Monday, 3 December 2007

Dollar posted new record lows vs majors in thin Forex market

The Euro set a record high against the Dollar on Friday at 1.4967; the key 1.5000 level remained out of reach and the EurUsd fell back more than a cent, at 1.4839, on comments from a Euro zone policy-maker. European Central Bank Governing Council member Miguel Angel Fernandez Ordonez said he saw a greater-than-expected economic slowdown in the Euro zone and there was not enough data to dispel uncertainty about the effects of financial market turmoil. Ordonez's comments reminded investors that the fallout from the credit crisis is not limited to the United States, where the fallout has prompted 75 basis points worth of cuts in the fed funds rate since September and helped send the Dollar to record lows. Ordonez's comments gave some respite to the Dollar, which slid to record lows versus the Euro, the Swiss franc and other major currencies on Friday, as investors bet that the Federal Reserve will cut rates by at least another 25 basis points at its next meeting on December 11. End of last week, moves in currencies were exacerbated by thin liquidity following the Thanksgiving holiday in the United States on Thursday and a Japanese market holiday on Friday. In Friday’s trading, EurUsd was nearly unchanged at 1.4838 and well below the peak of 1.4967 set earlier in the session. The sell-off in the EurUsd helped drag the UsdJpy up from 107.54, 2-1/2 year low, but trading around 108.30 at close the Dollar is still down near 6% since the start of November, and on track for its biggest monthly percentage fall versus the Yen since March 2000. The Yen and the Swiss franc have both benefited in recent sessions as investors, worried about the fallout from credit market problems and the impact on the broader economy, remained averse to risk. Worries about the fallout have been stoked by the Organization for Economic Cooperation and Development (OECD), which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could conceivably hit $300 billion. The UsdJpy fell to a historic low of 1.0888 before rallying to trade up to 1.1022 +0.12%.

Dollar stays weak near Euro record high and Yen 2 ½ year low

The Dollar slid further to a fresh 2-1/2-year low against the Yen on Monday in line with falls in US equities, as renewed credit worries affirmed expectations that more US rate cuts are imminent. Investors are on edge about fallout from the credit crunch as the approaching year-end may force them to dump assets or scramble for cash to get books in order in strained markets. Worries about the US economy and expectations for additional Federal Reserve interest rate cuts have caused the Dollar's broad tumble. Yesterday, UsdJpy dropped to 107.22, the lowest since June 2005, before closing at 107.35 -0.88%. EurJpy went down 0.62% to 159.72. The focus has also been on the reemergence of money market strains, with the European Central Bank and the Federal Reserve announcing measures to mitigate liquidity pressures around the year-end, said Analyst. The interest rate futures market has fully priced in a 0.25% monetary policy easing by the Fed when it next meets on Dec. 11, to 4.25% and show a 20% implied chance it could cut rates by a 0.5% instead. London Inter-bank offered rates for two-month Euro deposits rose to new 6-1/2-year highs on Monday and three-month Euro rates rose for a ninth straight session on persistent concerns over banks' year-end funding. Two-month and three-month Dollar Libor rates also rose to their highest in a month. The Fed and the ECB on Monday sought to calm stressed money markets by promising banks extra money to help them cope with a possible year-end cash squeeze. EurUsd was up 0.26% at 1.4877, within sight of the lifetime high of 1.4967 set on Friday. A growing number of analysts suggest the exchange rate will breach the psychologically key 1.5000 level this year. European officials have increasingly expressed concern about the Euro's rapid rise and the potential drag on exporters. ECB Governing Council member Nout Wellink said on Monday its rise against the Dollar was not of "immediate concern" for European exporters but a further ascent would be "worrying".

Dollar pulled away from 2 ½ year low as Citigroup news help demand for riskier assets

The Dollar gained broadly on Tuesday as news that Citigroup would sell a $7.5 bio stake to the Abu Dhabi government triggered a wave of buying from traders who rely on computer models. The overnight Citigroup news restored confidence in battered US banks, fueling a steep rally in the stock market. The Dollar rose sharply against the Yen in the Tokyo session after the Citi report, sparking the unwinding of short positions on the greenback, and that rally spilled over to other currencies, traders said. Investors interpreted Citi's move as a sign that financial institutions were repairing the damage from a meltdown in the US sub-prime mortgage market and the resulting credit crunch, which has been a big factor behind recent dollar weakness. The Dollar pulled away from a 2-1/2-year low against the Yen touched on Monday to trade at 108.82, up 1.37% and on track for its biggest one-day gain since late August. The Yen fell broadly as news of the Citi stake sale prompted a recovery in the Nikkei share index, fueling demand for relatively riskier assets. UsdChf rose 0.78% to 1.1053. GbpUsd was fairly unchanged -0.08% at 2.0674. EurUsd fell 0.28% to 1.4809, more than a cent below last week's record highs at 1.4967. The single currency was little affected by remarks on Tuesday by German Finance Minister Peer Steinbrueck, who said he expected the economic upturn in the euro zone's largest economy to continue in 2008 despite the strong Euro. UsdJpy gained despite a report showed US consumer confidence fell for the fourth straight month in November to its lowest in two years on concerns about rising gasoline prices. Comments by Federal Reserve Bank of Philadelphia President Charles Plosser (not a voter on Fed monetary policy) had little impact on the currency market. He said US interest rate cuts increase the risk of higher inflation. On Wednesday, investors are expected to focus on the Fed's Beige Book report for clues on what the US central bank intends to do at its monetary policy meeting on December 11th.

Dollar stays under pressure as market anticipate further rate cut


The Dollar edged lower against the Euro and trimmed gains versus other European currencies on Wednesday as comments from a Federal Reserve official and a key economic report affirmed expectations for further rate cuts. However, it posted steep gains against the Yen, buoyed by sharp gains in the stock market, with investors going back into riskier assets. Fed Vice Chairman Donald Kohn said renewed financial market turmoil could slow the US economy more abruptly than thought, signaling a willingness to cut US interest rates further. His comments were consistent with the Fed's "Beige Book" report, which said the US economy from October to mid-November grew at a slower pace than in the previous period. The report also said US housing demand was "quite depressed". Analyst said "The dollar is going to stay under pressure as long as markets continue to anticipate near-term Fed easing" adding "Markets have moved once again to fully price in a rate cut in December." EurUsd edged up to 1.4839 +0.02% after trading lower for most of the session. It fell earlier to 1.4712, a one-week low. UsdJpy traded 1.05% higher at 109.96 after trading as high as 110.48, a one-week high. Gains in the Dollar versus the Yen were in line with a surge in the US stock market, which rose on the view that more Fed rate cuts are forthcoming. EurJpy rose 1.07% against the Yen to 163.17, while the high-yielding Australian dollar jumped 2.02% to 97.43 against Yen. UsdChf rose 0.5% to 1.1108, hitting earlier a one-week peak of 1.1195. The Dollar had surrendered some of the session's earlier gains after government data showing New Orders for long-lasting US-made goods dropped for a third month in October, with companies appearing wary about making new investments. Most analysts believe the Dollar could further decline given the weak tone in US economic data and the trickle of bad news from financial companies hit by the credit crunch. The Fed is widely expected to cut interest rates by 0.25 in December to 4.25% and again next year to stem economic fallout from the housing debacle.

Dollar was supported by Corporations squaring books at month end


The Dollar rallied against most currencies on Thursday, buoyed by demand from US corporations seeking to square their books by month-end and those scrambling for cash to cover a seasonally thin year-end period. The Yen also rallied broadly after steep losses in the previous two sessions on worries about the state of global credit markets. Analysts said US data on jobless claims and New Home Sales for October did little to alter expectations that the Federal Reserve will reduce interest rates by 0.25 to 4.25% next month after it cut them by a cumulative 0.75 since September to cushion the economy from a severe housing slump and credit market turbulence. Some are even predicting the Fed will ease by 0.50. But expectations of a rate cut failed to stem the rally in the Dollar, as markets remained focus on the ongoing global credit crunch and the need to stay liquid. Some analysts have suggested rate cuts could help the dollar indirectly as they would help avoid a US recession. Lower rates typically make Dollar-denominated securities less attractive, reducing demand for the currency. However, given concerns about persistent weakness in the US housing and credit markets, signs that the Fed will continue to act to help the US economy should attract investment inflows. EurUsd was down 0.55% at 1.4758. GbpUsd dropped by 0.77% to 2.0625. UsdJpy was little changed +0.09% to 110.06. Traders said it was being pressured by trading in EurJpy which was down 0.4% at 162.51. Fed Chairman Bernanke said late on Thursday a resurgence in financial strains in recent weeks had dimmed the outlook for the US economy, signaling an openness to again lowering interest rates.


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