Articles from October 2007



Weak US data worries currency converters

The dollar was back near record lows against the euro after more weak data emerged from the US, this time showing that consumer confidence continues to wane.

The latest piece of data adds to an already strong case for a US rate cut this afternoon. A quarter-point reduction to 4.50 % is fully priced in but expectations of a larger 50 basis point cut is growing steadily.

At the last meeting, in August, US rate setters cut rates by half a point to 4.75 %. Still, most analysts believe the larger cut tooday is very unlikely given the seeming calm in credit markets and the spike up in oil prices above 90 usd a barrel.

Data out this yesterday showed consumer confidence falling to a two-year low in October as consumers became increasingly worried about the job market and deteriorating business conditions.

The New York-based Conference Board said its Consumer Confidence Index fell to 95.6 from 99.5 in September. That was its lowest level since the post-Hurricane-Katrina reading of 85.2 in October of 2005.

It appears that while the Fed’s September rate cut helped to stabilise confidence, it was unable to keep it from deteriorating further following the August liquidity crisis.

Before the rate verdict, US third-quarter GDP data is due and a 3.0 % annualised rise is expected. The dollar may well enjoy a relief rally if the data comes in as expected and US rate setters deliver a quarter point cut to 4.50 %. From then on, however, the dollar’s woes may well resume.

Elsewhere, the pound was in the ascendancy against the dollar, rising to a new 26-year high following further hawkish comments from a key swing voter on the Bank of England’s rate-setting body.

Earlier, Sterling rose to its new 26-year high of 2.0693 usd. Kate Barker, one of nine members of the Monetary Policy Committee, said there is little evidence that there has been a major change in peoples’ attitudes following the recent financial turbulence.

Speaking during a visit to Guernsey, Barker questioned whether things have changed enough to warrant a fall in borrowing costs, according to an article on The Guernsey Press and Star website.

The Swedish krona rose after the Riksbank raised its key repo rate by 25 basis points to 4.00 % as expected and reiterated that rates will need to rise again during the first half of next year.

Explaining the move, the central bank cited strong growth and rising employment levels, as well as “rapid” increases in lending and house prices, which are leading to a rise in inflation expectations.

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.

US Dollar- the pain continues…

The US Dolar was hit hard on Friday and in Asian trade this morning as expectations of a rate cut on Wednesday night continues to rise.

The market has completely priced in a 25bp cut from 4.75% to 4.50% while a 50bp cut is given a 55% probability. Although, it may not be a forgone conclusion as the Fed does not like to be pressured into a decision by the markets.

The USD slid to new all time highs against the EUR (can you still remember when following the launch in 2000 they were hoping it would get back to parity?) while the commodity and high interest yielding currencies of the CAD and AUD hit 33 and 23 year highs respectively.

Moreover the Dollar index, the value of the USD against a basket of six major currencies, hit its lowest level since inception 30 years ago.

Commodities also benefited from the weaker USD with Oil climbing to yet another record high, breaching $93 a barrel, while gold hit a 27 year peak at $794.40. Significantly oil has breached its highest inflation adjusted price for the first time since the Iran cut exports way back in 1980.

The GBP has also benefited from the weaker USD hitting new highs, however the gains have not been as dramatic as the EUR and AUD with the expectations of rate cuts in the UK restricting gains.

The possibility of a rate cut in the UK is in contrast to others like the EUR and AUD where increases are expected by early next year if not early.

With the GBP not increasing as much as other currencies against the USD the GBP crosses have fallen. GBP/EUR has slipped to key support just above the low seen in April 06. Against the AUD and CAD the GBP has sunk to levels not seen since the late 90s.

Expect the currency markets to remain volatile until the Fed announcement on Wednesday with a clearer trend likely to emerge after.

Most of the focus will be on the Fed announcement on Wednesday but there is also a string of other data due this week.

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.

Weak dollar under pressure from US data

The dollar remained under pressure following a slew of weak US data, which intensified calls for the Federal Reserve to cut interest rates at its meeting next week.

New orders for durable goods fell 1.7 % in September, compared with forecasts for a 1.5 % rise, pulled back by a major retreat in defence spending and smaller declines in orders for autos and computers.

With the forex market expecting an upward bounce to durable goods following the sharp decline in August, the negative surprise is contributing to the post-G7 US dollar pessimism that is likely to push the greenback to fresh record lows against the majors.

Elsewhere, the Labor Department said that new claims for unemployment insurance in the week ending Oct 20 fell just 8,000 to 331,000, compared with expectations that they would fall further to 320,000 new claims.

And while housing data revealed that new home sales rose 4.8 % in September to a 770,000 unit annual rate, this was still below expectations for 775,000 and was tempered by a sharp downwards revision to August’s figure by 60,000 to a 735,000 unit rate, the lowest level since October 1996.

The continued weakening in the the dollar comes on the back of Wednesday slump in existing home sales figures, which showed a massive 8 % fall in sales in September, while supply of homes stood at a record high. Currency markets are largely pricing in the probability of another interest rate reduction by the Federal Reserve next week.

The overwhelming likelihood now is that the Fed opts for an Oct 31 Halloween ‘treat’ of a 25 basis points rate cut as opposed to a ‘trick’ of holding on rates for more data. In September, the Fed unexpectedly cut its key Fed funds rates by 50 basis points to 4.75 % due to tightening credit conditions, which it feared could intensify the economy’s slowdown.

Elsewhere, the pound slipped after accounts from the Bank of England revealed it had lent another 4.65 bln stg over the past week, with players speculating that this was to Northern Rock.

The UK currency weakened overnight after the Bank of England’s financial stability report, where it said the UK’s financial system is not out of the woods yet and remains at risk of further shocks.

Speaking before the Treasury Select Committee yesterday, UK Chancellor of the Exchequer Alistair Darling said there are lessons to be learnt from the Northern Rock crisis last month, but he defended the Bank of England governor and the UK’s tripartite system of regulation.

Prices at the London open

GBPUSD – 2.0549
GBPEUR – 1.4305
EURUSD – 1.4363
GBPJPY – 235.04
GBPCHF – 2.3908
GBPAUD – 2.2515
GBPCAD – 1.9784
GBPZAR – 13.4215

Have a great day!

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.

Dollar bounce on profit taking

The dollar continued to gain lost ground on the euro as falls in equity markets prompted investors to act decidedly to cut down on risky positions.

The dollar benefited from safe haven type flows what with Wall Street opening lower, further denting sentiment after major European and Asian bourses all ended down amid concerns about the impact of the sub-prime crisis on the US and global economy.

While concerns about the US economy also weighs on the dollar, no part of the global economy is expected to escape unscathed, in turn leading to widespread risk aversion.

The current market sell-off is especially more dire than the turmoil of February and August because of escalating probabilities of a US recession.

The yen has also been supported by increased investor caution, as market players shy away from the risky carry trade where they sell the low-yielding Japanese currency to invest in higher-yielding ones elsewhere. This in turn has pushed high yielding currencies such as the pound and Australian dollar lower.

Equity market woe is helping to weigh on the high-yielding pound, the dollar and yen are perceived to be more as safe-haven currencies than the pound, so it can be vulnerable when stocks fall.

However while the rise in risk aversion has given the dollar a boost, analysts still expect the greenback to remain weak in the long-term, especially following the notable absence of any comment on the currency at this weekend’s G7 meeting.

The communique from the G7 gathering in Washington made no mention of the weak dollar, or indeed the yen, opting instead to call again for a faster appreciation of the Chinese yuan.

The dollar’s fortunes will now depend on whether the Federal Reserve continues to ease its monetary policy stance. Most of last week’s US data came in on the soft side and analysts expect to see a similar outcome in the coming days.

Apart from safe haven flows, the dollar is unlikely to find support this week as the cyclical data should remain weak and the market is likely to revise the probability of a US recession upwards. While no major data is scheduled for today, existing and new home sales due out on Wednesday and Thursday respectively are expected to show the housing market continuing to falter.

Elsewhere, the Canadian dollar fell back from recent 31-year highs on another outbreak of risk aversion in global markets, and also in response to weekend commentary from Bank of Canada governor David Dodge expressing concern about the speed of the currency’s appreciation.

Currency converter eyes G7 for direction

The euro struck a new all time high of 1.4309 US Dollars, before drifting back slightly, as the dollar suffered a renewed bout of selling pressure ahead of this weekend’s G7 meeting of finance ministers and central bankers.

Most market participants doubt that the G7 will publish a stronger than usual statement on currencies in their communique after the meeting, though volatility has declined in the immediate run-up to the meeting on some nervousness that the dollar’s slide may be mentioned.

Currency converters do not expect too much to emerge this weekend, especially as the falling dollar is providing some offset to the problems afflicting the US economy from the housing market.

Getting Washington to endorse a broad support package for the dollar is going to be difficult and in any case this would do nothing to solve the issue of excessive dollar strength against the Chinese yuan and yen.

As for the euro and the so-called dollar bloc economies, the fact is that currency strength has allowed their respective central banks to back away from previously planned official interest rate hikes at time of financial turmoil and increased macroeconomic uncertainty.

Politicians in Europe are likely to be more concerned though and the fact that the euro has hit a new all-time high a day before the G7 is likely to raise eyebrows.

A weaker dollar is perfectly consistent with lower US growth and interest rates, adding that talk of a dollar crisis is misplaced. Consequently, no changes in the G7 communique regarding currencies is truly warranted. Expect the G7 to stress the importance of flexible exchange rates and its commitment to orderly market conditions.

There’s very little of interest before this weekend’s G7, though last nights Philadelphia Fed’s business conditions survey will be monitored. The survey showed business slowing, dropping further than expected to 6.8 in October from 10.9 in September.

Elsewhere, the Pound was slightly stronger following robust UK retail sales figures which weighed on expectations of a Bank of England rate cut in November.

The Office for National Statistics reported that retail sales in September rose 6.3 % from a year ago, the highest rise since September 2004 and above analyst expectations for a 5.6 % increase.

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 converter views weakening Dollar

The dollar came under fresh pressure after further signs of weakness emerged in the US housing market, with housing starts data slumping to its lowest in over fourteen years.

The Commerce Department said housing starts and permits for future construction fell to the lowest level in September since 1993, with a 10.2 % drop in starts to a 1.191 mln unit annual rate, and a 7.3 % fall in building permits to a 1.226 mln unit annual rate.

The credit crunch may only have had a limited impact on the rest of the economy but it has devastated an already weak housing sector. The data will likely support Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson’s concerns that the US housing market is a threat to economic growth.

The data offset key inflation figures that came in more or less in line with forecasts.

Overall consumer prices rose 0.3 % in September, a touch above consensus expectations for 0.2 %, while core prices rose 0.2 %.

The release of the Fed’s Beige Book last night, which measures business activity and sentiment, reported cooling third-quarter economic activity and lower business confidence. The report, coming on top of mixed third-quarter corporate earnings and continuing worries over the housing sector, intensified investors’ recession worries.

Wise Money has mixed feelings about the Fed’s next move. Employment reports for September have been positive, but the lingering credit crunch and signals of economic slowdown may trigger further rate cuts.

Lower interest rates, used to jump start the economy, can also weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns.

In the meantime, any other data from the world’s largest economy in the run up to the G7 meeting this weekend is likely to be sidelined. Expect dollar selling to continue going into Friday’s G7 meeting in Washington where currency will undoubtedly be on the table for discussion.

Elsewhere, the pound remained on the backfoot after it was revealed that one UK rate setter voted for a rate cut earlier this month. Additionally, the rate setting deliberations were seen as dovish. The minutes to the rate setting meeting showed that the debate of the meeting centred on how the turmoil in the financial markets over the past couple of months has affected the economy and whether a “precautionary” rate cut was necessary.

This has increased speculation of lower rates from the BoE next month, particularly after Tuesday’s soft inflation reading.

Also out yesterday, UK labour market data showed a modest pick up in wages but the gains are still too small to spark off inflationary concerns. Retail sales figures due today will shed further light on whether spending on the high street has managed to hold up since confidence was hit by the run on the Northern Rock building society.

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.

Dollar weakens on data unpopularity

The dollar came off its day highs after data showed the summer’s financial market turmoil led to the largest ever monthly outflow of capital from the US during August, as investors rushed to pull their money out of dollar-denominated assets.

Treasury International Capital figures showed net foreign long-term securities purchases amounted to minus 69.3 bln usd in August, the largest outflow ever following three months of declining capital inflows.

The figure should bounce back next month when the market turmoil has died down. However, the fact that so many people shifted out of dollar-denominated assets is likely to weigh on the currency going forward.

The data will not take away from the bearish mood surrounding the dollar – it is very possible that it could depreciate further in coming months.

US industrial production figures out yesterday afternoon, however, had little impact on the dollar, with output rising 0.1 % during September compared to August, in-line with expectations. Meanwhile a dip in risk appetite, precipitated by poor US corporate earnings reports weighing on equities, political tension between the US and Turkey and rising oil prices has helped support the yen and weighed on the Australian dollar.

This is because of an unwind of the carry trade, a risky strategy where investors sell low-yielding currencies such as the yen to invest in high-yielding ones elsewhere such as the Australian currency.

Elsewhere, the pound has steadied against all major currencies after falling in early trade yesterday following the release of figures showing UK inflation remained well below the Bank of England’s target during September. The Office for National Statistics said the annual CPI inflation rate remained at 1.8 % in September, the same rate as in August, against expectations for a slight rise to 1.9 %.

This means CPI has fallen below the BoE’s 2.0 % target rate for three months running and has weighed on the sterling because it raises expectations that UK interest rates could be cut before the end of this year.

Today sees the release of the minutes to the Bank of England’s October interest rate decision when borrowing costs were left on hold at 5.75 %. Markets will be watching closely for any signs that members of the Monetary Policy Committee are becoming more inclined towards cutting interest rates.

Finally, the Canadian dollar ended slightly lower yesterday, after the Bank of Canada’s interest rate statement offered no fresh incentives for taking on new positions in the currency, and similarly commodity-linked currencies such as the New Zealand and Australian dollars sank on renewed risk aversion.

In keeping its benchmark overnight interest rate target unchanged for a second consecutive decision date at 4.50%, the Bank of Canada conformed with market expectations, even if its accompanying statement struck many as being slightly on the dovish side and suggestive of the Bank’s next move being an eventual rate cut.

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 converter strenghtens on data

The dollar is off earlier session lows against the euro after some further US data reinforced expectations that the US Federal Reserve will not be cutting borrowing costs again this month.

The Empire State manufacturing index nearly doubled to 28.75 in October as both new orders and shipments rebounded from September declines. We had expected a small drop to 14.40 after the index’s 10-point plunge to 14.70 in September.

Nevertheless, since the Fed won’t have the more comprehensive ISM manufacturing survey for October available when it meets at the end of this month, this survey and the Philly Fed will be all it has to go on, and on that basis, this is another reason to adopt a wait and see approach at that meeting and leave rates on hold at 4.75 %.

The market’s conviction that last month’s 50 basis point rate reduction from the Fed marked the start of a series of rate cuts has diminished sharply because of relatively firm US data and record oil prices. The Fed slashed its benchmark interest rate by 50 basis points last month to 4.75 % as it sought to restore market confidence following the onset of the credit crunch.

The market will now be refocusing on this weekend’s G7 meeting of finance ministers and central bankers in Washington. With the US Treasury seemingly unconcerned by the slide in the dollar and the Europeans talking about the need to sort out global imbalances rather than direct comments on the US currency’s weakness, market participants think little will be said in this weekend’s communique.

Some exchange rates are mis-aligned, but the G7 have maintained the ‘market-is-always-right’ doctrine too long to do much about currency misalignments now and as a result, we will see another replay of the G7 pressing for more appreciation of the yuan, with the expected response from China.

Finally, the dollar fell against most other major currencies as Wall Street retreated over bad debt worries and surging oil prices. The Japanese yen gained across the board, pushing down the dollar. The U.S. currency hit a new 31-year low against the Canadian dollar before rising above Friday’s level, and it dropped to 117.21 yen in late Monday trading, from 117.56 Friday.

The 13-nation euro moved as high as $1.4243 before settling back to $1.4200 in late New York trading. That put it within sight of its all-time high of $1.4282, reached Oct. 1, and above the $1.4176 it bought in New York late Friday. The U.S. dollar hit a fresh 31-year low against the Canadian dollar, falling to 97.03 Canadian cents before gaining back to 97.73 in late New York trading. On Friday, the dollar bought 97.36 Canadian cents.

The Canadian dollar achieved 1-to-1 parity with the dollar Sept. 20 for the first time since November 1976. Sentiment on long-term movement is divided, and investors await the Bank of Canada’s interest rate decision today. The British Pound advanced to $2.0424 from $2.0343.

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.

Prices the word of the money week

And that’s not just for rugby world cup final tickets.

The Rightmove House Price survey released this morning indicated September house prices recovered from a -2.6% decline previously to rise 2.7% last month. Year on year growth is now 10.4%.

The increase is due to more expensive homes on the market prior to the implementation of Home Information Packs. In signs that the market may be cooling the average time homes stay on the market continues to increase, now at five year highs of 85 days.

The week ahead also sees a raft of inflation data starting with UK inflation data tomorrow with expectations of an increase in the consumer price index from 1.8% to 1.9% primarily due to increasing food prices.

Eurozone inflation data for September is also due tomorrow again expectations are for no change at 2.1%.

US core inflation is due on Wednesday with the consensus also unmoved at 2.1%. Friday saw US retail sales results come in higher than forecast increasing 0.6%.

This was against forecasts of 0.2% increase as consumers continued spending despite the deepening of the housing slump.

The above consensus of stable inflation data may undermine those hoping for interest rate cuts in the near future, the week ahead will provide greater indications of this.

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.

The Bank of Japan keeps interest rates on hold

The US Dollar lost ground against the euro yesterday to $1.4152 after France and Germany released better than expected industrial production data for August.

The dollar traded in a narrow range against the yen until the announcement last night that the Bank of Japan kept its interest rates on hold. Today the yen has lost ground to the dollar and euro.

Other currencies such as the Australian and New Zealand dollars, the Norwegian krone and the South African rand have rallied strongly against the yen since mid-August.

Links to commodity prices such as gold and the anti-inflationary positions of the respective central banks are viewed as important attractions for these currency pairs.

Sterling found support yesterday against the euro and dollar after comments from the governor of the Bank of England suggesting an early interest rate cut was unlikely.

This morning however, Sterling was down 0.3 percent at $2.0370. The euro rose to 69.66 pence – its strongest since early October. Whilst tighter lending conditions could produce a further credit squeeze, the sentiment from the BOE is that Britain’s economy needs to slow over 2008 to stem inflation.

On Tuesday, Darling downgraded the government’s economic forecasts citing the problems stemming from the U.S. economy.

Concerns that the strength of the euro would negatively impact international trade were countered yesterday with French, German and Italian positive production data.

The euro is at a two month peak against the yen to 166.28. This morning the euro rose 0.1 percent to $1.4160 within site of the record high of $1.4280 hit earlier this month.

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.