Posted on 31 December 2009
Dollar Headed For First Annual Gain in 10 Years
The US dollar is now headed for its first annual gain against the yen in years. US economic data due next week is widely expected to show that the US economy is recovering prompting speculation that the Federal Reserve may raise rates early in 2010. The data is expected to show that US manufacturing grew for the fifth straight month and minimal job losses. When the Fed will raise rates and withdraw emergency measures has been a key question for currency traders. The dollar is also on track for its first monthly gain on the euro since June 2009. The Japanese yen is at a three week low against the euro and the Bank of Japan is expected to expand credit easing measures. Robert Rennie of Westpac Banking Corp. in Sydney stated, “A combination of higher U.S. yields and further signs of improvement in the labor situation in the U.S. should continue to underpin the dollar. Here is a stronger sense that 2009 was not as kind to the Japanese economy as it was to other parts of Asia. We are set to see more policy options being discussed within the BOJ.”
Some Say Dollar Gains Not Sustainable
Dollar gains were limited by speculation that the recent dollar rally was overdone and not sustainable. Some credit dollar gains to year end profit taking. Darius Kowalczyk of SJS Markets Ltd. in Hong Kong told Bloomberg television, “The dollar has been bought back in December on profit- taking by people who had been selling it earlier this year. This kind of year-end profit-taking is only temporary.”
Pound at 10 Day High vs. Dollar
The pound rose to a ten day high against the dollar as year end position shifting led to a dollar sell off. The pound declined against the euro which benefited from widespread dollar selling. Currency experts say that trading is so thin that a few orders can trigger a big currency movement.
Posted on 29 December 2009
Dollar at Two Month High Against Yen
The US dollar hit a two month high against the Japanese yen as encouraging data showed increased consumer confidence and rising home prices. The Conference Board’s confidence index rose to 52.9 and a Standard & Poor’s Case-Shiller report showed that median home prices increased for the fifth consecutive month in October. Fabian Eliasson of Mizuho Corporate Bank Ltd. in New York stated, “The dollar is thriving on good news. It’s a continuation of an overall reversal in dollar sentiment that started a while back and was reiterated by the good recent numbers.”
US to Outperform Other Economies
The Japanese yen, traditionally seen as a safe haven currency and widely used to finance carry trades, declined against 16 major currencies pressured by a rise in risk appetite. The dollar gained on speculation that Tuesday’s consumer confidence report will be positive for the US economy and show that the US is recovering from the global recession. Geoffrey Yu of UBS AG said, “The U.S. is probably going to outperform many economies. That’s why we have a view on a stronger dollar. Throughout 2009, the market has been overpricing the downside U.S. economic risk.” The dollar vs. yen rate rose 0.4% to 91.62 yen and the dollar traded at $1.4382 against the euro. The euro has suffered recent declines due to investor concern about the health of the EU banking sector.
Risk Appetite Pushes Euro and Aussie Higher
The high yielding Aussie dollar gained a full 1.2% rising to a 12 day high of $0.8984. The New Zealand dollar gained 1.3% trading at $0.7180. The Australian Reserve Bank raised rates three quarters of a percentage point to 3.75%. Holiday trading remains thin and most analysts are wary of drawing long term conclusions based on recent market moves. Christian Lawrence of RBC Capital Markets stated, “With so little in the way of data and not many people around the market has gone back to what it is familiar with and is trading on the back of stronger risk appetite, which is pushing the euro and higher-yielding currencies higher.”
Posted on 21 December 2009
Dollar Falls in Thin Pre Holiday Trading
The dollar fell slightly against the euro in thin pre holiday trading. Gains in US and European stock markets lifted risk sentiment and put slight pressure on the dollar. Many analysts have pointed out that recently the dollar’s relationship with stocks is weakening. Omer Esiner, of Travelex Global Business Payments stated, “What we saw was some consolidation (in the dollar) overnight and that looks like it’s continuing into the U.S. session. Keep in mind the dollar had a very impressive week last week, rising pretty much across the board, so it’s no surprise to see a little bit of consolidation.” In early trading on Monday (Dec. 21st) the euro gained 0.1% against the dollar but stayed close to Friday’s low of $1.4262, its weakest since September.
Additional EU Bank Writedowns
The euro has declined below recent levels of $1.50 and has been pressured by investor concerns about EU banking troubles and the downgrade of Greece by two rating agencies. On Monday the European Commission said the euro was overvalued and that the Euro’s appreciation could hit some economies in the euro zone. The European Central Bank said that EU financial institutions may have to write down an additional 187 billion euros ($268 billion USD) putting additional pressure on the euro. Mansoor Mohi-uddin of UBS AG stated, “Sentiment in the euro zone will suffer from the fiscal troubles of its weakest members. This hurts the euro as it makes it less likely the ECB will be in a position to raise interest rates if one of its member countries faces the threat of defaulting on its debts in future.”
Dollar to Hold Recent Gains
Most currency analysts expect the dollar to hold onto recent gains. The Fed’s positive assessment of the US economy, diminishing unemployment, and strong retail sales figures have helped the dollar to retain its momentum. Masafumi Yamamoto of Barclays Capital in Japan said, “The dollar may extend gains a little more as momentum buyers could chase the dollar up while it stays in an uptrend. But gains are likely to slow down, unlike what we saw last week, because many dollar-short positions have already been neutralised by now, and short positions in the euro on the other hand are growing.” This week the US will release its third quarter GDP report.
Posted on 18 December 2009
Dollar at Three Month High vs. Euro
The US dollar is now at a three month high against the euro and many currency experts believe that the dollar will sustain recent gains. The dollar also gained on the six major currencies of its major trading partners. Investors remain concerned that recent economic improvements may stall putting a damper on risk sentiment. The dollar index gained 1.2%, rising to 77.94 it’s highest since September 8th and the biggest one day gain since December 4th. The euro was pressured by the second Greek downgrade in a week. Earlier Fitch’s had cut the Greek rating from A- to BBB+ and Wednesday Standard and Poor’s cut Greece’s rating to BBB-. Standard & Poor’s said that spending cuts announced by Greek Prime Minister George Papandreou were not likely to produce a ‘sustainable’ reduction in the nation’s sovereign debt.
Fed’s Assessment Positive
After the Fed’s positive assessment of the US economy many traders believe the dollar will hold recent gains. Steven Englander, of Barclay’s stated, “It’s the first time in a year we look at the dollar with the potential to rise over an extended period. The same safe haven characteristics that helped the dollar in 2008, and hurt it from March through November, are helping it again. The gap in U.S. growth relative to Europe is beginning to widen.” Although the Fed said rates will remain at record lows the central bank said it would allow some emergency measures to expire in February 2010. The Fed gave no indication of when it would raise rates.
Pound Falls on Retail Sales Data
The pound fell to the lowest level in two months against the US dollar. The pound was pressured by a decline in UK retail sales and deficit concerns. The pound fell 1.2% against the dollar trading at $1.6136, down from $1.6334 on Tuesday. The pound also fell against the yen. The pound fell 0.6% against the yen to 145.73 yen but gained 0.3% against the troubled euro trading at 88.73 pence. Lee Hardman of Bank of Tokyo- Mitsubishi Ufj Ltd. Stated, “The retail sales data tend to be very volatile. Sterling appears to be particularly vulnerable against the dollar.”
Posted on 15 December 2009
Austria’s Largest Cooperative Bank on Watchlist
Austrian banking woes have further pressured the euro in currency markets. Austria nationalized Hypo Alpe-Adria Bank International AG and the Austrian press reported that the Austrian central bank and its financial market regulator have put Oesterreichische Volksbanken have put the country’s largest cooperative bank on a watchlist. A spokesman for the bank said it was not at risk of nationalization and that the press reports were inaccurate. Recently the US dollar has risen on positive US jobs and economic data. Camilla Sutton of the Bank of Nova Scotia stated, “What we are seeing recently is the improvement in some important U.S. data and rising sovereign risk in the euro zone. Both provide a bid tone to the U.S. dollar.”
Dollar Gains on Industrial Production Data
The dollar gained 1% on the euro trading at $1.4513. The dollar gained 1.6% on the yen and traded at 89.95. The yen fell 0.4% against the euro to and fell 0.5% against the pound to 89.41 U.K. pence. US industrial production increased 0.8% in November but a report from New York showed decreased industrial production during the same period showing the US economy is still struggling. Sebastien Galy of BNP Paribas SA said, “The data was positive for the dollar. It’s much safer to be short the yen, not the dollar.”
Greek Fiscal Problems Add to Euro’s Woes
Risk sentiment rose after Abu Dhabi announces a $10 billion dollar bailout for Dubai erasing previous debt concerns. Greek fiscal problems continue adding to Austria’s banking woes and sparking concerns about Euro Zone recovery. Investors are watching the ongoing Federal Reserve meeting for signs that the Fed may withdraw its stimulus programs earlier than expected. The Fed’s low rates have pressured the greenback throughout 2009 and although the dollar is now higher against most major currencies the DXY is %% lower this year. Since the release of the last US non farm payrolls report investors have been speculating that the Fed may raise rates sooner than expected.
