Posted on 30 March 2010
Greek Bond Sale Falls Short of Expectations
The US dollar gained on the troubled euro for the first time in 3 days after Greece’s bond sale fell short of expectations. The euro fell after the Greek bond sale prompted demand for less than half of the debt offered. The euro and dollar also fell against commodity linked currencies as oil and commodity prices rose. Sacha Tihanyi of Bank of Nova Scotia stated, “The euro is obviously still suffering. Canada is an excellent country from the sovereign-risk perspective, and Australia is very good as well.” Details of the EU IMF agreement remain unclear prompting investor concern. The greenback gained 0.6% on the euro trading at $1.3409 in morning New York trading. The dollar gained 0.4% on the yen trading at 92.80. Amazingly enough, the pound was the best performer and gained 0.7% vs. the dollar and last traded at $1.5101 after hitting a high of $1.5127. The euro hit a two month high against the yen but pared early gains as lingering concerns about Greece’s fiscal health linger.
Euro Zone Debt and ECB Rates Cause Concern
Analysts see limited euro gains due to euro zone debt problems and the perception that the ECB will not raise rates anytime soon. Daragh Maher of Credit Agricole CIB in London stated, “The uncertainties surrounding Greece and wider fiscal issue are still a problem.” The euro has gained about 1.5% against the dollar since last Friday when EU leaders announced a rescue plan for Greece. Commodity linked currencies gained as a rise in commodity prices boosted demand for the Aussie, Kiwi and Canadian dollars. The New Zealand dollar hit its highest vs. the greenback in a week after a government report showed that home building rose in February for the first time in three months. Imre Speizer of Westpac Banking Corp stated, “The sentiment around commodity currencies is more bullish this week and the data in both Australia and New Zealand is tracking pretty well.” The Aussie gained 0.2% vs. the greenback trading at 91.92 U.S. cents. The Kiwi remained at 70.98 U.S. cents. So far this month the Aussie has gained 1.6% vs. the greenback and the Aussie has gained 2.6%.
Pound Gains for Third Straight Day
The pound gained for the third straight day against the US dollar as reports showed that the UK’s GDP showed better than expected growth. The pound has been pressured by political concerns as investors remain concerned that election results could result in political gridlock crippling the nation’s ability to deal with an 11.8% budget deficit. In London the pound gained 0.7% vs. the dollar trading at $1.5092.
Posted on 25 March 2010
Euro Trading Volatile
Once again the beleaguered euro hit a 10 month low against the US dollar paring earlier gains in currency markets. Trading remain volatile in advance of today’s EU summit in Brussels, Greece’s ongoing debt crisis and Wednesday’s downgrade of Portugal’s rating by Fitch’s rating agency dragged the euro down in trading sessions. In Asian trading the euro hit an all time low vs. the Swiss franc as disagreements among EU nations on how to solve Greece’s massive debt problems prompted Asian hedge funds to dump the euro. Currency experts believe the euro will continue its decline throughout the week due to disagreement among EU leaders which is making investors nervous. The euro pared earlier losses after a spokesman for the Athens government said that a French-German plan to aid Greece “sends a message of stability.”
IMF Aid Would Be Negative For Euro
Earlier the euro fell after European Central Bank President Jean-Claude Trichet said that the EU needs to take responsibility for other EU states and that International Monetary Fund aid to Greece is “very, very bad.” Camilla Sutton of Bank of Nova Scotia stated, “Trichet said that turning to the IMF would be very difficult. The implication is that an IMF aid package would be negative for the currency. His comments highlight the ongoing uncertainty in the EU, and it’s the uncertainty that’s impacting the market.”
Contingency Plan Developed by France and Germany
The contingency plan developed by France and Germany “satisfies” the Athens government said Greek spokesman George Petalotis. He also said the plan “covers us fully” and EU leaders are expected to discuss the plan tonight. Investors and currency experts remain cautious. Omer Esiner, of Travelex Global Business Payments said, “The market sees a high level of uncertainty until we get details on a plan to bail out Greece, and we’re seeing the euro fall as a result of that. The involvement of the IMF is somewhat of a negative for the euro.” European Union executive and Spanish Prime Minister Jose Luis Rodriguez Zapatero told reporters in Brussels that “We need confidence in the European currency.” European Commission President Jose Manuel Barroso echoed Zapatero’s statement. Barroso also said that he supports the ECB decision to loosen finding and collateral rules. Barroso told reporters, “As you know, according to the (EU) treaties the ECB is fully independent so it was a decision taken by the ECB but it has my full support and the full support of the Commission.” Until the EU agrees on a solution for Greece’s debt woes the euro is likely to remain under intense pressure.
Posted on 23 March 2010
No EU Solution Expected
The euro once again fell vs. the US dollar and most analysts believe that EU members will not be able to agree on any kind of aid package for Greece during this week’s EU summit. Concerns about Greece’s ability to repay its debts are keeping the euro low in currency markets and are also supporting safe haven dollar buying. The euro was pressured further when it hit an all time low against the Swiss franc. EU leaders have strong disagreements on how to provide aid to the Athens government. German Chancellor Angela Merkel faces fierce public opposition to any Greek bailout and said there will be no decision on aid to Greece at the upcoming EU summit. Failure to resolve Greece’s debt woes combined with stalled euro zone recovery could cause the European Central Bank to postpone raising rates further pressuring the multi nation currency. Joe Manimbo of Travelex Global Business Payments stated, “The risk is for further weakness in the euro if nothing concrete comes out of this summit in terms of financial help to Greece.”
High Borrowing Costs Hurting Greece
Greek Finance Minister George Papaconstantinou has said that the Athens government wants and EU based solution for the nation’s debt crisis and said that high borrowing costs are hampering Greece’s ability to achieve its budget cutting goals. Adding to concerns European Central Bank vice-president nominee Vitor Constancio said that IMF loans may not be adequate to meet Greece’s needs. Ian Stannard of BNP Paribas said, “It is looking increasingly unlikely that there will be an EU aid package for Greece which leaves the euro in a negative position. I expect a test of this year’s low at $1.3435, and if that breaks, a quick move toward $1.3100.” Eurogroup head Jean Claude Junker said he would welcome a meeting of EU leaders in advance of Thursday’s EU summit to discuss Greece’s fiscal problems. Spokesman Guy Schuller stated, “It’s the first time that I hear about such a meeting. Mr. Juncker is part of those member states that favours that (meeting) but thinks it should not be institutionalised.”
France and Germany Hold Talks
Recent news reports say that France and Germany are holding talks designed to devise a joint position on Greece for Thursday’s EU summit. The report states that so far there has been no breakthrough but the talks included a discussion of the possibility of IMF aid for Greece. Germany has recently released some very tough terms for the nation’s support for an EU solution to Greece’s fiscal problems.
Posted on 20 March 2010
EU Summit to Take Place Next Week
Investors are waiting for the Upcoming EU summit next week and will be looking for signs that could signal the establishment of an EU based lending mechanism that would aid Greece’s troubled economy. Greece’s debt crisis has weighed heavily on the euro since 2009 and is causing a political rift in the Euro zone. Greek Prime Minister George Papandreou has indicated that Greece may seek aid from the International Monetary Fund if EU aid is not forthcoming. Michael Woolfolk of BNY Mellon in New York stated, “The tensions surrounding Greece are escalating. This whole IMF situation has become a game of brinkmanship and the whole uncertainty is undermining the euro.” . French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet have warned that the EU may lose credibility unless European leaders agree on a lending solution for Greece. In Germany Chancellor Angela Merkel’s government is adamantly opposed to EU aid for Greece. Merkel told the German Parliament on March 17th that the IMF may be the sole solution to Greece’s debt crisis. Nobel Prize winning economist and Columbia University professor Robert Mundell said that the IMF should be a “lender of last resort” for Greece.
Papandreou Says Greece Will Not Default
Greek Prime Minister Papandreou has said that under no circumstanced will Greece default. Papandreou stated, “Let everyone be certain, Greece will not default, we will not let it default. Greece has a strong government and courageous people. We are returning to the road of economic stability.” Papandreou also warned that speculators are pushing up borrowing costs for the troubled nation and is seeking regulations to curb speculation. Papandreou said, “We are building alliances in and outside the EU. We are convincing our partners for changes to set limits to speculators. We are not asking anyone to pay our debts. We will do this by ourselves. We want to be able to implement all that we have announced and enacted calmly.” Experts predict that Greece’s debt to GDP ratio may hit 120% this year.
Kiwi Best Performer
In a rare piece of good news the Kiwi dollar hit its largest weekly gain on the Aussie dollar. According to Bloomberg the Kiwi has been the best performer last week against most major currencies. A report due next week is expected to show that New Zealand’s economy grew at its fastest pace in two years. Most experts believe that the Bank of New Zealand will raise rates sometime in June. Richard Grace of Commonwealth Bank of Australia. Stated, “Participants are starting to figure that, look, the Bank of New Zealand will raise interest rates in the middle of June according to their current policy guidance. This is why the New Zealand dollar is regaining some strength, because it was severely underperforming as the New Zealand economy went through a soft patch.”
Posted on 16 March 2010
Low Fed Rates Pressure Greenback
The US dollar fell against the euro and yen after the Federal Reserve sang the same old song of keeping rates ‘exceptionally low’ for an ‘extended period.’ Only one Fed chief dissented, Kansas City Fed President Thomas Hoenig was the lone vote against current policies. Currency expert Kathy Lien of GFT in New York stated, “Going into the Fed meeting, traders were looking for two things: the inclusion of ‘extended period’ and the number of dissenters. Once forex traders saw the words reappear in the statement and saw that Hoenig was the only dissenter, they bailed out of dollars, “The euro gained 0.7% and last traded at $1.3777. The euro started to gain in early trading after EU finance ministers supported plans to aid Greece if warranted. Standard & Poor’s ended its review of a possible Greek downgrade
Fed Less Than Upbeat About US Economy
The Fed was less than upbeat about recent US housing and employment figures which put the dollar under pressure in currency markets. A recent rise in risk sentiment has also pushed the dollar down. Greg Salvaggio of Tempus Consulting said, “I don’t think the market expected them to say housing is still at depressed levels and employers are still reluctant to add to payrolls. We’re not expecting the euro to break out of its $1.35-$1.38 range on the back of this.”
Obama Under Pressure to Adopt Tough Stance on China’s Currency Policies
The Obama administration is facing increased congressional pressure to adopt a tough stance with China regarding its currency policies. On Monday Chinese Premier Wen Jiabao denied China is undervaluing its currency to gain unfair trade advantages. In a letter to U.S. Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke 130 US legislators said, “The impact of China’s currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors.” Some currency experts called the move counterproductive. Nick Bennenbroek of Wells Fargo stated, “When China gets international pressure to adjust its currency policy, it seems to resist that pressure. It doesn’t like to be pushed around.” Several economists believe China’s currency is undervalued by as much as 40% giving the industrial giant a large trade advantage. Chinese Premier Wen Jiabao dismissed the complaints and also blamed Washington for the deterioration of relations between the two countries citing the recent meeting of Obama and the Dalai Lama. Democratic Representative Michael Michaud stated, “If the administration fails to act on this issue it will hold back our economic recovery and hurt the ability of American small businesses and manufacturers to increase their production, keep their doors open, and create jobs.”
Posted on 10 March 2010
Experts Predict Dollar Gains
A recent Bloomberg Professional Global Confidence Index showed that most experts believe the US dollar will gain during the next six months and expect the US economy to expand at a faster pace than European and Asian economies. Most economists expect the US Federal Reserve to raise rates before the European Central Bank or the Bank of Japan. The Greek fiscal crisis has also strengthened dollar confidence and most economists expect Greece’s debt woes to continue to undermine the euro. Meg Browne of Brown Brothers Harriman & Co said that, “Growth differentials and interest-rate differentials, and the fact that the U.S. is so far doing quite well compared with the euro-zone” have helped the dollar in currency markets. German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker said that credit- default swaps need to be regulated to shore up the multi nation currency and prevent a repeat of the Greek debt crisis. Shaun Osborne of Toronto-Dominion Bank stated, “The Greece situation was definitely something that helped the dollar recover. It started to take on a life of its own. Now the markets are waiting to see where we go from here.”
Greece Not Asking for Bailout says Prime Minister
Greece’s budget deficit is now at 12.7% of GDP which is four times what EU rules allow. Last week Prime Minister George Papandreou’s government announced measures designed to save 4.8 billion euros ($6.5 billion USD) and includes higher sales, fuel and tobacco taxes as the government struggles to shave 4 percentage to bring the deficit within EU limits. Greek Prime Minister George Papandreou said that US President Obama is supportive of Greek austerity measures. Papandreou also said after a meeting at the White House that he got a “positive response” from Obama about European efforts to limit market speculation. Papandreou said to reporters, “We’re not asking for a bailout, we’re not asking for financial help from anyone. What we are doing is first of all revamping our own economy. We are taking measures to put our economy on the right path.” US president Obama offered no statement after the meeting.
EU May Prohibit Speculative Credit Default Swaps
European Commission President Jose Barroso said that the EU may consider prohibiting “purely speculative” credit default swaps and German Chancellor Angela Merkel called for a halt to derivatives trading to prevent a repeat of the Greek debt crisis. In a speech two days ago Papandreou warned that the debt crisis in Greece also posed risks for the US as well as the EU. A White House spokesman said that the Obama administration believes that the EU should take the lead in addressing the Greek crisis. Administration spokesman Robert Gibbs stated, “This is an issue for the European Union. We believe they have and possess the capabilities to solve that.”
