Dollar Falls Against Majors

The dollar fell broadly against most currencies after the Fed’s beige book report showed that the US economy still faces significant challenges. Although the report showed some improvement the US economy Fed rates are likely to remain low for an extended period. Kathy Lien of GFT Forex stated, “The U.S. economy is chugging along, albeit at a slow pace, and that means the Federal Reserve has no real urgency to raise interest rates.” The ICE Dollar Index was down from 77.011 at 76.875.

Ongoing Greek Fiscal Problems

The euro fell 0.2% to $1.4477 down from $1.4510 on Wednesday. European Central Bank President Jean-Claude Trichet said that the outlook for the euro zone is uncertain and that Greece’s economic problems would not receive special treatment. Greece’s fiscal problems have pressured the euro in recent trading sessions. The government of Greek Prime Minister George Papandreou approved a plan to reduce the country’s deficit below the European Union’s budget limit in 2012. Trichet said that, “no government, no state can expect special treatment.” The ECB left rates at 1% which most analysts had expected. Trichet’s remarks have led many experts to believe that Greece can expect no help from the EU. German Chancellor Angela Merkel questioned the fiscal policies of other EU nations. In an interview with the German newspaper Die Welt Merkel said, “The Greek example can put us under great, great pressures,” she said, according to the transcript. “Who will tell the Greek parliament to please go ahead and pass a pension reform? I don’t know that they’ll be enthusiastic about Germany giving them instructions.”

Aussie Gains on Employment Report

The Aussie rose broadly after the Australian statistics bureau reported that Australian employers added 35,200 jobs in December. Most traders predict that the Reserve Bank of Australia will raise its present rate of 3.75 by a quarter of a percentage point.

Pound Gains in Thin Year End Trading

The pound gained on the dollar and reached a ten day high of $1.6154 in thin year end trading. Year end position adjustments led to a broad dollar sell off benefiting the pound. Sterling declined against the euro which has been the chief beneficiary of the widespread dollar sell off. The exaggerated price movements were blamed on thin trading in currency markets. Geoffrey Yu of UBS stated, “This is just year-end trades. Trade is so thin it only takes a few orders to go through to cause a big movement.” The pound gained 0.4% vs. the dollar trading at $1.6131 and against the euro the pound last traded at 89.27 pence, a gain of 0.1%.

UK Banks to Make More Credit Available

Investors received encouragement from a Bank of England quarterly survey that showed that British financial institutions intend to make credit more easily available to households and businesses during the first quarter of 2010. Pound sentiment remains broadly negative due to concerns about massive UK deficits and an underperforming UK economy. Low Bank of England rates have also pressured the currency. Neil Mellor of Bank of New York Mellon said, “Fiscal concerns are one reason people are starting to get worried about sterling, and if you believe UK interest rates are going nowhere for some time it doesn’t look good for the pound.”

Analysts Say Year End Moves Have Little Meaning

Many currency analysts said that today’s movements had little meaning due to thin trading and there is disagreement whether the dollar’s recent rally is sustainable. The dollar has rallied on recent improved US economic data and speculation that the Fed will raise rates and withdraw stimulus measures. Lee Hardman of Bank of Tokyo-Mitsubishi UFJ stated, “We could some a partial retracement of December’s sharp dollar rally early in 2010, but ultimately further improved U.S. economic data will fuel Fed tightening expectations and support the dollar.” Most markets will be closed over the weekend and Japanese markets will reopen January 4th.

Dollar Gains on Positive Fed Assessment

According to many experts the US dollar is likely to extend its recent gains into next week. The dollar has been supported by evidence of a stable recovery in the US and the Fed’s willingness to withdraw emergency measures in February 2010. Despite the Feds announcement that rates would remain at record lows both factors are contributing to speculation that the Fed may raise rates earlier than expected. Nick of Wells Fargo stated, “We see the U.S. economy continuing to recover and monetary policy settings starting to move back to normal. Although our economics team does not expect actual rate tightening to take place until late in 2010, the withdrawal of non-conventional measures could start tipping the scales in the dollar’s favor.” Assets such as stocks, commodities and emerging currencies that have gained over the course of the year have led to year end profit taking benefiting the dollar.

Ongoing Greek Concerns Pressure Euro

The ICE futures’ dollar index .DXY which measures the dollar vs. a basket of six major currencies has gained since early December but is still down 4.3% for the year. The DXY has fallen 13% since March 2009. For the week the DXY is up 1.9% the best weekly performance since April. The euro was down 2.4% against the dollar this week and on Friday the euro fell to $1.4269 the lowest since September. The euro has been pressured by the Greek downgrade by Standard and Poor’s and Austrian banking concerns. Todd Elmer of CitiFX  stated, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.”

Upcoming US Data

This week will bring a slew of economic data from the US. The final estimate for third quarter gross domestic product will be released along with housing data, reports on personal income and spending, and durable goods orders. Most economists expect the figures to support the view that the US is on the road to recovery. All this is expected to be dollar positive.

Bernanke Says Rates to Remain Low

The US dollar has retreated from a five week high after remarks by Fed Chairman Ben Bernanke who said that the US economy is still fragile and that unemployment is likely to remain high. He also dampened speculation that the Fed would raise rates on recent improvements in US employment figures. Last week’s non farm payrolls report showed that 11,000 US jobs were lost in November instead of the 130,000 that had been predicted. Brian Dolan of Forex .com had this to say about Bernanke’s remarks, “Bernanke is emphasizing the weakness and the downside to the U.S. economy. Therefore, he’s postponing interest rate hike expectations. He left a very clear impression that rates will remain on hold.”

Euro Pressured by Greek Downgrade

The euro declined against the dollar after data showed that German industrial output fell an unexpected 1.8% in October. The euro was also pressured by news that Fitch’s rating agency had lowered Greece’s rating from A- to BBB+. A Standard and Poor’s report said that Greece’s banks are Europe’s riskiest. Dubai debt fears lingered after a report said that Dubai World could no expect significant government support. James Hughes of CMC Markets said, “While you’ve got weak data coming out and doubts about Greece and Dubai you will get fickle markets ruled by fear.” Moody’s downgraded six Dubai-linked issuers after concluding that the company could expect no ‘meaningful’ support from the Dubai government.

High Yielders Unchanged

A drop in US and European stocks sent the US dollar to a near one month high against the euro. The greenback posted its biggest gain since June after US job figures showed that US employers cut fewer jobs since the global recession began. Vassili Serebriakov of Wells Fargo stated, “We’ve seen this equity-dollar correlation reinstalled. The key to breaking the correlation is consistently improving U.S. data shifting interest-rate expectations, and outside of payrolls we haven’t really seen that.” High yielders like the Aussie and Kiwi dollars remain relatively unchanged in advance of a speech from Reserve Bank of Australia Governor Glenn Stevens.

Dollar to Resume Long Term Decline

Many currency experts expect the US dollar to resume its long term decline against other major currencies. The easing of Dubai World fears among investors and financial institutions and an unexpected rise in U.S. pending home resales has spurred a rise in risk sentiment in stock and currency markets. On Tuesday the dollar fell against the euro for the second straight day and the Canadian dollar rose as record gold prices and rising oil prices pushed the commodity linked currency higher. Raw material exports account for more than half of Canada’s export revenues. Amelia Bourdeau of UBS AG stated, “It’s more the type of risk seeking we saw in September and October. There are investors who want to close out these risk-seeking positions and investors who want to get in. So they wait for that pullback and get in.”

Pound Extends Gains Against Dollar

The US dollar experienced its fifth straight monthly drop and fell 1.9% in November. The British pound extended gains made against the dollar on Tuesday and traded at $1.6620 after hitting $1.6647 on Tuesday. Bank of England chief economist Spencer Dale said that the UK appeared to be exiting the recession but cautioned that credit is likely to remain tight. Traders and investors are sitting on the sidelines in advance of the European Central Bank meeting on Thursday. Both groups are also waiting for US non farm payroll figures due Friday.

BOJ Attempts to Stem Yen’s Appreciation

The Japanese yen declined due to a rise in risk appetite and concerns about possible actions by the Bank of Japan. After an emergency meeting on Tuesday the Bank of Japan said it would provide 10 trillion yen ($115 billion USD) in three month funds at a rate of 0.1% in an attempt to stem deflation and shore up the ailing Japanese economy. The Japanese government is trying to stem the yen’s appreciation which is hurting major Japanese exporters.

G 20 Facts

The G 20 nations are meeting this weekend in St. Andrews Scotland and traders and investors around the globe are watching intently. Even the most oblique reference to currencies will have analysts trying to decipher some hidden meaning that could affect currency exchange rates. The Group of Twenty Finance Ministers and Central Bank Governors or G 20 is a collection of finance ministers and central bankers representing 19 countries plus the European Union. The G 20 economies represent 85% of all global gross national product (GNP), is responsible for 80% of all global trade and represents two thirds of global population. In addition to member nations the G 20 also includes the International Monetary Fund (IMF0, the World Bank, the International Monetary and Financial Committee and the Development Committee of the IMF and World Bank.

G 20 Issues Communique

On November, 7 2009 the G 20 issued a communiqué which did not mention currencies directly. Earlier speculation had predicted that the G 20 would push for Asian nations to allow their currencies to appreciate. The communiqué pointed out that recovery has been uneven and the IMF has warned against pulling stimulus measures too fast. The IMF stated that growth has taken place but warned; “However, the pace of recovery is uneven, particularly in advanced economies, with consumer confidence remaining subdued, the waning of temporary fiscal measures such as the cash for clunkers programme in the U.S. and similar programmes elsewhere is slowing production.”

The IMF Weighs In

In their first communiqué the G 20 reflected the opinion of the IMF and said, “Economic and financial conditions have improved following our coordinated response to the crisis. However, the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern. To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured.

There has been no further word about Asian currencies but the discussion is expected to take place before the meeting adjourns.

Better Than Expected Q 3 GDP Figures

The US dollar surrendered gains made earlier in the week as third quarter GDP figures showed that US GDP rose 3.5% better than earlier predictions of 3.3%. The unexpected gain spurred a rise in stocks and commodities and sent currency traders and investors in search of higher yielding currencies. Once again the Aussie and Kiwi dollars were the big winners gaining a full 2% against the greenback. The Aussie which has a benchmark rate of 3.25% traded at US$0.9146 after trading as high as US$0.9162 earlier in the trading session. The Kiwi dollar rose as high as US$0.7352 and last traded at US$0.7342.

Canadian Dollar Lifted by Rise in Stocks and Commodities

The Canadian dollar rose as stocks and commodities surged due to US third quarter GDP results. Benjamin Reitzes of BMO Capital Markets stated, “U.S. growth is good news for growth in the global economy and good news for commodities, so ultimately good news for the Canadian dollar.” US unemployment claims declined to their lowest in seven months but are still seen as to high to indicate a recovery. Boris Schlossberg of GFT said, “The (jobless claims) figure remains … above the 500,000 barrier and until it drops below that level the market will not be fully confident that the recovery has taken hold.”

Bank of Canada Officials Warn About ‘Loonie’s’ Appreciation

Despite skepticism in some quarters risk appetite rose across the board and put downward pressure on the greenback. Camilla Sutton of Scotia Capital Inc. stated, “Today we’ve had a reversal in sentiment across all markets as stronger GDP put risk into the market once again.” At their October 20th meeting Bank of Canada officials warned that the appreciation of the ‘loonie’ threatens Canadian economic recovery. The currency, which hit a four year low from March 9th through October 19th, has gained 27%.

The dollar advanced 0.9% against the Japanese yen trading at 91.41 after hitting session highs of 91.62.

Bad News For the Dollar

The US dollar has declined the most in a month against the euro and hit a 14 month low last week as investors and currency traders bet that the Federal Reserve will be behind the curve in raising interest rates. Dale Thomas of Insight Investment Management stated, “There’s no good news for the dollar. The underlying trend is still for a gradual recovery of the global economy and a weak dollar.” Thomas also said the US dollar will remain a “funding currency” for investors to purchase higher yielding assets.

Japan’s Finance Minister Speaks

The dollar vs. euro fell 1.2% to $1.4905 and the greenback hit $1.4968, the lowest since August 2008. The Japanese yen fell 1.2% against the dollar trading at 90.89> the yen fell against all 16 of the most traded currencies as investors and traders speculated that Japanese investors will send currency out of the country for higher returns and that the Japanese government will not support a strong currency. Japanese Finance Minister Hirohisa Fujii stated, “The shift in Japanese currency policy has broken the relationship between the yen and risk, but the boost to sentiment already looks to be fading.” He also told reporters that governments are responsible for the stability of their currencies and currencies “need to reflect the strength” of economies.

Aussie Dollar On Track For Parity With Greenback

The Australian dollar rose 1.2% last week and hit 92.70 U.S. cents and some currency experts and banks including Barclays Capital, BNP Paribas SA, Morgan Stanley and St. George Bank Ltd. Believe the Aussie dollar could reach parity with the US dollar. Australia’s Reserve Bank Governor Glenn Stevens became the first G20 banker to raise rates when he raised the overnight cash target to 3.25% a quarter percentage point increase.

BOE to Suspend Asset Purchases

The pound rose 3.2% after the Bank of England is likely to suspend asset purchase programs. The pound traded at $1.6356, the largest advance since May. According to Deutsche Bank AG, the world’s largest currency trader, the pound is ‘undervalued.’ The upcoming meeting of euro zone finance ministers in Luxembourg on Oct. 19 will address the euro’s rise against the US dollar and will likely affect currency exchange rates.

Bernanke’s Remarks Help Dollar

The US dollar recouped some of this weeks losses after Federal Reserve Chairman Ben Bernanke said he was contemplating an exit strategy from quantitative easing and low interest rates. After a heavy pummeling this week the greenback pulled back from a 14 month low against other major currencies. Many investors and traders have seen quantitative easing and low interest rates as the main causes for the dollar’s weakness.

Fed May Change Policies

In a statement late Thursday Bernanke said that the Fed has the ability to change both policies but said that present policies are likely to be continued in the near future. Recently the US dollar has fallen on very weak economic data and dismal employment figures and Bernanke’s comments were seen as dollar positive. Ulrich Leuchtmann of Commerzbank stated, “Explanations by Fed officials have been helpful in clearing the air on what strategy will be taken as the economy recovers. The market is not yet ready to jump on the rate rise outlook to aggressively buy the dollar.”

Asian Dollar Demand

The dollar vs. yen rate rose 0.8% to 89.13 yen pulling back from an eight and one half low against the yen. Traders reported that dollar demand from Japanese investors helped to bolster the greenback in European markets. The euro fell to $1.4725 falling from a two week high of $1.4815 on Thursday. On Thursday ECB President Jean-Claude Trichet said that US support for a strong dollar was important. The DXY which tracks the dollar against six major currencies rose 0.4% to 76.250, pulling back from a 14 month low of 75.767.

Dollar’s Reserve Status Secure

Many currency analysts believe that some of the US dollar’s troubles come from speculation that the dollar may lose its status as a global reserve currency. Although some countries have suggested replacing the dollar as a reserve currency the dollar’s status as the world’s top reserve currency status seems secure for now.

UK Unemployment Figures at Highest Level Since 1995

The pound fell to a four month low as UK unemployment figures rose to the highest level since 1995 paring recovery hopes in the UK. The pound to euro exchange rate fell to 89.01 pence per euro. The Office for National Statistics reported that the number of people in the UK seeking employment increased by 210,000 to 2.47 million. Vincent Chaigneau of Societe Generale SA stated, “The market had a shock yesterday and the data this morning was not strong enough to reverse the trend. The data confirmed what King said yesterday, which is that we can pretty much rule out a strong recovery. It was a wake-up call for the market.”

BOE May Cut Rates

The UK unemployment rate rose to 7.9% compared with 0.5% in the Euro Zone, 9.7% in the US and 5.7% in Japan. Bank of England Governor Mervyn King told MP’s that the BOE is “looking at” cutting deposit rates to stimulate lending by financial institutions. The BOE’s next policy meeting is October 8th and investors will be watching closely.

Euro Extends Gains

On Wednesday (Sept. 16th) the euro extended recent gains against the US dollar hitting a nine month high. The euro to dollar exchange rate rose to $1.4705 rising above $1.47 for the first time since September 2008. In contrast the DXY fell to its lowest in a year to 76.262. Rising risk sentiment has put pressure on the dollar as forex traders sell the dollar in favor of higher yielding currencies. Lauren Rosborough of Westpac stated, “The general dollar-selling trend remains in place. The $1.4720-1.4750 region should be capped in the short term, but once we get into New York trade the tendency will be to push the dollar lower.”

Aussie and Kiwi Dollars Gain

On Wednesday the dollar fell to a one year low against a basket of major currencies as rising stocks and deficit concerns pared demand for the greenback. The Aussie and Kiwi dollars have been the chief beneficiaries of the demand for higher yielding assets. Both Australia and New Zealand offer significantly higher three month deposit rates than the US and Japan.