Articles from August 2006



Wise Money sits watching results

The dollar continued to trade within a tight range against the euro, while the yen was weak, particularly against high-yielding currencies, as a further Japanese rate rise this year looks unlikely.

US data yesterday afternoon showing an upward revision to second quarter economic growth to 2.9 percent from 2.5 percent was broadly viewed as negative for the dollar, given that it was slightly below the consensus forecast for an upgrade to 3 percent.

A string of recent weak US data and dovish comments from the Federal Reserve have strengthened expectations that interest rates will not rise further. Meanwhile, the European Central Bank still looks to be firmly on a path of monetary tightening and is expected to signal another rate hike in October at its press conference this morning.

The dollar remains stuck within a tight range, however, and the euro will not breach the 1.30 USD level until there is a clear sign that the next time the Federal Reserve adjusts interest rates it will be downwards not up.

Elsewhere, expectations that weak economic data and political pressure will prevent the Bank of Japan from raising interest rates any further weighed on the yen, with the euro making a sustained break of the 150 yen mark to reach a new record high of 150.32.

The prospect of continued very low borrowing costs in Japan have given a renewed boost to carry trades — when investors borrow in low-yielding currencies in order to invest in high-yielding currencies –, boosting high-yielders such as the Australian and New Zealand dollars and sterling.

Meanwhile, the pound was also strong, reaching 10-day highs against the dollar, after another set of firm UK data this morning strengthened expectations that the Bank of England will raise interest rates again this year, probably in November.

UK mortgage lending surged to its highest level in nearly three years in July, figures showed, while a key survey also revealed UK retail sales rising at their fastest rate in over a year and a half during August.

Finally, Gold and Oil made a moderate rebound, up 1.13 percent and 0.25 percent to trade at $626.1 and $71.88 respectively. US rates stand at 5.25 percent, UK at 4.75 percent and the Euro Zone at 3 percent.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

FOMC Signals there is no rush to resume rate hikes

The dollar got a short lived late boost after news of a sharp pick-up in US inflation expectations shortened the odds of another rate hike in the country. The Conference Board reported a pick-up in inflation expectations in August, to reach 5.5 percent from 5.1 percent in July. The rise came despite a slump in overall confidence, with the headline index dropping to 99.6 from 107.0 in July.

High commodity prices keep upward pressure on producers’ input costs and the Fed remains concerned that current inflation rates will lead producers and consumers to revise their inflation expectations higher.

The Dollars gains were lost following last nights FOMC’s minutes from the August 8th meeting which left rates unchanged at 5.25 percent. The minutes signaled that the Fed is in no rush to resume raising borrowing costs and may even be done tightening as the slowing economy eases inflation.

The euro fell against the yen, succumbing to profit-taking after rising past the 150 yen level to an all-time high. Meanwhile, earlier comments by Japanese finance Minister Sadakazu Tanigaki, who was reported as saying that Japan is monitoring currency movements closely in the wake of the euro’s sharp rise against the yen, also helped support the yen.

Later this week, focus will centre on Thursday’s meeting of the European Central Bank rate-setting board. Euro zone interest rates are fully expected to be left on hold and investors will be looking to the accompanying press conference, where ECB president Jean-Claude Trichet is expected to signal that rates will rise again in October. The ECB meeting is likely to provide euro support as Trichet signals the need for further rate normalisation.

The pound stayed little changed amid a lack of fresh local news. Things pick up today when the Bank of England releases figures on consumer credit and mortgage lending.

Net new consumer credit is seen rising modestly to 1.0bn stg from 0.8bn stg in June while mortgage lending is predicted to stay unchanged at 9.0bn stg. Mortgage approvals, meanwhile, are expected to edge lower to 118,000 from 120,000.

Also due today, the Confederation of British Industry’s distributive trades survey which looks at retail sector performance, is expected to show a slow down. The reported sales balance for August is seen slowing to +5 from +7 the previous month. It is predicted a much steeper decline, however, suggesting that the pound may come under pressure.

Elsewhere, Gold and Oil continued to decline, dropping 0.78 percent and 1.14 percent to $619.1 and $71.7 respectively. Interest rates in the UK stand at 4.75 percent, in the US at 5.25 percent and the Euro Zone 3 percent.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Consumer Confidence in the US expected to show a decline today

The euro was a touch softer in late trade but still well off lows seen last week, as investors shrugged off an unexpected slowdown in money supply in the 12 nation single currency area. The day’s trading was slow, however, with the UK shut for a public holiday and the lack of any economic news out of the US.

The euro was just under the 1.28 USD level but much higher than Friday’s low of 1.2726 USD and currently trading at 1.2825 this morning.

The consensus is that the euro will remain well-bid in the near term despite some soft data yesterday. In data out yesterday afternoon, it was revealed that M3 money growth slowed to 7.8 percent year-on-year in July from 8.5 percent in June

The data is not expected to change the course of interest rates in the euro zone over the rest of the year. The European Central Bank is scheduled to decide on interest rates this Thursday but is widely expected to hold fire after having raised the benchmark rate from 2.00 to 3.00 percent since December.

ECB president Jean-Claude Trichet’s press conference should be hawkish enough to signal a hike in October. In general, upside risk to ECB rates is likely to keep the euro supported against most key crosses near-term.

The US Dollar has declined overnight on speculation a report today will show US Consumer confidence fell to the lowest this year, making it less likely the Federal Reserve will resume raising interest rates. Attention will turn to this evenings minutes from the August 8th FOMC meeting for further direction on the future of interest rates.

The Swiss franc was propped up by comments from Swiss central bank chief, Jean-Pierre Roth that interest rates in the country may well have to rise further.

The pound, meanwhile, was little changed amid a lack of domestic news and due to the fact that UK markets were closed yesterday.

The South African rand fell to a one-month low against the dollar on concern South Africa’s earnings from metal exports will slow as its dependence on foreign capital increases.

Elsewhere, Gold and Oil have declined 1.09 percent and 1.25 percent to $623.9 and $72.52 respectively. UK interest rates stand at 4.75 percent, the US at 5.25 percent and the Euro Zone at 3 percent.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Bernanke speaks. will the market listen?

Following what was the busiest day of the week in terms of economic data releases we are opening up this Monday morning with GBPUSD over 1 cent lower and a 75 point move witnessed in GBPEUR.

First up yesterday was German business sentiment which came better than expected and provided immediate strength for the Euro. The business climate index, based on a survey of around 7,000 firms, fell to 105.0 from 105.6 in July versus forecasts of 104.8. Following the weak ZEW survey people were prepared for something worse.

The climate component remained at a high level which is a good sign for growth in Q3. ‘Expectations’ have declined somewhat, largely on the back of a decline in the global economic environment and also the recent increase in VAT. In terms of ECB policy the data will not alter perceptions – it confirms the scenario of recovery and means that interest rate increases are likely to continue.

Also a busy afternoon for US data yesterday with the release of Durable goods orders, Jobless claims and New home sales. New orders for US made durable goods fell a greater than expected 2.4% in July with civilian aircraft and cars orders lower. It represented the first decline in 3 months, however core durable excluding the transportation element was above expectations, giving signals that the manufacturing sector remains to be doing reasonably well which in itself was positive for the dollar.

Initial jobless claims declined to 313,000 last week from an upwardly revised 314,000, slightly below a forecasted 315,000. Finally, New home sales were weaker than expected, as to be expected following similarly disappointing Existing home sales on Wednesday. A muted reaction in the market as, as yet, the data hasn’t affected Retail sales. Retails sales, reported two weeks ago hit the highest level since January even though we are seeing slowing in the housing market.

The pullback in US economic activity has raised fears that the Fed has overshot with its tightening and that the slowdown has been greater than initially anticipated. Next week’s slate of reports will provide additional insight on the state of the economy as well as the upcoming decision by the FOMC.

This afternoon, at 13.00 Fed Chairman Bernanke speaks at Jackson Hole – the title being “The New Economic Geography and Policy Implications”. There is speculation around the title that the speech will focus on global imbalances – an old favourite of the foreign exchange markets, if we remember back to Greenspan’s speech of November 2004 which helped to create the impression that US officials were actively encouraging a weaker dollar and contributed to huge moves in the currency.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Further German IFO survey expected to show soft data

The euro came under pressure in late trade as investors braced for yet another weak confidence survey out of the region today, leading some investors to scale back somewhat aggressive expectations of rate hikes in the 12-nation area.

The euro fell under the key 1.28 usd level before finding some support from some smaller European central banks.

The single currency’s woes started on Tuesday when sentiment was dented by a slump in the ZEW sentiment indicator from the area’s largest economy, Germany. The theme continued yesterday when the Belgian National Bank’s bellwether business confidence indicator, suffered a sharper than expected drop. Markets are anxious there will be more of the same today when the crucial German Ifo survey is released.

The headline Ifo business climate index is forecast to edge down to 104.9 in August after dropping further than expected to 105.6 in July from June’s 15 year record high.

The falls in the forward looking surveys may well prompt the European Central Bank to delay future rate hikes. One or two more quarter point hikes are widely expected. The benchmark interest rate now stands at 3.00 percent.

Regardless of the regular rate hike schedule ECB President Jean-Claude Trichets ‘buzzwords’ have arguably engineered for euro-zone monetary policy, the prospects of its implementation are only ever as good as the scope provided by economic data.

Elsewhere, the dollar had a wobble of its own after confirmation of a further slowdown in the US property market weighed against the prospect of another rate hike in the country this year. The National Association of Realtors said US existing home sales fell by 4.1 percent to 6.33 million in July from the previous month’s downwardly-revised 6.60 million.

The softening in the home resale market was greater than expected in July and survey data for August mortgage applications and homebuilder sentiment suggest that conditions will weaken further in August. These housing data should help keep the Fed on hold in September as it attempts to evaluate how much, economic growth has moderated by. Analysts also predict that the slowdown in the property market will hamper overall US GDP growth

After a run of 17 consecutive rate hikes going back as far as mid-2004, US rate setters paused from tightening monetary policy earlier this month. Investors are at odds if the Fed will hike the benchmark rate from 5.25 percent this year.

Elsewhere, the pound held steady after a rather mixed Confederation of British Industry’s survey of the UK manufacturing sector. The message is a continuation of a trend that has been in place for a number of months and is unlikely to make much impact on the financial markets.

The UK interest rate debate remains far from settled although some sections of the market are holding steadfast to predictions of a quarter point hike to 5.00 percent in November.

Finally, Gold has declined further by 0.16 percent to $633 and Oil has slipped to $7355, down 1.5 percent.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Euro currency wobbles on poor results

The Euro recovered slightly from yesterday’s lows but remained weak after a key German sentiment survey yesterday morning came in well below expectations, while the yen continued to fall ahead of key Japanese inflation data on Friday. The closely watched ZEW expectations index slumped to 5.6 in August from +15.1 in July, the lowest reading in over five years and well below the consensus forecast for a much smaller fall to +12.2.

The survey is often seen as volatile and is unlikely to alter expectations that the European Central Bank will raise interest rates again in October, but it will raise concerns that the euro zone economic recovery may be flagging and rate hike forecasts beyond October may have to be scaled back.

The appreciation of the euro, high oil prices, the threat of higher European Central Bank interest rates and concerns about the VAT rate hike have all taken their toll on economic confidence. There was some comfort however with the current conditions index picking up sharply to +33.6 points in August from +23.3 in July.

The euro moved back down towards the 1.80 mark against the dollar in the wake of the news. The yen failed to make any headway as a result, however, with the European currency remaining comfortably above the 149 yen level as the Japanese unit slumped to seven-day lows against the dollar.

Worries are increasing that the Bank of Japan will not raise interest rates again for some time, particularly if key Japanese inflation data on Friday comes in on the weak side. There was bad news yesterday too for Japan’s retail sector as data showed sales at Japanese supermarkets fell 3.2 per cent in July from a year earlier.

The pound meanwhile was lower against the dollar, tracking falls in the euro amid a lack of UK data yesterday. Today will see the release of the latest monthly industrial trends survey from the Confederation of British Industry.

The US dollar may fall today on concern US reports will show the housing market is cooling, reducing the case for the Federal Reserve to restart interest-rate increases.

Elsewhere, Canada’s dollar was little changed near a five-week high after a government report showed consumer prices unexpectedly rose last month, the South African rand slid to its lowest in more than a month on speculation the government won’t act to check its decline, which has boosted the competitiveness of the country’s exports and the Australian dollar may rise on speculation overseas investors will be attracted to the higher yields available on the nation’s debt in anticipation of the central bank raising interest rates a third time this year.

Finally, Gold and Oil have both dropped 0.19 percent to $634 and 0.05 percent to $74.65 respectively.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Currency converters focuses on Oil

In a week of few economic releases Oil remains a key focus for many market observers. The price steadied overnight at over $72 a barrel after a two day rally as Iran vowed to press ahead with its current nuclear programme raising the prospect of sanctions against the world’s fourth largest oil exporter.

Iran is due to give its reply today to a package of incentives by world powers that aim to end the nuclear standoff with the West but supreme leader Ayatollah Ali Khamenei vowed yesterday that Iran would continue its path on nuclear energy. Many are concerned though that any sanctions will harm the west more than Iran by sending oil prices even higher and thus having a major impact on most financial markets.

In data released yesterday the Eurozone saw its trade balance swing to a surplus in June highlighting accelerating economic growth despite high oil prices and the strong Euro. The Euro zone had a 2 billion surplus in June compared with a 3.2 billion deficit in May. Consumer demand has picked up despite interest rate rises by the ECB while exports have remained robust helping to boost Eurozone growth to 0.9% in the second quarter from the January to March period.

China once again hit the headlines overnight after its chief statistician said they should push ahead with currency reforms and take “strategic” steps to boost imports and overseas investments to help dampen expectations of the Yuan appreciation. Recent speculation and pressure from the United States for China do strengthen its currency has been a contributing factor in the U.S Dollars weak performance.

The USD remained under pressure against most currencies yesterday after what appeared to be a slow reaction to last weeks poor US data. Releases last week produced evidence of weaker than expected inflation, weakening housing data, declining wage growth, disappointing industrial production and falling consumer sentiment. Prior to this data the market had been pricing in a one in three chance that the Federal Reserve would hike interest rates again next month whereas yesterday the chances were seen as virtually zero. There is no suggestion that the U.S is heading for a recession but it is looking increasingly likely that a tough time may be approaching over the next six months or so.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Rand heavily sold since Friday

The US dollar recovered against major currencies, moving back towards day highs against the euro and the pound, after falls in the wake of weaker than expected US consumer confidence data proved short-lived. The latest University of Michigan survey showed the headline consumer sentiment index fell sharply to 78.7 in August from 84.7 in July, well below analysts’ expectations for a small rise to around 86.

The market is currently still pricing in a more than 50 percent chance that inflationary pressures will force the Fed to raise interest rates again by the end of the year.

The pound was particularly weak, falling to 15 day lows against both the dollar and the euro. The UK currency has been on the back foot for much of last week after weaker than expected UK inflation and retail sales data, as well as slightly bearish Monetary Policy Committee minutes, dampened hopes that the Bank of England will raise interest rates in the autumn.

The pound failed to make any headway on Friday after data yet again showed very strong levels of both mortgage lending and money supply in the UK, both factors which are likely to worry rate-setters at the BoE.

Elsewhere, the yen also fell back down again after a brief rally earlier in the day following China’s decision to raise interest rates petered out. The interest rate hike was an attempt to cool China’s overheating economy and caused a bout of yen buying, with the Japanese currency likely to benefit most from any appreciation in the Chinese yuan.

Markets remain relatively flat, however, the ZAR has been sold off against the Dollar since late Friday, declining Gold price also added to the lost ground, currently trading at levels not seen in quite some time.

Today’s economic calendar is thin, Euro Zone Trade Balance and Canadian Retail Sales both worth watching.

Gold has dropped 0.58 percent to $621.7 and Oil has gained 0.8 percent to 0.80 percent. UK interest rates stand at 4.75 percent, the Euro Zone is 2 percent and the US is 5.25 percent.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Currency converters dump Sterling

The British pound was on the back foot after economic data suggested that consumer spending may be faltering in the UK. The news drove the pound to a 2-week low against the euro. The UK currency had previously found support from the Bank of England’s surprise rate hike in early August and speculation of more hikes to come.

The figures out yesterday were seen in some sections of the market as a signal that consumer spending may fade over the coming months as households struggle with higher energy costs. And, if the slowdown seen in July becomes more fixed, the chances of a UK rate hike in November will decrease.

Official figures out of the UK showed that retail sales fell for the first time in six months during July, confounding expectations of a 0.2 percent increase, while to make matters worse, sales for June were revised downwards.

The drop in sales suggests that at least some of the recent strength has been due to temporary factors like the World Cup. What’s more, the pressure on households’ finances has, if anything, increased recently due to the rise in interest rates and the new round of utility price hikes.

Meanwhile, the US dollar recovered some ground after yesterdays data showed US jobless claims fell by 10,000 last week to 312,000, well below analysts’ forecasts for a much smaller drop to 318,000. Following the moderation seen in recent months, the trend in jobless claims does not point to any further slowing in job creation.

Yesterday’s numbers will help offset weaker-than-expected CPI and PPI inflation figures earlier this week, though market players are likely to continue to slip up on the side of not forecasting any further US interest rate rises for the time being.

The dollar’s gains gathered pace after a forecast beating Philadelphia Fed survey. The headline index jumped to 16 in August from just 6 the previous month. Analysts had expected the index to drop to 4.

Meanwhile, the euro reacted little to news of soft euro zone inflation and industrial production data yesterday morning, which were considered nowhere near weak enough to prevent the European Central Bank raising interest rates again in October.

With the annual HICP rate at 2.4 percent, inflation remains above the ECB’s definition of price stability of at or just below 2 percent while euro zone growth looks ‘increasingly healthy and broad-based.

Finally, Gold and Oil dropped 2.14 percent and 1.81 percent to close at $625.3 and $72.85 respectively. The equities markets had a rally, London’s FTSE 100 closed up at 5900.4, the Nikkei finished at 16147.36 and the US DJIA closed up at 11334.96

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Surprise at 6-1 BOE decision to raise rates

The US Dollar weakened to levels not seen in nearly a week, dented by news of benign inflationary pressures in the US which weighed on the chances of a rate hike over the coming months. The euro nudged up over half a cent after the yesterdays CPI data, to levels in the mid-1.28 usd area.

The much awaited US CPI data came in below expectations, with the core rate dropping to 0.2 percent in July from 0.3 percent in June. The headline CPI rate, meanwhile, rose by 0.4 percent in line with expectations.

Yesterdays report prompted some dollar selling as players increased odds that Bernanke will remain on pause through the end of the year. With the Fed on hold in a data-dependent mode, yesterdays report took on greater significance than usual.

The dollar’s falls accelerated when it was also revealed that the property market in the US is faltering. The twin factors of softer inflation and slowing growth are likely to persuade US rate setters to keep monetary policy unchanged.

The CPI figures were key as the jury is still out on whether US rate setters will resume hiking interest rates. The Fed’s run of 17 rate hikes came to an end last week with the benchmark rate at 5.25 percent. The door remains open to one more rate hike, however.

Elsewhere, the pound came back after an initial dip on the back of news that the Bank of England decision to hike interest rates earlier this month was not unanimous and that jobless levels in the country have risen. Partly offsetting the impact on the early drop, however, was the fact that wage pressures were up slightly.

Many observers predict another quarter point hike in November, taking the benchmark rate to 5.00 percent.

Yesterdays firmer-than-expected earnings data will mean that the Monetary Policy Committee will remain vigilant to the danger that higher inflation could feed through into wages in the near term. That is likely to be more of a concern than the threat that higher unemployment will feed through into lower wage growth further down the line.

Today’s main figures will be CPI from the Euro Zone and Jobless claims from the US.

Finally, Gold regained some of its previous days losses to close up 0.95 percent at $639, however Oil dropped further by 1.17 percent to $74.17. Interest rates currently stand at 4.75 percent in the UK, 3 percent in the Euro Zone and 5.25 percent in the US

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.