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US Dollar Falls As Global Equities Rise

The dollar fell across the board, reaching a new yearly low against the Australian dollar, as outlook for the world’s economy improve.  Global equities rallied overnight, with Europe’s benchmark index posting its best quarterly advance this decade.   An increase in Chinese manufacturing and the International Monetary Fund cutting estimates of bank write-downs has also led to an increase in risk appetite.  The dollar will likely trade in volatile ranges as second quarter GDP was released better than expected.  The world’s largest economy shrank at a 0.7 percent annual rate from April through June, versus expectations of a 1.2 percent contraction.  This marks the best performance in more than a year, setting the stage for a recovery to take hold in the last half of 2009. Personal consumption registered slightly better than expected showing a decrease of 0.9 percent, against expectations of a 1.0 percent drop.  However, the ADP employment number showed a drop of 254K jobs amid expectations 200K private-sector job losses.  This data is unlikely to move the markets as investors await the Non-Farm Payrolls report and unemployment due out on Friday

 

The Euro ended its two-day slide against the dollar as global risk appetite surged overnight.  European stocks soared, posting its best quarterly gain in ten years and retracing much of its massive sell off in 2008. However, the inflation outlook for the Euro-Zone weakened for the fourth consecutive month in September, with the CPI estimate slipping 0.3% from the previous month amid expectations for a 0.2% drop.  The European Central Bank is likely to maintain a dovish outlook for price growth as President Trichet anticipates price pressures to remain subdued throughout the second-half of the year.  The common currency continues to trade with the prevailing risk sentiment, so expect the Euro to strengthen if US equities regain yesterday’s losses. 

 

The Japanese yen advanced against the dollar after the new Finance Minister Hiroshisa Fujii said the government won’t bring up the issue of the strengthening yen at this weekends gathering of G7 finance officials in Istanbul.  Also, some investors have started to speculate that the Bank of Japan may decide as soon as next month to end its emergency corporate-debt buying as businesses regain access to private funding.  However, Japan’s economic recovery is threatened by rising unemployment and deflation, so policy makers area likely to keep the benchmark interest rate target near zero into next year.  

 

The pound gained against all of its major counterparts, including the dollar, after an industry report showed consumer confidence in the U.K. jumped by the most in 14 years.  The consumer confidence index increased to -16 in September from -25 in the previous month amid forecasts for a rise to –24.  Also, Prime Minister Gordon Brown encouraged an improved outlook for the economy and said that there is a “strong sense” that the U.K. is coming out of the slump as the government takes unprecedented steps to stimulate the ailing economy.  He also pledged to reduce the government’s budget deficit to bring public finances back into line.

US Dollar is Mixed Before Consumer Confidence

The US dollar was mixed overnight, gaining against the Euro and slipping against the pound.  The dollar also pulled back from its 8 month lows against the Japanese yen.  Atypical to recent trading patterns, the dollar was able to gain modestly against its major counterparts yesterday despite a surge in U.S. equity markets.  Therefore, economic data may drive trade for the rest of the week as investors look for signs the U.S. economy is pulling out of the recession.  At 9 a.m. the S&P/Case-Shiller index is expected to show that home prices in the U.S. fell at a slower pace in July than the previous month. At 10 a.m. consumer confidence is expected to improve for the second straight month in September, with economists forecasting the index to rise to a 15-month high of 57.0 from 54.1 in August.  The data is likely to encourage an improved outlook for future growth, as households turn less pessimistic towards the economy.  Also, the dollar gained as Russia’s central bank cut its interest rate, reviving concerns that the global economy has yet to shake off the worst effects of the recession, reducing demands for higher-yielding assets. 

 

The Euro weakened against the dollar for the second straight day, retracing much of the common currency’s rally earlier in the month.  The Euro fell despite the release of strong economic data out of the Euro-zone.  European retail sales fell the least in 16 months is September, rising to 48.6 from 47.1 in August.  Economic Confidence advanced to 82.8 in September to top expectations for a rise to 82.7. Moreover, consumer sentiment improved for the sixth straight month, with the index rising to -19.0 from -22 in August.  The Euro zone economy is showing signs of recovering from its worst recession in six decades after the European Central Bank cut interest rates to a record low and injected billions of Euros into the market. 

 

The Japanese yen fell against the dollar, pulling back from an 8 month high against the reserve currency.  New Japanese Finance Minister Hiroshia Fujii tried to dispel speculation that he is indifferent to a soaring yen, saying he has never called for a strong currency.  In an apparent reversal of his previous stance, Fujii stated, “Before I knew it, I had been interpreted to mean that I’m endorsing yen rises, but I’ve never said such a thing at all.”  The yen remains strong as Japanese companies continue to repatriate overseas earnings to take advantage of new tax laws in Japan. 

 

The British pound erased much its recent losses against the dollar as the economic docket reinforced an improved outlook for the U.K.  The pound snapped four days of losses versus the greenback after the Office for National Statistics said GDP contracted 0.6 percent in the second quarter, compared with a prior measurement of a 0.7 percent drop.  Also, U.K. retail sales rose to the highest level in five months.  A rebound in household spending encourages an improved outlook for future growth as private sector spending remains one of the biggest drivers of growth in the region.  Despite the improved data, the Bank of England has maintained a dovish stance on the economy, which continues to weigh on the pound as investors speculate to whether the BoE will add to its expansive quantitative easing program. 

US$ Gains Across the Board

The U.S. dollar appreciated against most of its major counterparts during the overnight trade as the reserve currency continued to benefit from safe-haven flows.  However, the dollar pared some of its early gains as U.S. equities are pointed to a higher open, signaling a resurgence in risk appetite.  This morning saw the release of Chicago Fed National Activity index that showed US economic activity decreased in August.  However, the number has failed to move the dollar.  Economic data later in the week will likely steer trade as the dollar continues its strong correlation to risk.  Tuesday sees the release of Consumer confidence, followed by the final revision of US second quarter GDP on Wednesday.  Initial and Continuing jobless claims, personal income and spending and construction outlays are all slated for release of Thursday.  The U.S. unemployment rate will round out the week on Friday and is expected to increase to 9.8%, up from 9.7% in August.   Strong economic data will likely continue to weigh on the dollar as the global economy looks to pull out of the worst recession since World War II. 

 

The Euro tipped slightly lower against the dollar overnight as a slight pull back in global risk appetite weakened the common currency.  Also, European Central Bank Governing Council member Ewald Nowotny held a dovish outlook for inflation and expects price growth to “clearly” hold below the 2% target over the next two-years.  He went on to say that it is “too early” for the central bank to implement an exit strategy, as the economic outlook remains uncertain. As the Governing Council holds a dovish policy stance and remains reluctant to prematurely implement an exit strategy, the ECB is likely to hold the benchmark interest rate at the record-low going into the following year.  Some investors have also speculated that the ECB may look to expand its 60 billion Euro covered-bond purchases over the coming months in an effort to support the banking system and stem the downside risks for growth and inflation.

 

The Japanese yen touched the highest level in eight months against the dollar on speculation Japan’s new government will allow its currency to continue to appreciate.  New Finance Minister Hirohisa Fujii continued his strong yen stance saying that the currency’s moves are not excessive.  Japan’s currency also gained on expectations that exporters are taking advantage of an April 1 rule change that waives taxes on repatriated profits.  Previously companies had to pay a 40 percent tax on overseas earnings. 

 

The British pound weakened against the U.S. dollar for the fourth consecutive day, retracing much of its gains from earlier this year. Meanwhile, Bank of England Chief Economist Spencer Dale held an improved outlook for the region and said that the economy seems to have stabilized.  However, he held a cautious outlook for future growth as he expects demands for employment to “remain low, or fall further” over the coming months.  Meanwhile, the economic docket reinforced an improved outlook for the U.K. housing market as the Hometrack survey improved for the second consecutive month in September, with the index increasing 0.2% from the previous month. This marked the biggest rise in the past two-years.

US Dollar is Mixed After Yesterday's Fed Minutes

The Dollar was mixed overnight, falling against the Euro and Japanese yen and gaining the British pound as investors continue to digest the minutes of yesterday’s Fed meeting.  The Fed stated that interest rates would remain “exceptionally low for an extended period.”  U.S. stock rallied initially after the Fed minutes, pushing the dollar to new lows against the Euro.  However, equities soon reversed their gains, leading the dollar back into pre-minute levels.  This morning saw the release of better than expected initial and continuing jobless claims.  The dollar has weakened initially as the strong data encouraged investors to buy higher yielding assets as the expense of the greenback. Meanwhile, economists forecast existing home sales in the US to increase for the fifth consecutive month in August following the tax-credit for first time homebuyers, with the annualized rate projected to increase to 5.35M from 5.24M in the previous month.  Strong economic data continues to weigh on the dollar. 

 

The Euro continues to trade near its yearly highs against the dollar, as risk appetite remains high through the month of September.  Business confidence in Germany improved for the sixth consecutive month in September, with the headline reading increasing to 91.3 from 90.5 in the previous month amid expectations for a rose to 92.0.

As Bundesbank President Axel Weber holds an enhanced outlook for the region and projects economic activity to fall at a slower pace than initially expected, businesses confidence is likely to improve throughout the second half of the year as policy makers anticipate the economy to return to growth in 2010.

 

The Japanese yen advanced against its major counterparts on speculation Japanese companies are repatriating funds back to Japan.  Japanese companies returned from Silver Week, a three-day holiday, and may be moving funds on to their books before the end of the fiscal year, taking advantage of a tax break that went in to affect this year.  The Japanese government previously announced that it would waive taxes on repatriated profits from April 1 to help support the economy.  Previously, companies had to pay a 40% tax on overseas earnings.  This increase flow of funds back into Japan has caused the yen to rally across the board.

 

The British pound weakened across the board following dovish commentary from Bank of England Governor Mervyn King.  King said that the depreciation in the exchange has been “very helpful” to stabilize the economy and noted that the financial system “is not in good shape.”  The pound could remain under pressure as investors speculate the central bank may cut the deposit rate it pays for commercial banks in an effort to increase lending.  Also, the Daily Telegraph reported that policy makers have invited economists to a ‘crisis meeting’ next week to discuss the depreciation in the exchange, along with the BoE’s asset purchase program, leading investors to speculate that the BoE may have to add to its already expansive quantitative easing program. 

 

US$ Flat Before Fed Decision

The U.S. dollar was largely unchanged overnight, trading near its yearly lows against the Euro and a handful of other currencies as speculation the global economic recovery is gathering strength, encouraging investors to buy higher yielding assets.  The dollar will likely settle into ranges throughout the morning ahead of the Fed’s interest rate decision at 2:15 this afternoon.  It is widely expected that the FOMC will hold the U.S. benchmark interest rate at 0.25% and maintain 1.75 trillion dollar asset purchase program in order to encourage a sustainable recovery.  However, investors will look for indications of when the central bank will put an end to its quantitative easing program as the Fed sees the economy emerging from the worst recession since WWII.  A hawkish tone from the Fed will likely boost the dollar as investors weigh the outlook for future policy.  Market participants are also eager to see if the Fed announces an extension to its mortgage back security purchase program.  If the Fed doesn’t indicate an extension, equity markets will likely falter, sending the dollar higher. 

 

The Euro traded in flat ranges against the dollar overnight ahead of today’s Fed decision in the United States. Meanwhile, strong economic data released in the Euro zone helped the common currency stay near yearly highs against the greenback. Manufacturing activity in Germany fell at a slower pace in September, with the advanced PMI reading rising to 49.6 from 49.2 in the previous month.  However service-based activity expanded at a slower pace during the same period as the PMI unexpectedly slipped to 52.2 from 53.8 in August.  Manufacturing PMI for the Euro-Zone increased to 49.0 from 48.2, with the services PMI advancing to 50.6 from 49.9.  The data encourages an enhanced outlook for the region and conditions should continue to improve over the coming months as policy makers take unprecedented steps to stimulate the ailing economy.

 

The Japanese yen fell slightly against the dollar overnight, but continues to trade near its recent highs.  Some investors have speculated that worlds leaders attending the G-20 meeting this week in Pittsburgh will signal currencies other than the dollar need to strengthen to help rebalance global economic growth.  The yen continues to be tightly correlated to the prevailing risk sentiment.  If U.S. stocks turn negative following the U.S. Fed’s interest rate decision, expect the yen to benefit. 

 

The British pound advanced against the U.S. dollar as the Bank of England held an enhanced outlook for the UK economy.  Aiding the pound were slightly hawkish tone from the central bank on inflationary pressures as they stated “inflation would probably be higher in the short-term than the committee had thought a month ago.”  They went on to argue that economic confidence paired with the improved outlook for asset prices “could mark the start of a virtuous upward spiral for the economy.”  However, they also warned of “false dawns” as the economy has yet to return to growth.  The BoE will likely maintain its current policy throughout the year as the outlook for growth and inflation improve.  Meanwhile, a report by the British Bankers Association showed loans for home purchases slipped to 38,095 in August from 38,186 amid expectations for a rise to 40,500.

 

US$ Reaches New Yearly Lows Against the Euro

The US dollar fell across the board, reaching new yearly lows against the Euro, Swiss franc and the New Zealand dollar as risk appetite gained overnight.  The greenback declined most against the New Zealand and Australian dollars after Asian Development Bank said regional economies will expand this year faster than initially forecast.  Also European and Asian stocks rose, reducing the demand for the dollar as a refuge.  With U.S. equities also pointed towards a higher open, the dollar could continue to lose ground.  At 10 a.m. the Richmond Fed Manufacturing index is expected to rise to 16 in September after holding at 14 during the past two-months.  Also, the Federal Housing Finance Agency’s house price index is forecasted to increase 0.5% for the second month in July as potential homebuyers take advantage of low rates and foreclosed homes. As the economic docket is expected to reinforce an enhanced outlook for the world’s largest economy, the U.S. dollar may remain under pressure as investors seek higher yielding assets. 

 

The Euro retraced its two-day decline and surged to a fresh yearly high against the greenback, and the single-currency may continue to push higher throughout the trading session as investors increase their appetite for risk.  At the same time, European Central Bank council member Axel Weber defended the recent appreciation in the exchange rate, stating, “the behavior of the foreign-exchange market is not out of line.”  He also held a hawkish outlook for long-term inflation and saw risk for upward price pressures to reemerge.  As the economic outlook improves, market participants speculate the ECB could be one of the first central banks to implement an exit strategy of its asset purchase program, and expectations for a rate hike next year may continue to drive the euro higher throughout the second-half of the year.

 

The Japanese yen gained against the dollar, regaining much of its losses from the previous day.  Despite a surge in risk appetite, which also weakens the yen, investors have chosen to sell the greenback.  Also adding to the yen’s strength is the stance of the new Japanese administration that has stated a stronger yen would benefit the country’s economy.  This position comes despite the fact Japanese exporters will face challenges, as their goods would be more expensive to foreign buyers. 

 

The British pound retraced its three-day fall as an increase in risk appetite sent the higher yielding currency higher against the dollar.  A rise in global equities, pared with a higher U.S. stock open will likely buoy the pound as market sentiment improves.  With no significant data released in the Britain, look for the currency to mirror equity markets ahead of the U.S. Fed’s interest rate decision tomorrow afternoon.

 

 

US$ Strengthens As Risk Appetite Wanes

The U.S. dollar advanced across the board overnight following a rise in risk aversion ahead of this week’s Fed interest rate decision.  The dollar has also found support as U.S. equity futures are pointed toward a lower open.  10 a.m. sees the release of Leading Indicators, which is anticipated to improve for the fifth consecutive month in August with a reading of a 0.7% gain versus 0.6% gain in the month prior.  A better than expected number will likely weigh on the greenback as the dollar remains tightly correlated to the prevailing risk sentiment.  However, trading may be quite ahead of the Fed’s interest rate decision on Wednesday afternoon.  The Fed is expected to keep interest rates at its record low of 0.25% percent, but investors will focus on the statement that accompanies the decision for signs about when the Fed will pull pack its quantitative easing program and start raising interest rates.  Investors will also pay attention to the G-20 summit in Pittsburgh on Thursday and Friday.  While currencies are not expected to be discussed, any discussion of global imbalances or tightening of regulation of banks may move markets.  Jobless claims and Existing Home sales are slated for release on Thursday.  Durable goods orders, consumer sentiment and new home sales will round out the week on Friday.

 

The Euro fell against the U.S. dollar for the second straight day as risk appetite declined, leading investors to shun the Euro and higher yielding assets for the safety of the U.S. dollar.  Also weighing on the common currency were statements from Germany’s Finance Ministry.  They argued unemployment has been “unusually moderate” during the worst economic downturn in 50 years, and sees a risk of job losses intensifying going into 2010 as the effects of the government stimulus starts to taper off.  There was no significant data released in the Euro zone on Monday, so expect the Euro to continue to trade with risk sentiment, gaining if equities regain their hawkish tone. 

 

The Japanese yen fell overnight, pulling back from its recent highs against the U.S. dollar.  Japan’s financial markets will be closed for the nation’s “Silver Week” public holiday, which starts today and ends on September 23^rd.  With no data set to be released in Japan until Thursday, expect the yen to continue to trade with risk sentiment.  The yen continues to enjoy its roll as a proxy for risk, gaining as global equities falter. 

 

The pound fell for the third straight day as it pulled back from its gains over the past month against the greenback.  However, strong economic data limited the pounds decline.  The Rightmove house price index rose 0.6% in September after falling 2.2% in the previous month, with the annualized rate slipping1.5% from the previous year after sliding 3.1% in August. The data encourages an enhanced outlook for the region as policy makers take unprecedented steps to soften the landing of the economy, and demands for housing should continue to pick up over the coming months as policy makers anticipate economic activity to improve throughout the second half of the year.

 

 

 

 

US Dollar Remains Near Recent Lows

The US dollar traded in volatile ranges overnight before opening mostly unchanged against many of its major counterparts and gaining against the Japanese yen.  With U.S. equity futures relatively flat, expect this morning’s economic data to drive the direction of the dollar in early trading.  Housing starts were released right in line with expectations, showing the US broke ground on the most new houses in nine months. Initial jobless claims were released slightly better than expected, a sign the labor market is deteriorating at a slower pace as the economy pulls out of the recession.  However, continuing claims registered slightly weaker than expected.  This data has done little to change the direction of the dollar as investors now shift their focus to the Philadelphia Fed, slated for release at 10a.m.  The U.S. dollar continues to be tightly correlated to risk sentiment.  Continued bullish U.S. equity markets, will likely drive the greenback lower.   

 

The Euro held its recent gains, trading near yearly highs against the dollar, as global demand for risk remained strong.  European and Asian stocks advanced overnight, buoying the higher yielding currency. However, weak economic data released in the Euro-zone kept the Euro from extending its gains against the dollar.  The European economic docket showed the Euro-Zone trade surplus widened for the fourth consecutive month in July to 12.6B Euro.  At the same time, construction outputs slumped 2.0% in July to mark the third consecutive decline, with the annualized rate tumbling 10.8% from the previous year.  The outlook for future growth in the Euro-zone remains uncertain as businesses continue to scale back on production and employment to weather the downturn in global trade.

 

The Japanese yen weakened slightly against the dollar, pulling back from its recent highs against the greenback.  The yen remains strong against the dollar despite a rise in global risk appetite following recent comments from both the Bank of Japan and the Japanese Finance Ministry.  Yesterday the BoJ raised its economic assessment of the country describing the economy as showing signs of recovery.  Also, Finance Minister Hirohisa Fujii said Japan’s new government supports a strong yen, denouncing the idea that a stronger yen hurts Japanese exports. 

 

The British pound is largely unchanged against the dollar overnight as a rise in global risk appetite countered poor economic data released in the U.K.  Retail sales unexpectedly held flat in August, and the slump in private sector spending paired with the rise in unemployment may drag on the exchange rate going forward as investors weigh the prospects for a sustainable recovery.  Consumer spending in the U.K. held flat amid expectations for a 0.1% rise after increasing 0.2% in July.  The data foreshadows a weakening outlook for the region as private-sector consumption accounts for more than two-thirds of the economy.  Expect the pound to continue to trade with the prevailing risk sentiment, strengthening with global equities. 

 

 

US Dollar Trades Near Yearly Lows Versus EUR

The U.S. dollar weakened against all of its major counterparts, while hitting fresh yearly lows against the Euro overnight.  A rise in risk appetite sent the greenback lower as both European and Asian equities advanced overnight.  U.S. stock futures are also pointed toward a higher open.  Adding to the recent bullish sentiment were comments from billionaire Warren Buffet.  He said his company Berkshire Hathaway, Inc is “buying stocks right as we speak” because he is getting “a lot for my money” in equities.  This morning saw the release of slightly better than expected Consumer Price Index.  It showed the cost of living in the U.S. climbed 0.4% versus expectations of 0.3% gain.  This data underscores the Federal Reserve’s view that inflation will be contained, weakening the greenback in early trading.

 

The Euro advanced against the U.S. dollar during the overnight session, reaching new yearly highs against the greenback before pulling back to levels near yesterday’s close.  In addition to strong global equities, positive economic data also buoyed the common currency.  Consumer prices in the Euro-Zone increased 0.3% in August after falling 0.7% in the previous month.  However, the annual rate of inflation slipped 0.2% from the previous year to mark the third consecutive decline. Moreover, European core prices grew at an annualized pace of 1.3% for the second month beating forecasts for a 1.2% rise.  As a result, the European Central Bank is likely to hold a neutral policy stance going forward as inflation expectations remain firmly anchored.

 

The Japanese yen appreciated to yearly highs against the U.S. dollar while losing ground against most of its other major counterparts.  The yen gained against the dollar after incoming Finance Minister Hirohisa Fujii said Japan’s new government is opposed to intervening in currency markets unless swings become excessive.  This signals a change in policy as the Japanese government had previously favored a weak yen to support the country’s exports.  The new government has indicated that it is more tolerant of a strong yen and has suggested they are not convinced intervention in the currency markets is effective. 

 

The British Pound halted its two-day decline against the dollar following a rebound in risk appetite.  However, poor economic data released in the U.K. dented optimism that an economic recovery is taking root.  The Office of National Statistics reported the highest U.K. jobless claims since 1995.  The number of people seeking jobs rose by 210K to 2.47 million.  Also, the annual rate of unemployment measured by the International Labour Organization’s standards rose to 7.9%.  As the Bank of England continues to see a risk for a slower recovery, market participants speculate the central bank may take additional steps to steer the nation out of the worst recession since WWII.  Any addition to BoE’s already expansive asset purchasing program would likely weigh on the pound. 

 

 

 

 

U.S. Dollar Gains as Risk Appetite Falters

The U.S. dollar gained overnight as lower European equities led investors to buy the safe-haven currency.  The greenback may continue to appreciate against its major counterparts as stock futures foreshadow a lower open for the U.S. market.  Better than expected data released in the U.S. this morning has been unable to change risk sentiment as the dollar continue to gain in early trading.  Retail sales in the U.S. jumped the most in three years to 2.7% in August.  The gain was led by a surge in automobile sales that resulted from the government’s “cash for clunkers” program.   Producer PPI also registered higher than expected with a gain of 1.7% against expectations of a 0.8% increase.  Empire state manufacturing index also improved for the third straight month.  Expect the dollar to trade in choppy ranges as investors jockey between risk appetite and risk assumption.

 

The Euro traded slightly lower against the dollar as risk appetite faltered overnight.  September ZEW investor confidence showed sentiment in Germany rose less than expected, with the index rising to 57.7 from 56.1 in August amid expectations for a rise to 60.0.  At the same time, labor costs unexpectedly rose 4.0% in the second quarter after rising 3.6% in the first three months of the year.  This data suggests that the region will emerge from the recession in the third-quarter as the government takes unprecedented steps to stem the downside risks for growth and inflation.  Expect the Euro to continue to trade with the prevailing risk sentiment as investors digest better economic data in the U.S.

 

The Japanese yen fell against the U.S. dollar after a government report showed U.S. retail sales in August more than economist forecast.  The yen was also declined against the dollar after President barrack Obama said job losses are “bottoming-out” and the U.S. economy looks to be growing again, dimming demand for Japan’s currency as a refuge.  Lower European equities and U.S. stock futures have also weighed on the safe-haven currency.

 

The British pound continue to retrace its recent gains as investors speculate the Bank of England may have to take additional steps to spur the economy.  Bank of England Governor Mervyn King maintained a weakened outlook for the economy as he expects the downturn in employment to weigh on economic activity going forward as households face a weakening labor market paired with tightening credit conditions.  Mr. King continued to say that he anticipates the economy to emerge from the recession later this year however, he stated that the strength and the sustainability of the economic recovery remains highly uncertain.  The U.K economic docket showed consumer prices in the U.K. rising 0.4%, beating expectations but doing little to change the direction of the British pound.