”
Europe’s currency increased 0.2 percent to 133.31 yen at 9:58 a.m. in New York, from 133.08 yesterday. The euro was little changed at $1.4081 after earlier rising as much as 0.5 percent. It touched $1.4046 yesterday, the lowest level since July 30. The yen weakened 0.1 percent to 94.63 per dollar, from 94.50 yesterday, when it reached 94.21, the strongest level since July 29.
The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations for Germany increased this month to 56.1 from 39.5 in July. The median forecast of 35 economists in a Bloomberg News survey was for the index to rise to 45.
Germany’s Growth
Germany’s economy grew 0.3 percent in the second quarter, bringing a halt to the worst recession since World War II sooner than forecasters expected, a report showed last week.
“Recent data shows Europe can benefit from the global economic recovery,” said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group AG, Switzerland’s largest bank by market value. The common currency may advance to $1.50 in three months, Hettinger said.
The dollar pared its gain versus the yen after the Commerce Department reported that U.S. housing starts unexpectedly declined to an annual rate of 581,000 last month from a revised 587,000 pace in June. The median forecast of 70 economists surveyed by Bloomberg News was for an increase to 599,000 from a previously reported 582,000.
“We’ve been used to a bit more positive surprises on the housing front,” said Brian Kim, currency strategist at UBS AG in Stamford, Connecticut. “You’re seeing some rotations following that, potentially away from the euro and into Treasuries. It’s an environment where people are still skittish, and the summer liquidity just causes more knee-jerk reactions than usual.”
U.S. Treasuries
Treasuries pared losses on the housing data, with the yield on the benchmark 10-year note little changed at 3.47 percent and the rate on the two-year security at 1.02 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against currencies of six major U.S. trading partners such as the euro and yen, was little changed at 79.291 after earlier falling as much as 0.3 percent.
Construction of single-family houses, which account for 75 percent of the industry, rose 1.7 percent to a 490,000 rate, today’s Commerce Department report also showed.
Prices paid to U.S. producers decreased 0.9 percent in July after rising 1.8 percent in the previous month, the Labor Department said. The median forecast of 70 economists surveyed by Bloomberg News was for a decrease of 0.3 percent.
Stronger Pound
Sterling advanced versus the dollar and euro after a U.K. Office for National Statistics report showed the inflation rate unexpectedly held at 1.8 percent in July, exceeding the median forecast for a reduction to 1.5 percent. The rate will probably drop below 1 percent later this year and may miss the central bank’s goal in three years, Bank of England projections show.
The pound appreciated 0.6 percent to $1.6451 after reaching $1.6276 yesterday, the lowest level since July 17. Sterling reduced its decline since Aug. 5 to 3.2 percent. The currency slumped after policy makers said on Aug. 6 that the recession was deeper than anticipated. The euro fell 0.6 percent to 85.64 British pence today.
The dollar is in a downtrend after falling below 94.76 yen, a key price based on the Fibonacci sequence of numbers, according to Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. That level is a 50 percent retracement from a two-month high of 97.79 reached on Aug. 7 to a six-month low of 91.74 reached on July 13.
The next level of support will be 94.05, which represents a 38.2 percent retracement of the decline, Nihei said. Support is where buy orders are clustered.
“That’s the support level the dollar failed to break in late July,” Tokyo-based Nihei said yesterday.
Aug. 6 -- The yen may rise further as demand for higher-yielding currencies fell after reports showed U.S. service industries contracted last month at a faster pace and companies eliminated more jobs than economists forecast.
The pound increased yesterday to its highest level against the dollar in more than nine months as U.K. services industries grew in July by the most in 1 1/2 years. The Bank of England and the European Central Bank will probably keep their benchmark lending rates at record lows at their policy meetings today, according to economists surveyed by Bloomberg News.
“The desire for risk is so high that it just needs a pause,” said John Taylor, chief executive officer in New York at FX Concepts LLC, in an interview on Bloomberg Television. “People looking for jobs may find it difficult for years.” Taylor’s firm has $9 billion under management.
The yen traded at 136.77 against the euro at 6:04 a.m. in Tokyo, after rising 0.3 percent yesterday. Japan’s currency was at 94.93 per dollar, following a 0.3 percent increase yesterday. The dollar was little changed at $1.4410 per euro after touching $1.4447, the weakest level since Dec. 18.
Japan’s currency increased 1.1 percent to 11.99 against the South African rand and gained 0.6 percent to 13.30 versus the Swedish krona on bets yesterday’s U.S. economic reports will discourage Japanese investors from buying higher-yielding assets overseas. Japan’s 0.1 percent target lending rate compares with 7.5 percent in South Africa and 0.25 percent in Sweden.
U.S. Stocks
The Standard & Poor’s 500 Index fluctuated between a gain and a loss after a four-day rally that pushed the gauge of U.S. stocks above 1,000 on Aug. 3 for the first time since November. The dollar touched the weakest level this year versus the euro as U.S. stocks trimmed losses.
Mexico’s peso strengthened yesterday beyond 13 versus the dollar for the first time since June 1 after Moody’s Investors Service affirmed the government’s bond ratings and stable outlook, damping speculation the nation will suffer its first downgrade since 1995. Moody’s kept Mexico’s foreign debt rating at Baa1, the third-lowest investment-grade level, saying the government’s commitment to fiscal discipline offset concern growth is weak.
Morgan Stanley recommended yesterday that its clients add to their bets that the peso will advance versus the dollar, saying the Moody’s affirmation “adds to the positive momentum.” Morgan Stanley expects a “longer-term” move to 12 per dollar, strategists wrote in a research note. The peso gained as much as 1 percent to 12.9981.
Stronger Pound
The pound climbed as much as 0.6 percent to $1.7043, the highest level since Oct. 21, as a report showed U.K. services industries grew last month by the most in 1 1/2 years.
An index of services rose to 53.2 last month from 51.6 in June, Markit said yesterday in London. Factory output climbed 0.4 percent in June, the U.K.’s statistics office said.
Sterling gained 16 percent versus the dollar and 13 percent against the euro this year.
Eight of 12 primary dealers surveyed by Bloomberg said the U.K. central bank will end a five-month program of bond purchases after announcing a pause at its policy meeting today. Four -- BNP Paribas SA, RBC Capital Markets, Merrill Lynch and UBS AG -- predict policy makers will increase purchases after the bank spent 125 billion pounds ($212 billion) of the 150 billion pounds authorized by the Treasury in March.
The Bank of England will keep its main rate at 0.5 percent, while the ECB will probably maintain its benchmark at 1 percent, according to the median forecast of economists in separate Bloomberg News surveys.
U.S. Services
The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 in July from 47 in the previous month, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.
U.S. companies cut an estimated 371,000 workers from payrolls last month after a revised reduction of 463,000 in June, ADP Employer Services reported yesterday. The median forecast of 30 economists in a Bloomberg News survey was for a drop of 350,000.
The Labor Department’s data on U.S. initial jobless claims for last week are due today, and its July payroll report will come tomorrow.
“It appears investors are positioning for a pullback in risk appetite,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank. “We haven’t seen concrete signs of a sustainable recovery.”
Aug. 5 -- The yen and the dollar rose after Lloyds Banking Group Plc posted a first-half loss and increased the size of bad-debt provisions, boosting demand for the safety of the Japanese and U.S. currencies.
The Japanese currency rose against 14 of its 16 most-traded peers. London-based Lloyds said its total impairments in the first half were “significantly” higher at 13.4 billion pounds ($22.7 billion). The yen gained for a second day against the euro as Asian shares dropped and on speculation Japanese exporters took advantage of the yen’s 1.3 percent drop versus Europe’s currency this month to bring home funds.
“Banks in Britain and in the euro-zone probably still have a lot of bad loans, so this is a big risk to long positions in the euro,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “It’s a situation where the euro” is easy to sell and the yen and the dollar to buy, he said. A long position is a bet an asset will rise.
Japan’s currency rose to 95.20 per dollar as of 9:48 a.m. in London, from 95.23 yesterday in New York. It advanced to 137 per euro, from 137.21. The dollar climbed to $1.4391 per euro, from $1.4408.
Lloyds, RBS
Lloyds reported a first-half proforma loss of 3.12 billion pounds. Royal Bank of Scotland Group Plc on Aug. 7 will report 6.4 billion pounds in provisions, up from 1.48 billion pounds a year earlier, according to analysts surveyed by Bloomberg.
RBS posted 31.9 billion pounds of writedowns and credit market losses from mid-2007 through March 31 and Lloyds reported 33 billion pounds, data compiled by Bloomberg show. Lloyds had 2.5 billion pounds of loan provisions in the first half of 2008.
The MSCI Asia Pacific Index of shares declined 1.1 percent in its second day of losses. Standard & Poor 500 Index futures dropped 0.3 percent.
“Players are looking at equity markets for direction so when stocks fall, the yen rises,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a strong inverse relationship between the two. Some of this yen buying could also be from exporters.”
The euro-yen had a correlation of 0.9 with the MSCI Asia- Pacific excluding Japan Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two move in lockstep.
U.S. Jobs Report
The Dollar Index traded near a 10-month low before payroll data by ADP Employer Services, the first of several U.S. jobs reports scheduled for the next three days.
U.S. companies cut an estimated 350,000 workers from payrolls in July after a reduction of 473,000 in June, according to a Bloomberg survey before the ADP report today. Data on U.S. initial jobless claims for last week will be announced on Aug. 6, and the Labor Department’s July jobs report is due Aug. 7.
“If this week’s events don’t dent expectations for a global economic recovery and risk appetite is sustained then the U.S. dollar will likely remain under pressure,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today.
The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, was at 77.711 from 77.765 yesterday. It reached 77.451 on Aug. 3, the least since Sept. 29.
Australian Dollar
The Australian dollar may fall against the yen this month, snapping its longest stretch of monthly gains since 2004, as Japanese trusts expect to raise less cash to buy foreign securities, RBC Capital Markets said.
Japanese mutual funds that aim to attract cash from investors to buy foreign securities, also known as Toshin, are likely to raise 50 billion yen ($525 million) in August, down from 200 billion yen on average between March and July, Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, wrote in a note to clients today. Toshin issuance in February was 47 billion yen, she said.
“The rally in the Australian dollar versus the yen from its March lows coincided with a resurgence in Toshin issuance,” Trinh wrote. “Based on the pitiful issuance we expect for August, it suggests the Australian dollar could pull back sharply from current levels” toward 73 yen, she wrote.
Australia’s dollar weakened 0.5 percent to 79.98 yen. The so-called Aussie has strengthened 30 percent against the yen since March 1.
Aug. 3 -- The yen declined and the pound rose after HSBC Holdings Plc posted an unexpected profit and former Federal Reserve Chairman Alan Greenspan said the most severe recession in at least five decades may be ending.
Japan’s currency fell against all its 16 most-traded counterparts on increased demand for higher-yielding assets as HSBC reported its results. U.S. manufacturing shrank in July at the slowest pace in almost year, a report from the Institute for Supply Management is forecast to show today.
“HSBC’s results were good compared to expectations, so that’s proven supportive to the pound and is dragging on the yen,” said Geoffrey Yu, a foreign-exchange strategist in London at UBS AG, which Euromoney Institutional Investor Plc ranks as the world’s second-biggest currency trader “Clients are skeptical about this rally but can’t afford not to be in it.”
The yen weakened 1 percent to 159.76 per pound at 7:12 a.m. in New York, from 158.23 on July 31. Japan’s currency dropped 0.5 percent to 135.70 per euro and slid 0.3 percent to 94.97 per dollar. The U.S. currency declined 0.2 percent to $1.4290 per euro, compared with $1.4257.
Economic growth may resume at a rate faster than most economists foresee, Greenspan said in an interview yesterday on ABC’s “This Week” program, predicting 2.5 percent in the current quarter.
The MSCI World Index of shares rose 1 percent, while Europe’s Dow Jones Stoxx 600 Index gained 1.7 percent.
The Institute for Supply Management’s U.S. factory gauge increased last month to 46.5, from 44.8 in June, according to the median forecast of 62 economists surveyed by Bloomberg. Readings less than 50 signal contraction. The report from the Tempe, Arizona-based institute is due at 10 a.m. New York time.
Pound Versus Euro
The pound rose for a sixth day against the euro, gaining to 84.89 pence as the U.K.’s Chartered Institute of Purchasing and Supply and Markit Economics said today manufacturing expanded in July for the first time in more than a year.
A gauge based on a survey of factories climbed to 50.8 from a revised 47.4 in June. The median forecast of 25 economists surveyed by Bloomberg News was for a reading of 47.8. Readings above 50 show expansion.
The FTSE 350 Banks Index rose 5.3 percent, the most since May 5, on HSBC’s results and as Barclays, the U.K.’s second- largest lender, said first-half earnings rose 10 percent and profit from investment banking almost doubled.
‘Economy Is Stabilizing’
“There are signs that the economy is stabilizing, and the market is right to feel reassured,” said Jane Foley, research director in London at Forex.com, an online currency trader.
The Dollar Index, which the ICE uses to track the U.S. currency against those of six major U.S. trading partners including the euro, reached 77.98, the lowest level since Dec. 18, on reduced demand for safety.
The U.S. economy shrank at a 1 percent annual pace in the second quarter, the Commerce Department reported July 31, better than economists forecast. Stabilization of housing markets and consumer spending, a lessening of financial turmoil and increased government spending all suggest the longest recession since the 1930s may be close to ending.
Currencies sensitive to raw material prices, including the Australian dollar, advanced as Nouriel Roubini, the New York University economist who predicted the financial crisis, told a mining conference in Australia that commodities may extend their rally in 2010 as the global recession abates.
Chinese Factories
China’s manufacturing expanded in July, a report showed today. The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 52.8, the highest level in a year, from 51.8 in June, CLSA Asia-Pacific Markets said. A government-backed index, released Aug. 1, also showed an expansion.
Futures traders trimmed bets the euro will gain against the dollar last week, figures from the Washington-based Commodity Futures Trading Commission showed. Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of July 28.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 20,287 on July 28, compared with net longs of 34,772 a week earlier.
Foreign-exchange traders are losing faith that Mexican President Felipe Calderon will push through the tax increases needed to rein in the budget deficit and stem a rout that has made the peso the worst-performing major currency against the dollar in the past year.
Options traders are more bearish on the peso over the next six months than 12 of the other 16 most-traded currencies against the U.S. dollar tracked by Bloomberg, according to derivatives known as risk-reversals. Morgan Stanley strategists say Mexico’s economy is headed for “unsustainable” deficits as oil output declines while RBC Capital Markets advises investors to sell the currency.
The peso was little changed at 13.1880 versus the dollar today after gaining 3.7 percent this year.
July 31 -- The dollar declined to the lowest level this year against six major U.S. trading partners after a report showed the U.S. economy shrank less than economists forecast, reducing the demand for the greenback as a refuge.
The Swedish krona advanced against the euro to the strongest level since December after a government report showed the economic contraction in the Scandinavian country slowed in the second quarter. The U.S. currency headed for a fifth month of declines against the pound, its longest run in five years, after a U.K. survey showed consumer confidence held at the highest level since April 2008.
“The typical pattern is that good economic news is bad for the dollar,” said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York. “Equities are marching up. We had a better than expected GDP, which set the stage for all this.”
The dollar fell 1.4 percent 1.4271 per euro as of 12:29 p.m. in New York, from $1.4075 yesterday, and was at 94.58 yen from 95.56 yen. The Japanese currency weakened 0.3 percent to 134.95 per euro.
The Dollar Index, which the ICE futures exchange uses to track the currency against counterparts including the yen, pound and Swedish krona, touched 78.22, the lowest since Dec. 18.
The dollar’s decline versus the yen accelerated after running into stops, or pre-set orders, to sell the greenback, above 95 yen, according to Shaun Osborne, a currency strategist at TD Securities Inc. in Toronto.
‘Some Restraint’
U.S. gross domestic product contracted at a less-than- projected 1 percent annual rate after shrinking 6.4 percent in the prior three months, the most in 27 years, Commerce Department figures showed. Inventories dropped at a record $141.1 billion annual pace, after a $113.9 billion decline.
“The inventories data shows stunning drawdowns in both Q1 and Q2,” wrote Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Greenwich, Connecticut. “This bodes very well for H2 GDP data since the change in the change of inventories should be very positive. Obviously there will be some restraint to this trade because of month-end flows, but I expect players will buy risk trades again early next week.”
The Swedish krona touched 10.3 per euro, the strongest since Dec. 1 after Statistics Sweden said the country’s gross domestic product contracted an annual, work-day adjusted 6.2 percent, from a decline of 6.5 percent in the previous quarter.
The krona has gained 4.8 percent against the euro this month and 5.6 percent against the dollar. It is the second best performer among the 16 major currencies after the Canadian dollar, which rose 7.6 percent against the dollar in July.
‘Ahead of Fundamentals’
Canada’s dollar traded at C$1.081 against the greenback, near the strongest since October, even after a government report showed the nation’s economy shrank a more-than-forecast 0.5 percent in May. The currency, known as loonie, touched C$1.075 on July 28, the strongest level since Oct. 3.
“There’s disconnection between market optimism and numbers on the ground,” said Steven Englander, chief U.S. currency strategist at Barclays Plc in New York. “The Canadian dollars running ahead of fundamentals. We had some pretty nasty number out of Canada recently.”
The Canadian currency will decline to C$1.13 in a month, according to Barclays.
Sterling gained 0.4 percent to $1.6557 after GfK NOP said that an index of consumer sentiment in the U.K. was unchanged in July at minus 25. The reading is up from minus 39 a year earlier, adding to signs that the U.K.’s worst slump in a generation is easing. The currency was up 0.5 percent in July.
Implied Volatility
The Polish zloty advanced a record 8 percent this month to 2.93 per euro, as the country posted the only positive first- quarter growth rate among European Union’s 10 eastern members. The currency was the biggest gainer among 26 emerging-market counterparts tracked by Bloomberg.
The dollar dropped against 14 of 16 most actively traded currencies this month, losing 1 percent against the euro. The yen gained 1.2 percent versus the dollar and 0.2 percent against the European currency.
The euro-dollar exchange rate swung less than 3 cents above and below $1.40 this month. Implied volatility on seven major currencies against the dollar dropped to 12.73 today, the lowest since October, indicating traders expect less price frustration in the foreign-exchange market in coming months.
Moving Sideways
“We are moving to sideways until September when gradual improvement in macro data adds to fresh momentum for dollar shorts,” said Mike Moran, a senior currency strategist at Standard Chartered in New York. A short position is a bet a currency will decline.
Investors should buy the U.S. currency against the yen, with a target above 105 per dollar, as Japan’s trade and investment flows deteriorates, Goldman Sachs Group Inc. said today in an e-mailed note.
The yen is the most overvalued currencies in the Group of 10 major currencies, and “neutral” market positioning allows investors to add more bets against the Japanese currency, according to Goldman. Trade and investment flows to Japan have turned from a surplus of 6 percent of its GDP, to a deficit of 5 percent of the economy, according to Goldman.
“We could be getting closer to the tipping point for the yen,” Mark Tan, a Goldman analyst in New York wrote.
July 29 -- The dollar rose versus the euro for a second day as China’s stocks plunged the most in eight months and a report showed orders for U.S. durable goods fell last month, bolstering demand for the greenback as a safe haven.
The U.S. currency advanced versus the Australian dollar and South African rand as China led a decline in emerging-market stocks on speculation the government will curb inflows. The Swiss franc declined to the weakest level versus the euro this month after a central bank official said policy makers will halt any appreciation of the currency.
“With equities softer, risk currencies are coming off,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Anything that suggests expectations for growth in China are lower today than yesterday is going to hit the risk currencies.”
The dollar advanced 0.4 percent to $1.4116 per euro at 8:34 a.m. in New York, from $1.4167 yesterday. It earlier traded at $1.4091, the strongest level since July 17. The yen traded at 133.95 against the euro, compared with 133.95. The dollar increased 0.3 percent to 94.86 yen from 94.55.
Australia’s currency fell 1 percent to 81.87 U.S. cents after China’s Shanghai Stock Exchange Composite Index dropped 5 percent, the most since Nov. 18. The Aussie touched 83.38 cents yesterday, the highest level since Sept. 29.
Weaker Rand
South Africa’s rand fell a fourth day, dropping 0.9 percent to 7.9312 per dollar. It touched 7.9488 earlier, the weakest level since July 20.
The franc declined as much as 0.2 percent to 1.5271 per euro, the weakest level since June 30, as Thomas Jordan, a Swiss National Bank governing board member, said in an article in the Swiss economic magazine Die Volkswirtschaft that policy makers will continue to intervene in the foreign-exchange market to prevent the currency from strengthening.
Orders for durable goods in the U.S. fell 2.5 percent in June, the first retreat in three months, the Commerce Department reported today in Washington. The median forecast of 73 economists surveyed by Bloomberg News was for a decrease of 0.6 percent.
Federal Reserve Bank of San Francisco President Janet Yellen said in a speech in Coeur d’Alene, Idaho, that the U.S. economy’s recovery is likely to be “painfully slow” as consumers spend less and save more. The U.S. is showing the “first solid signs” of emerging from recession, she said.
Japanese Investors
The yen was headed for a 1.6 advance versus the dollar in July on speculation Japanese investors will bring back funds from redemption payments as 18 billion euros ($25.5 billion) in European government bonds mature.
“Talk of sizeable Eurobond redemptions are weighing on the euro-yen,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.
South Korea’s won fell 0.3 percent to 1,239.95 against the dollar as the MSCI Asia Pacific Index of shares ended its longest winning streak in more than five years, falling 1.2 percent.
Bank of America Merrill Lynch Securities raised its forecasts for the euro against the dollar and the yen, citing rising purchases of the common currency by emerging market central banks seeking to they diversify their reserves.
The European currency will strengthen to $1.45 and 145 yen by September and $1.50 and 158 yen by year-end, strategists led by Steven Pearson in London wrote in a report yesterday. The bank previously forecast $1.32 and 139 yen for end-September and $1.38 and 152 yen for the end of the year.
‘Capital Inflows’
“Although the allocations of many investors to emerging markets are already at record levels relative to benchmark, we think their popularity as an investment destination will support growth at a pace sufficient to sustain strong capital inflows for perhaps another quarter or so,” Bank of America said. “In turn, this is likely to trigger another significant wave of reserve-manager flow diversification demand for euro-dollar.”
The 16-nation currency traded in July in a range of $1.3833 to yesterday’s high of $1.4304, the strongest level since June 3.
July 28 -- The dollar traded near the lowest level in seven weeks against the euro as Asian stocks extended a global rally, adding to evidence investors are shifting to higher-yielding assets.
The Australian dollar rose for a third day against the greenback after the Reserve Bank of Australia said the South Pacific nation’s economy may rebound faster than it forecast six months ago. The yen rose against the dollar on speculation Japanese exporters are taking advantage of the currency’s drop in the past week to repatriate funds.
“Rising share prices will make it easier for investors to take more risks,” said Toshiya Yamauchi, manager of the foreign-exchange margin trading department in Tokyo at Ueda Harlow Ltd. “Under such circumstances, the dollar and the yen will weaken, especially against the currencies of resource-rich nations and emerging markets.”
The yen fell to 135.54 per euro as of 6:07 a.m. in London from 135.48 in New York yesterday, when it reached 136.10, the lowest since July 2. Japan’s currency advanced to 95.06 per dollar from 95.18. It touched 95.38 yesterday, the weakest since July 7. The dollar traded at $1.4258 per euro from $1.4232.
MSCI’s Asia Pacific index of regional shares rose for an 11th day, the longest winning streak since January 2004, boosting demand for higher-yielding assets in carry trades. The index rose 0.7 percent today.
Dollar Index
The Dollar Index was near the lowest level this year before a report that economists said will show U.S. home prices fell at a slower pace in May, indicating the American economy may be recovering, trimming demand for safe haven currencies.
The S&P/Case Shiller index of 20 major metropolitan areas, scheduled for release today, will show property values fell 17.9 percent in May from a year earlier, according to a Bloomberg News survey of economists. The measure was down 18.1 percent in the 12 months ended April.
The Dollar Index, which the ICE uses to track the greenback against currencies including the yen, pound and Swedish krona, was at 78.546 from 78.626 yesterday, near this year’s low of 78.334 on June 2
The Australian dollar climbed after RBA Governor Glenn Stevens said it appears “that the downturn we are having may turn out not to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other countries.”
Upside Risks
“We can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six month ago,” the Reserve Bank chief said in Sydney today.
Stevens left the benchmark lending rate at 3 percent on July 7 for a third month amid signs the lowest borrowing costs in half a century and government spending helped the nation skirt a recession.
“With Australia’s economy apparently doing well, there may be no more scope for interest-rate cuts,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “Higher-yielding currencies such as Australia’s dollar will likely be popular, with demand from people in countries with low yields such as Japan.”
Benchmark interest rates of 8.75 percent in Brazil and 0.25 percent in Sweden compare with 0.1 percent in Japan and as low as zero in the U.S.
The Australian dollar rose to 82.81 U.S. cents from 82.27 cents yesterday.
Exporter Selling
Losses in the yen were tempered amid speculation Japanese exporters sold the dollar to bring back overseas earnings before the month-end.
“Exporters are prone to buy the yen, given that the end of the month is near,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale, France’s third- largest bank. “There’s talk that a lot of euro government bonds are maturing this week, so we may see some yen repatriation.”
Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.
Adding to pressure on the dollar, China’s Assistant Finance Minister Zhu Guangyao said on the first day of bilateral talks with U.S. officials that his government remains “concerned” about the value of its U.S. assets.
Zhu’s remarks come after repeated public assurances by Treasury Secretary Timothy Geithner that the U.S. is committed to reining in a record budget deficit once an economic recovery is secured. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.
‘Massive Holdings’
“China has massive holdings of Treasuries, so it is obviously worried,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Any diversification away from the dollar could be gradual, and the greenback may weaken a bit.”
A rising number of derivative bets that the dollar will fall may indicate that the currency is poised to rebound, according to Bank of Tokyo-Mitsubishi UFJ Ltd. Futures positions, when they reach an extreme, are viewed as a contrarian indicator because traders often rush to reduce positions when momentum in a currency shifts.
The large dollar net short position “could make further headway on dollar selling more slow going and frustrating,” wrote Derek Halpenny, head of global-currency research in London at Bank of Tokyo-Mitsubishi, in a note yesterday. A short position is a bet an asset will decline.
The bank predicts the euro’s gains versus the dollar will stall in the $1.45 to $1.5 range, and then be followed by a move to $1.3 in 2010.
July 23 -- The yen may rise for a third day versus the euro on speculation U.S. companies including CIT Group Inc. and American Express Co. will report weaker earnings today, reviving demand for the safety of Japan’s currency.
The yen gained for a fourth day against the dollar yesterday after Morgan Stanley reported a larger second-quarter loss than analysts predicted and Wells Fargo & Co. said bad loans jumped. The yen and dollar may also rise before a U.S. report that economists said will show jobless claims increased, adding to concern the global recession will be prolonged.
“Risk aversion is likely to stay prominent, given earnings announcements by companies including CIT,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The bias is for haven currencies such as the yen to be bought.”
The yen traded at 132.87 per euro as of 8:55 a.m. in Tokyo from 133.18 yesterday in New York. Japan’s currency was at 93.56 versus the dollar from 93.68. The dollar was at $1.4202 per euro from $1.4220.
The yen typically strengthens during times of financial turmoil because Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders.
Morgan Stanley said yesterday it made a loss from continuing operations of $159 million last quarter compared with earnings of $689 million in the same period a year earlier. Wells Fargo said assets no longer collecting interest climbed 45 percent to $18.3 billion as of June 30 from the first quarter.
CIT Earnings
CIT said on July 21 it expected to post a loss of more than $1.5 billion for the second quarter, renewing concern the New York-based lender may have to file for bankruptcy.
The number of Americans filing claims for unemployment benefits rose to 557,000 last week from 522,000 the previous week, according to a Bloomberg News survey of economists. The Labor Department will release the report today in Washington.
The yen was little changed after Japan’s Finance Ministry said today the nation’s exports declined 35.7 percent in June from a year earlier. Economists predicted a decrease of 35.1 percent, according to a Bloomberg News survey. From a month earlier, shipments rose 1.1 percent.
July 21 -- Treasuries, the yen and the dollar rose after Federal Reserve Chairman Ben S. Bernanke said the central bank will be able to stem inflation once it begins to raise interest rates.
Ten-year notes advanced for a second day and the yen strengthened against all of the 16 most-traded currencies after Bernanke said in an opinion article in the Wall Street Journal that the Fed was “confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate.”
Bernanke’s comments are “likely to be supportive for the U.S. debt market,” said Kenny Borowicz, a senior vice president at MF Global Singapore Ltd., part of the world’s largest broker of exchange-traded futures and options contracts.
The yield on the 10-year note fell two basis points to 3.59 percent as of 1:51 p.m. in Tokyo, according to data compiled by Bloomberg. The price of the 3.125 percent security due May 2019 rose 1/8, or $1.25 per $1,000 face amount, to 96 5/32.
The yen rose to 133.37 versus the euro from 134.05 in New York yesterday, when it fell to 134.76, the lowest level since July 3. Japan’s currency gained to 93.87 per dollar from 94.19. The greenback climbed to $1.4205 per euro from $1.4231.
The Fed will maintain “accommodative policies” aimed at reviving the U.S. economy for an “extended period,” including holding its benchmark interest rate near zero, Bernanke wrote. Yields indicate investors cut bets inflation will quicken.
The Fed chief is scheduled to begin his semiannual monetary-policy testimony to Congress today amid speculation he will seeking to reassure investors that policy makers will contain consumer prices as the economy recovers.
‘We Will Buy’
“I don’t expect inflation,” said Shun Totani, senior fund investor for Tokyo-based Asahi Life Asset Management Co., which handles the equivalent of $1.33 billion in debt. “If Treasury yields rise, we will buy.”
Yields in the range of 3.75 percent to 4 percent would be enough to purchase, Totani said. The 10-year note will yield 3.67 percent by year-end, according to a Bloomberg News survey of economists, with the most recent forecasts given the heaviest weightings.
Bernanke outlined a number of ways the central bank will be able to prevent the record reserves banks have accumulated from causing money supply and inflation to surge. Officials will use the interest rate on banks’ deposits with the Fed as a principal tool, which they can supplement with other means, including reverse-repurchase agreements and term deposits, he wrote.
Spread Narrows
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, narrowed to 1.87 percentage points from 1.89 percentage points yesterday, the first decline in a week. The spread has averaged 2.21 percentage points over the past five years.
The difference between two- and 10-year yields narrowed by one basis point to 2.62 percentage points, suggesting investors are willing to accept less to make long-term loans to the government as inflation concerns ease.
The yen and dollar rose against higher-yielding currencies after Bernanke signaled the central bank may eventually have to withdraw its expansionary policy to prevent inflation.
“A premature exit from the unorthodox monetary policy by central banks across the globe may drag down higher-yielding currencies,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “The strength of these currencies was partly liable to the inflow of excessive liquidity that global central banks have been generating.”
Australian Dollar
Australia’s dollar fell 0.7 percent to 76.35 yen, New Zealand’s currency dropped 0.7 percent to 61.49 yen, and South Africa’s rand weakened 1.1 percent to 11.8989 yen.
Benchmark interest rates are 2.5 percent in New Zealand, 3 percent in Australia and 7.5 percent in South Africa compared with 0.1 percent in Japan and as a low as zero in the U.S., making the first three nations’ assets attractive to investors.
Japan’s currency also advanced from near a two-week low against the dollar on speculation Japanese exporters bought the currency after its 1.8 percent decline last week.
“Yen buying by Japanese investors, including exporters, picked up as the yen fell closer to the level they budgeted in their business plans,” said Soichiro Mori, manager of the foreign-exchange business promotion department at FXOnline Japan Co., a margin-trading company. “Such selling may become stronger as the yen approaches 95 yen.”
Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.
Financial Crisis
The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.51 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II, according to Bloomberg data.
The Fed reduced its target for overnight bank lending to a range of zero to 0.25 percent in December, and it is buying $300 billion of Treasuries in a six-month plan that commenced in March. The central bank is scheduled to purchase notes due from May 2016 to May 2019 today as part of the program, according to its Web site.
Consumer prices tumbled 1.4 percent in June from a year earlier, the Labor Department said July 15. That means 10-year Treasuries offer a so-called real yield, or what investors get after accounting for costs in the economy, of 4.99. The real yield was 5.25 percent on June 10, the highest since 1994.
July 16 -- The yen advanced against the euro for the first time in four days after the commercial lender CIT Group Inc. said bailout talks failed and a gauge of U.S. manufacturing fell, reducing demand for higher-yielding assets.
New Zealand’s dollar decreased the most in two weeks against the greenback after Fitch Ratings cut the outlook for the nation’s long-term credit rating. The Canadian dollar dropped from near a one-month high as crude oil prices retreated and U.S. stocks fluctuated.
“CIT put pressure on equities and boosted the yen,” said Jack Spitz, managing director of foreign exchange at National Bank in Toronto. “Volatility in stocks is driving the valuation of currencies.”
The yen appreciated 0.6 percent to 132.13 per euro at 12:06 p.m. in New York, from 132.95 yesterday, when it declined to 133.40, the weakest level since July 7. The dollar traded at $1.4116 per euro, compared with $1.4107. The yen gained 0.7 percent to 93.60 per dollar from 94.23.
New Zealand’s dollar fell as much as 1.5 percent to 63.88 U.S. cents in its biggest intraday drop since July 2 as Fitch said the nation’s deficit is large and a “stronger fiscal adjustment than currently planned” may be needed.
The Canadian dollar slid 0.4 percent to C$1.1173 after crude oil, the nation’s largest export, dropped 0.2 percent to $61.43 a barrel. The currency, known as the loonie, reached C$1.1118 yesterday, the strongest level since June 12, and gained more than 1 percent in each of the past three days as oil prices surged.
Commodity Currencies
The loonie and other commodity-linked currencies including the Australian and New Zealand dollars are among the best performers against the greenback this year as signs the global recession may be ending encourage investors to buy assets related to growth. The loonie gained 9 percent, the Aussie advanced 14 percent and the kiwi, as the New Zealand dollar is known, climbed 11 percent.
Commodity currencies will gain further in the next several months as global growth resumes and investors demand a hedge against inflation and a weaker U.S. dollar, according to Steve Englander, New York-based chief currency strategist at Barclays Capital.
“The world is rebounding probably faster than is still priced into most forecasts,” said Englander in an interview on Bloomberg Television. “There’s still the underlying concern that you want alternatives to the U.S. dollar because of the uncertainty over the policy framework the U.S. has, and the Aussie and kiwi protect you against those shocks.”
Yen Versus Euro
The yen dropped 1.8 percent yesterday versus the euro, the biggest loss since May 28, as the Standard & Poor’s 500 Index rallied 3 percent in its biggest gain in two months. The 60-day correlation between the euro-yen exchange rate and the S&P 500 Index increased to 0.67 from 0.48 at the end of February. A reading of 1 would indicate the two always move in a lockstep.
“Over the last few days, equities rallied and risk sentiment improved,” said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. “It looked as if the market has got ahead of itself. For the time being, equities are calming down, and risk is being taken in. You have to respect the range we’ve been in.”
International demand for long-term U.S. financial assets fell in May as Russia, Japan and Caribbean banking centers trimmed their holdings even as China stepped up its purchases.
International Demand
Total net sales of long-term equities, notes and bonds were $19.8 billion, compared with buying of $11.5 billion the month before, the Treasury said today. China, the biggest foreign holder of U.S. debt, increased its holdings of government notes and bonds by $38 billion to $801.5 billion.
China’s foreign-exchange reserves rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People’s Bank of China said yesterday.
“China’s reserves allow the U.S. to run a higher fiscal deficit than other nations,” said Bilal Hafeez, the London- based global head of currency strategy at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “Their rhetoric suggests they do want to diversify their reserves, but the data suggests they are doing it in a measured way. There is no dumping dollars.”
The yen rose from near a one-week low against the euro after New York-based CIT said in a statement yesterday “there is no appreciable likelihood of additional government support being provided over the near term.” The company faces bankruptcy if no federal aid emerges, Standard & Poor’s said this week.
Factory Decline
The Federal Reserve Bank of Philadelphia’s gauge of regional manufacturing dropped to minus 7.5 this month from minus 2.2 in June, the bank said today. The median forecast of 53 economists surveyed by Bloomberg News was for a decrease to minus 4.5. Negative numbers signal contraction.
Japan’s currency typically rises during times of financial turmoil because its trade surplus means the nation doesn’t have to rely on overseas lenders.
The yen earlier pared its gains as profit at JPMorgan Chase & Co. rose for the first time since 2007 and a report showed U.S. first-time unemployment claims fell last week to the lowest level since January.
“Right now, data is inconsistent,” said Sophia Drossos, chief currency strategist at Morgan Stanley in New York. “Our six-month view is that the rebound in the global economy is taking shape. The key consequence of a global recovery is a weaker dollar.”
July 14 -- The dollar’s decline against the yen may stall before it reaches so-called support at 91.30, Standard Chartered Plc said, citing trading patterns.
The 91.30 yen support level is the dollar’s high set on Jan. 19, according to a chart compiled by Standard Chartered. The Jan. 19 high is a previous level of resistance, which has become support since it has been breached. Support is where buy orders may be clustered. Resistance is where there may be sell orders.
“The dollar-yen breakdown is expected to be short-lived ahead of 91.30 support,” Callum Henderson, global head of currency strategy at Standard Chartered in Singapore, wrote in a research note yesterday. “Clients should close short dollar-yen positions and look to buy into this dip ahead of 91.30.” A short position is a bet an asset will fall.
The dollar traded at 93.12 yen as of 7:55 a.m. in Tokyo after weakening to 91.74 yen yesterday, the lowest level since Feb. 17. The U.S. currency slumped 3.6 percent against the yen last week, the biggest drop since the five days ended Oct. 24.
“Look for a push back above 95 to follow,” Henderson wrote. Should the greenback rise beyond “congestive resistance” at 95 yen, the dollar may extend its rally to 99 and then to 101.45 or higher, he said.
The 95 yen level was last seen on July 7, 99 yen is near the June 5 high of 98.89 yen, and 101.45 yen represents the April 6 high, according to data compiled by Bloomberg.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
July 9 -- The yen fell from a four-month high against the dollar on speculation Japanese importers sold the currency and as technical charts signaled its 3 percent gain in the past five days was excessive.
The yen weakened versus all of the 16 major counterparts after a Japanese government official said excessive currency movements were undesirable and as Asian stocks trimmed losses, encouraging investors to buy higher-yielding assets. The yen and the dollar also declined after the International Monetary Fund said the global recovery next year will be stronger than it forecast in April as the financial system stabilizes, sapping demand for the safety of the two currencies.
“The yen’s surge was very fast, so a correction of this is under way,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co. “There’s also talk of importers and bargain hunters who are selling the yen.”
The yen declined to 93.13 versus the dollar as of 6:57 a.m. in London from 92.88 in New York yesterday, when it rose to 91.81, the highest level since Feb. 17. Japan’s currency dropped to 129.57 per euro from 128.95, after climbing to 127.02 yesterday, the strongest since May 18. The euro rose to $1.3920 from $1.3884.
The Dollar Index, which tracks the U.S. currency against those of six major trading partners including the euro, yen and pound, fell 0.4 percent to 80.442.
Technical Indicator
The dollar’s 14-day stochastic oscillator against the yen was at 19.9 yesterday, below the 20 level that signals it may have fallen too quickly and is poised to rise. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a currency.
Japan’s government is closely watching market moves after the yen climbed to a four-month high against the dollar, Chief Cabinet Secretary Takeo Kawamura said at a news conference today, according to a Reuters report.
The MSCI Asia-Pacific excluding Japan Index of shares trimmed its loss to 0.2 percent after earlier dropping as much as 0.5 percent. Standard & Poor’s 500 futures gained 0.4 percent.
Higher-yielding currencies advanced as signs that stocks are stabilizing encouraged investors to purchase riskier assets.
Australia’s dollar climbed 0.3 percent to 72.54 yen and rose to 77.91 U.S. cents from 77.86 cents. New Zealand’s dollar rose 0.4 percent to 58.37 yen and climbed to 62.71 U.S. cents from 62.60 cents.
Carry Trades
Japan’s benchmark interest rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand. That attracts investors to carry trades in which they borrow funds in countries with lower interest costs and buy assets in nations with higher rates, allowing them to pocket the difference.
The world economy will expand 2.5 percent in 2010, compared with an April projection of 1.9 percent growth, the IMF said yesterday in a revised forecast.
“The firm undertone of stocks in Asia means the global economy is not falling apart, even if it is not recovering at the strong pace the market had hoped for,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co. “Given the assumption that the global economy will continue to grow, albeit at a slow pace, there is no reason to keep buying the yen as a haven.”
Indonesia’s rupiah, the best-performing Asian currency over the past three months, rose for a third day as exit polls pointed to a landslide victory for President Susilo Bambang Yudhoyono, paving the way for more pro-growth policies.
Yudhoyono is leading his rivals with 61 percent of votes, according to a preliminary count by the Indonesia Survey Institute. The $433 billion economy may expand as much as 4 percent this year, the fastest pace in Asia after India and China, the IMF estimates.
‘Best Case’
“It was the best-case scenario,” said Tim Condon, Singapore-based head of Asia research at ING Groep NV. “The rupiah will rally to 10,000 to the dollar. I see any dollar strength right now from global risk aversion as a chance to sell dollars and buy rupiah.”
The rupiah rose 0.6 percent to 10,185 per dollar, extending its gains to 11 percent in the past three months.
South Korea’s won declined for a fourth day against the dollar after the central bank left its benchmark rate unchanged at a record low for a fifth month.
The Bank of Korea held the seven-day repurchase rate at 2 percent, as expected by all economists surveyed by Bloomberg News. The bank slashed rates by 3.25 percentage points between October and February, the steepest cuts since it began setting a policy rate a decade ago.
The won fell 0.2 percent to 1,278.95 per dollar, after declining to 1,282.25, the weakest level since June 30.
G-8 Meeting
The yen strengthened earlier after Group of Eight leaders said yesterday the global economic recovery is too fragile to withdraw stimulus efforts, bolstering demand for the currency as a refuge from the slump.
U.S. President Barack Obama called for the door to remain open to more stimulus measures as a renewed stock-market drop stirred concern that $2 trillion spent worldwide so far hasn’t jolted consumers and businesses back to life.
“The rebound of the dollar will come to a halt at around 93.50 yen as people become less optimistic about the prospects of the global economic recovery,” said Hiroshi Maeba, deputy general manager of foreign exchange trading at Nomura Securities Co. in Tokyo.
The yen typically strengthens during times of financial turmoil because Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders.
July 7 -- The euro traded near a two-week low against the Swiss franc on speculation European finance ministers will today reiterate the global economic recession is far from over and risks to the region’s recovery remain.
The euro dropped to the lowest in two weeks versus the yen yesterday as Luxembourg Finance Minister Jean-Claude Juncker said at a meeting of euro-area counterparts in Brussels that “we are still in the middle of the crisis.” The dollar pared gains versus the pound today on speculation Group of Eight leaders will call into question the greenback’s status as the international reserve currency when they meet tomorrow.
“It’s natural that European policy makers aren’t confident in their economic recovery as the region is nowhere near that stage yet,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The trend to avoid risk is likely to persist. It’s a positive for the yen and a negative for the euro.”
The euro traded at 1.5168 francs as of 6:01 a.m. in London from 1.5165 yesterday in New York, when it fell to 1.5152 francs, the weakest level since June 24. Europe’s currency was little changed at 133.29 yen from 133.34, and traded at $1.3981 from $1.3984. The dollar bought 95.33 yen from 95.35, and was at $1.6281 per pound from $1.6286.
The yen may advance to 132.50 per euro and 94.60 versus the dollar today, Ishikawa said.
Forecast Cut
Juncker’s comments in Brussels yesterday came after the Organization for Economic Cooperation and Development said last month signs of a recovery in the 16-nation euro area were not clear. The OECD cut its 2009 forecast for the region’s economy to a contraction of 4.8 percent, from a decline of 4.1 percent projected in March, and said the ECB should lower its benchmark interest rate from 1 percent.
European Union finance ministers meet again today in Brussels. The Eonia overnight index average, the market rate that European banks charge each other, fell to 0.332 percent yesterday from 0.381 a week ago, below the ECB’s benchmark.
“It’s not only lingering worries about the prospect of the eurozone economy that are hurting sentiment toward the euro, the narrowing yield advantage, as evident by declines in Eonia are also weakening demand for the single currency,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank.
‘Remain Weak’
Euro-area economic activity this year “is likely to remain weak, but should decline less strongly than was the case in the first quarter,” European Central Bank President Jean-Claude Trichet said July 2, when policy makers left the benchmark rate at a record low.
Demand for the dollar was tempered on speculation its role as the world’s reserve currency may be questioned at the G-8 meeting starting in L’Aquila, Italy, tomorrow.
“We need to be alert to the possibility of the G-8 actually making this issue an official agenda item,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third-largest banking group. “This will keep a cap on the dollar.”
Russia said the world economy is overly reliant on the dollar and called for changes in how $6.5 trillion in currency reserves are managed. “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new international reserve currency.
Reserve Currency
Emerging-markets policy makers aren’t a near consensus on a plausible alternative to the dollar as the world’s reserve currency. Chinese Deputy Foreign Minister He Yafei said on July 2 that the dollar will reign supreme for “many years to come.”
Australia’s dollar was little changed against the yen and the dollar after the Reserve Bank of Australia left interest rates unchanged today for a third month.
Central bank Governor Glenn Stevens was forecast to hold the benchmark rate at 3 percent by all 20 analysts surveyed by Bloomberg News.
The Australian dollar traded at 76.11 yen from 76.06 yen yesterday, and was at 79.81 U.S. cents from 79.77 cents.
July 6 -- The dollar and yen advanced against the euro on speculation the global economic recovery will be slow, encouraging demand for a refuge.
The U.S. and Japanese currencies rose as stocks around the world tumbled, with the MSCI World Index sliding as much as 0.9 percent. The dollar dropped versus the yen after Russian President Dmitry Medvedev said the world is too reliant on the U.S. currency and French Finance Minister Christine Lagarde called for increased global coordination of foreign exchange.
“We might be heading into an environment where the U.S. dollar can actually be much stronger than many people think,” said Hans-Guenter Redeker, head of global currency strategy at BNP Paribas SA in London, in an interview on Bloomberg Television. “You have to get a clear judgment how the economy is developing globally. The risk is pretty much skewed to the downside.” http://fxisforex.blogspot.com/
The dollar advanced 0.6 percent to $1.3903 per euro at 8:39 a.m. in New York, from $1.3980 on July 3. The yen gained 1.4 percent to 132.44 per euro from 134.26 last week after earlier reaching 132.18, the strongest level since June 23. The yen appreciated 0.8 percent to 95.25 versus the dollar from 96.04.
The U.S. currency dropped against the yen after Russia and India said the global economy is too dependent on the U.S. currency and called for revisions to how $6.5 trillion in foreign-exchange reserves are managed. Their comments came as Group of Eight leaders prepared to meet in Italy this week.
‘Flawed’ System
“The dollar system, or the system based on the dollar and euro, have shown that they are flawed,” Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new international reserve currency.
Authorities “must explore better coordination of exchange- rate policy,” Lagarde told reporters yesterday at a conference in Aix en Provence, France. India should diversify its $264.6 billion in foreign-exchange reserves and hold fewer dollars, Suresh Tendulkar, an economic adviser to Prime Minister Manmohan Singh, said in a July 3 interview.
Stocks around the world extended losses, with Europe’s Dow Jones Stoxx 600 Index sinking 1.6 percent. The MSCI Asia-Pacific Index of regional shares slipped 0.9 percent, and the Nikkei 225 Stock Average dropped 1.4 percent. Equities fell last week as the U.S. unemployment rate rose to 9.5 percent, a 26-year high.
Vice President Joe Biden said yesterday on the ABC news program “This Week” that the administration of President Barack Obama “misread the economy” when it forecast unemployment would peak at 8 percent if Congress enacted a $787 billion fiscal stimulus.
U.S. Jobs Report
“The aftereffects on risk appetite of the weak June U.S. employment report continue to be felt,” Steven Pearson, a foreign-exchange strategist at Bank of America Corp. in London, wrote in a report today. “Additionally, a larger-than-expected loss from a German banking group has served as a reminder that the financial outlook in Europe remains challenging.”
The euro fell against the dollar after IKB Deutsche Industriebank AG, Germany’s first victim of the subprime- mortgage crisis, said on July 4 it lost 580 million euros ($807 million) in the fiscal year ended March 31.
The 16-nation currency is unlikely to get support from fundamental data this week, with technical signals suggesting declines, according to Helaba Landesbank Hessen-Thueringen.
Outlook for Euro
If the euro drops below a range of $1.3950 to $1.3925, the next so-called support levels will be $1.3890, $1.3829 and $1.3806, Ralf Umlauf, head of floor research at Helaba in Frankfurt, wrote in a research report today.
Currency investors that use computer models to spot trends are suffering as markets are pulled in opposing directions. FX Concepts Inc., the world’s largest currency hedge fund, said it lost 5.4 percent in this year’s first five months. John W. Henry & Co.’s foreign-exchange fund told investors it lost 2 percent, after 2008’s 76 percent gain.
Deflationary pressure from the first global recession since World War II is being countered by the inflationary forces of record stimulus spending and currency printing across the globe.
Commerzbank AG is skeptical the yen will emerge as the “winner” against the dollar and euro because the economic slump in Japan is as severe as it is in Europe and the U.S.
“In the current situation, this makes particularly little sense,” a Commerzbank team led by Ulrich Leuchtmann in Frankfurt wrote today in a report. “The fundamental situation in Japan is at least as depressed as in the U.S. and in the euro zone. The green shoots in Japan are much more fragile.”
July 4 -- The dollar rose against the euro this week as speculation the economic recovery is faltering boosted demand for the safety of the U.S. currency.
The Dollar Index, which tracks the currency against six major U.S. trading partners, advanced to near the highest in a week after a report showed U.S. employers cut more jobs last month than economists forecast. The pound had its first weekly loss in a month after a report showed U.K. service industries were little changed in June as the recession persisted.
“We had a disappointing jobs figure and data has generally tended to underwhelm,” said Steven Barrow, head of Group of 10 currency research in London at Standard Bank Plc, who forecast the dollar may gain to $1.38 per euro next week. “Risk aversion is increasing a little bit and that’s helped the dollar.”
The dollar advanced 0.5 percent to $1.3984 per euro as of 2:08 p.m. in New York yesterday, from $1.4056 at the end of last week. It reached $1.3929 yesterday, the strongest level since June 25. The yen was at 134.27 per euro, from 133.85 a week earlier. The U.S. currency rose 0.9 percent to 96.00 yen.
The pound was at $1.6328, for a weekly decline of 1.2 percent. The U.K. currency declined 0.3 percent in the week to 156.77 yen, after reaching the weakest level since June 25.
Job Losses
U.S. employers cut 467,000 jobs in June, after losing a revised 322,000 positions the previous month, the Labor Department said in Washington on June 2. The unemployment rate increased to 9.5 percent from 9.4 percent. Europe’s service industry contracted at a faster pace in June, London-based Markit Economics said yesterday.
“As feared, the poor jobs report prompted a sizeable paring of risk appetite across foreign-exchange markets,” UniCredit Markets & Investment Banking analysts including Roberto Mialich in Milan wrote in a client note yesterday. “The euro was obviously dragged down.”
The dollar was also buoyed this week after a Chinese Foreign Ministry official said he was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting. China hoped that “as the main reserve currency, the exchange rate of the U.S. dollar will be stable,” China’s Vice Foreign Minister He Yafei told reporters in Beijing July 2.
The U.S. currency strengthened most against the New Zealand dollar and the pound in the week as European stock markets declined. Europe’s Dow Jones Stoxx 600 fell for a third consecutive week, its longest losing run since the period through March 6.
Dollar Index
The Dollar Index increased 0.3 percent to 80.403, bringing its gain this week to 0.7 percent. It reached 80.578 on July 2, the highest level since June 25. The index rebounded from 78.334 on June 2, the weakest level this year.
The pound weakened against 15 of the 16 most-actively traded currencies this week. Growth in U.K. service industries slowed in June, giving the Bank of England more reason to keep its key interest rate at a record low of 0.5 percent. Gross domestic product shrank in the first quarter by the most since 1958, the Office for National Statistics said June 30.
An index based on a U.K. survey of about 700 service companies by the Chartered Institute of Purchasing and Supply fell to 51.6 in June, from 51.7 in May, a report showed yesterday.
Investors should sell the pound on speculation the central bank will expand asset purchases when it meets to set monetary policy next week, strategists led by Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, wrote in a client note yesterday.
Yen Falls
The yen weakened against the New Zealand dollar yesterday after Kyodo News reported Japan may consider investing about 10 percent of its public pension-reserve funds in assets with “high risks and high returns.”
Japan’s pension-reserve balance was 123 trillion yen ($1.28 trillion) as of March 2009, Kyodo said, citing Health Minister Yoichi Masuzoe.
“If the government wants to buy more foreign bonds for its public pension reserve funds, that’s yen negative,” said Masaki Fukui, a senior market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender.
The losses cut the yen’s weekly gain against the New Zealand dollar to 1.6 percent. Japan’s currency climbed 0.2 percent against the Australian dollar this week to 76.72 yen.
July 3 -- The dollar and yen may extend their advances against the euro after a U.S. government report showed employers cut more jobs last month than economists forecast, paring demand for higher-yielding assets.
The euro also dropped versus the dollar yesterday as European Central Bank President Jean-Claude Trichet said a “phase of recovery” for the region will probably start in the middle of 2010. The dollar earlier climbed versus the euro after China renewed its call for a stable greenback and damped speculation the nation is seeking talks on a new international currency at next week’s Group of Eight meeting.
“There was some enthusiasm and relief recently for all of us, and now we have to be aware things will take some time to recover,” said Benedikt Germanier, a currency strategist in Stamford, Connecticut, at UBS AG, the world’s second-largest currency trader. “Risk appetite has gone a little far. Risk aversion could well be back.”
The dollar traded at $1.4001 per euro at 6:07 a.m. in Tokyo, after advancing 1 percent yesterday. The U.S. currency was at 95.91 yen following a decrease of 0.7 percent. The euro fetched 134.26 yen after depreciating 1.7 percent.
U.S. employers eliminated 467,000 jobs in June after a revised decrease of 322,000 in the previous month, the Labor Department reported yesterday in Washington. The median forecast of 79 economists surveyed by Bloomberg News was for a reduction of 365,000. The unemployment rate increased to 9.5 percent.
Dollar Index Rises
The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, gained 1.6 percent on June 5, the most in more than four months, after the payrolls report showed job losses in the previous month slowed.
The trade-weighted measure climbed the most in more than a week yesterday, advancing 0.8 percent to 80.26. The level was 0.5 percent higher compared with June 26.
The U.S. currency gained earlier yesterday versus the euro as China’s Vice Foreign Minister He Yafei renewed a call for a “stable” dollar and said in Beijing he’s “not aware” of any effort by China to challenge the greenback’s status as the world’s main reserve currency at next week’s G-8 meeting.
The dollar declined beyond $1.42 versus the euro on July 1 after Reuters cited G-8 sources as saying the Asian nation asked to debate proposals for a new global reserve currency at next week’s summit. China is the biggest foreign holder of Treasuries, with $763.5 billion as of April.
European Central Bank
The ECB kept its benchmark interest rate unchanged at 1 percent yesterday. The central bank lent financial institutions last week a record 442 billion euros ($621 billion) for 12 months to encourage them to extend cheaper credit to companies and households. The ECB will also start buying 60 billion euros of covered bonds this month.
Europe’s 16-nation currency will probably fall to $1.33 by the end of September as economic data globally will strengthen arguments for a weaker recovery, according to Lauren Rosborough, a foreign-exchange strategist at Westpac Banking Corp. in London.
“We all know the euro should weaken,” said Rosborough, citing Westpac’s forecast for no growth in the euro area in 2010. “We are not talking about a rapid recovery and certainly not a strong one.”
Sweden’s krona declined as much as 2.6 percent to 7.7837 against the dollar, the biggest intraday drop since June 15, after the Riksbank unexpectedly cut its target lending rate by a quarter-percentage point to 0.25 percent, saying the economy required a “somewhat more expansionary monetary policy.”
The reduction was forecast by only one economist, UBS’s Sunil Kapadia, of 17 surveyed by Bloomberg News, with the rest predicting no change.
Swedish ‘Surprise’
“That was a big surprise for most people,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the largest foreign-exchange trader. “They continue to be one of the most dovish central banks around, and this will stall an appreciation of the krona.”
The krona advanced on July 1 to 7.5410 against the dollar, the strongest level since June 3.
The Swiss franc slid yesterday as much as 0.3 percent to 1.5247 against the euro after a Swiss National Bank governing board member, Thomas Jordan, said the institution remains ready to act to prevent further appreciation of the currency.
“The SNB will continue to weaken the Swiss franc,” said Paul Robson, a currency strategist in London at Royal Bank of Scotland Group Plc. “You always have to take the SNB seriously on the franc. They’ve backed it up with fiscal intervention, and we would expect them to continue.”
The franc dropped as much as 2.4 percent on June 24 on speculation policy makers intervened to support the economy.
EURUSD
Yesterday's boost to as high as 1.4200 - above last month's top at 1.4140 is seen as a bullish confirmation of current trend and the overnight pullback to 1.4100 is corrective, so far, support being formed at.14100 by the 50% retracement of yesterday's move from 1.4000 to 1.4200. The euro attempts to stabilize above the 1.4100 mark at the time of this writing. In case 1.4100 holds, upside targets could be challenged first at 1.4200 - yesterday's top, then higher - at 1.4250 - interim resistance on the way towards the yearly top at 1.4340. Upside is favored for now, while above 1.4100. Below that, extended losses may extend to 1.4000. Current quote is 1.4117 @06:00 GMT
Support levels: 1.4100, 1.4000, 1.3950 and 1.3900/10
Resistance levels: 1.4150, 1.4200 and 1.4250
Market sentiment: long-term : bearish, mid-term : bullish, short-term : slightly bullish
Yesterday recommended trade: stand aside
AUDUSD
The Aussie dollar has given back yesterday's gains as the US dollar is slightly stronger across the board. Minor resistance is now seen at .8100 followed by .8140/50 and the recent top into the .8230-.8260 zone. Intra-day sentiment is bearish due to the overnight 70 points pullback. Extended losses may reach lows around .7930/50 where first notable support is seen, backed lower by .7850. Daily momentum is positive. Current quote is .8042 @06:00 GMT
Support levels: .8000, .7930 and .7840/50
Resistance levels: .8100, .8155/85, .8235 and .8260
Market sentiment: long-term : bearish, mid-term : bullish, short-term : slightly bullish
Yesterday recommended trade: stand aside
EURCHF
Initial support at 1.5235 has been cleared out and the euro continues to lose ground versus the swiss franc, testing bids around the 1.5200 handle at the time of this report. 1.5150 is the next bearish objective and it may limit the downside for now. Current quote is 1.5200 @06:00 GMT
Support levels: 1.5190/00, 1.5140/50 and 1.5100
Resistance levels: 1.5285, 1.5325 and 1.5380/00
Market sentiment: long-term : bearish, mid-term : bearish, short-term : bullish
Yesterday recommended trade: stand aside
July 2 -- The dollar rose from a three-week low against the euro and erased losses versus the yen after a Chinese official said he was “not aware” of a plan to discuss a new reserve currency at a Group of Eight meeting next week.
The greenback also gained versus 13 of the 16 major currencies after Chinese Vice Foreign Minister He Yafei said he hopes the dollar will “remain stable,” easing concern it will lose its reserve status. The yen rose from near a two-week low against the euro on speculation a U.S. report today will show the world’s biggest economy lost jobs for an 18th month, spurring demand for the relative safety of Japan’s currency.
“The minister’s remarks are definitely supportive of the dollar,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “It’s extremely difficult to move to a new reserve currency. For China, the value of their U.S. holdings would drop.”
The dollar climbed to $1.4109 per euro as of 1:25 p.m. in Tokyo from $1.4142 in New York yesterday, when it declined to $1.4201, the lowest since June 5. The dollar was at 96.60 yen from 96.65 yen. The yen advanced to 136.31 per euro from 136.70 yesterday, when it fell to 136.89, the weakest since June 15.
The U.S. currency dropped beyond $1.42 versus the euro yesterday after Reuters, citing G-8 sources, reported that China asked to debate proposals for a new global reserve currency at next week’s summit in Italy.
Chinese officials have sought a greater role over time for the International Monetary Fund’s unit of account, known as Special Drawing Rights, or SDRs, in an effort to reduce the dollar’s dominance.
Dollar Index
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, rose 0.2 percent to 79.794.
The yen strengthened versus all of the 16 major currencies as today’s U.S. employment report may show the jobless rate increased to the highest level since 1983, suggesting the global recession will be prolonged.
U.S. employers cut 365,000 jobs last month after reducing them by 345,000 in May, according to a Bloomberg News survey of economists before the Labor Department report. The unemployment rate climbed to 9.6 percent, a separate Bloomberg survey showed.
“I will certainly expect the yen to strengthen if the payroll data comes in worse than expected because of risk- appetite flow,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd., Australia’s fourth-biggest lender.
U.S. Jobs
The U.S. lost more jobs than forecast last month, an industry report showed yesterday. The 473,000 drop in the ADP Employer Services gauge in June was higher than the forecast of 394,000 in a Bloomberg survey of economists, and it followed a revised reduction of 485,000 workers in May.
The Japanese currency typically strengthens in times of financial turmoil as the nation’s trade surplus makes the currency attractive because the nation does not rely on overseas lenders.
Gains in the yen may be tempered after a government report today showed Japanese investors purchased the most overseas debt in four years.
Japanese investors bought 1.53 trillion yen ($15.9 billion) more foreign bonds than they sold in the week ended June 27, the most since the period ended June 24, 2005, the Finance Ministry said in a report.
“Investors, especially individuals, are increasing their purchases of higher-yielding bonds,” said Yoshisada Ishide, who oversees $2.4 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. “They feel more reassured about investing abroad. This trend is likely to persist in the third quarter. The bias is for yen weakness.”
Japan’s benchmark interest rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to investors seeking higher returns.
July 1 -- The International Monetary Fund’s board of directors plans to approve authorization to issue as much as $150 billion of bonds for the first time as it seeks new sources of funds, an IMF official said.
The board is scheduled to vote on the matter today, the official said on condition of anonymity. The bonds are part of a wider effort to seek new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.
The securities, the culmination of months of talks between the fund and its members, will offer the largest emerging-market nations a new way of making IMF contributions while they seek greater say at the fund. China, Brazil and Russia have favored the bonds instead of regular contributions as they wrangle with other members over redistributing the IMF’s voting power.
“The emerging market economies want to call the shots a little bit more,” said Simon Johnson, a former chief economist at the IMF who is now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s all part of a longer evolution of the IMF.”
Leaders from the Group of 20 industrial and emerging nations agreed in April to boost IMF coffers by $750 billion to help the Washington-based agency shore up nations roiled by the credit crunch. The U.S. last month agreed to boost its contribution for the IMF by more than $100 billion.
Rates, Currency
Today’s vote likely will address details such as how to set the interest rates for the bonds and their currency.
Chinese officials have sought a greater role over time for the IMF’s unit of account, called Special Drawing Rights or SDRs, in an effort to reduce the U.S. dollar’s dominance in the global economy.
China’s government has also said it will buy $50 billion in notes. Russia and Brazil in June month announced plans to each buy $20 billion of bonds from the IMF.
India has indicated it would contribute to an IMF bond program. Montek Singh Ahluwalia, deputy chairman of the nation’s Planning Commission, wasn’t available to comment today.
IMF Managing Director Dominique Strauss-Kahn said last month there will be a “little” secondary market for the bonds. Strauss-Kahn said June 13 in Lecce, Italy, that they could be traded between “bondholders, either government or central banks.”
The IMF is also considering making them tradable between all central banks from countries that are IMF members, said a G- 8 official, who spoke on condition of anonymity. It would stop short of allowing them to trade on the open market, he said.
Budget Deficit
Treasury yields climbed this year and the dollar fell in part on concern that foreign central banks would reduce holdings of U.S. financial assets just as the Obama administration sells a record amount of debt to finance a growing budget deficit and pull the economy from the deepest recession since the 1930s.
China’s central bank last month renewed its call for a new global currency and said the IMF should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar. IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible some day to take the “revolutionary” step of making SDRs a reserve currency.
SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.
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