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Dollar Edges Up vs Euro ahead of U.S. Consumer Data

Contrarian Profits — Mon, 24 Aug 2009 17:00:07 +0000

The dollar edged up against the euro and yen on Monday in extremely thin trade as Wall Street surrendered earlier gains and traders repositioned themselves ahead of U.S. consumer and housing data due this week.

Solid U.S. and euro zone data and an upbeat assessment on the economy from Federal Reserve Chairman Ben Bernanke over the weekend earlier pushed investors to take on riskier investments at the expense of the the low-yielding yen and dollar.

“Conventional wisdom suggests that major currencies should trade within their recent ranges until liquidity improves after the Labor Day holiday,” said Wells Fargo currency strategist Vassili Serebriakov. “However, there is plenty of data in the U.S. and elsewhere to change that this week, with consumer-related numbers likely to be watched closely.”

Investors are looking ahead to upcoming U.S. and European data to confirm hopes that the world economy is improving.

The dollar was last up 0.1 percent at 94.49 yen while the euro slipped 0.1 percent to $1.4304 . Against the yen, the euro was unchanged at 135.20 yen .

The euro trimmed losses against the greenback after data showing much higher-than-expected euro zone industrial orders in June.

Sterling fell 0.6 percent on the day at $1.6405 .

The euro , meanwhile, hit an 11-week high against sterling at 87.27 pence, according to Reuters data.

Traders said the euro was pushed past a key options barrier at 87 pence, setting up further gains in the pair, while analysts said expectations for persistently low UK interest rates were weighing on the British currency.

The Federal Reserve’s Jackson Hole meeting over the weekend offered a variety of opinions about the global economy, with Fed Chairman Ben Bernanke acting as the cheerleader for growth.

But traders are keen to see how the euro zone economy fares, especially after higher-than-forecast purchasing managers’ index readings last week. Germany’s Ifo survey of business sentiment will be key this week, analysts said.

The U.S. Conference Board will release its August consumer confidence index on Tuesday, followed by the Reuters/University of Michigan consumer sentiment snapshot on Friday.

Nouriel Roubini, professor at New York University’s Stern School of Business and one of the few economists who accurately predicted the magnitude of the current crisis, wrote in The Financial Times on Monday that there’s still a “big risk” of a double-dip recession.

Allan Meltzer, a political economy professor at Carnegie Mellon University, also told Reuters that the flood of money the Fed and Treasury have injected into the banking sector and economy since the crisis began will soon threaten the dollar.

“Will the Chinese continue to buy the trillions of dollars worth of debt that the Treasury intends to put out every year? We don’t know, but if not, the pressure will be on the Fed to keep buying it, and my guess is that’s going to be inflationary over the next couple of years, and the dollar will suffer,” he said.

Aug 24 (Reuters)

FOMC Meeting Begins Today

Chuck Butler — Tue, 28 Oct 2008 12:11:32 +0000

Mini-currency rally is cut short … Is it Japan or U.S.? … Gold stages a rally… Swiss francs remain well bid…
And Now… Today’s Pfennig!
Good day… And a Terrific Tuesday to you! Well… We saw some profit taking in the currencies yesterday, which meant a mini-rally in non-dollar currencies for the first time in what seems to be a month of Sundays! At one point in the day, the euro had added more than 1-cent to its figure dragging sterling, Swiss, Canada and a host of others along. But, that didn’t last in the overnight markets, and we’re right smack dab back on square one where we left off yesterday.

This morning we’ll listen in on former Fed Chairman Volcker’s speech, which ought to be a good one, don’t you think? I mean, this is the guy that said a couple of years ago that the U.S. could see a currency crisis… And didn’t it? OK, it’s not now, but turn your clocks back to June, and you’ll see what I’m talking about here. Volcker is a “hero” of mine in how he took on the inflation of the late 70’s early 80’s and didn’t dance around the dance floor with it… He whipped it into shape, and then left it all in good shape for Big Al Greenspan… We all know what happened after that!

We’ll also see Consumer Confidence for the first part of this month, which is expected to take the Nestea plunge from and index number of 59.8 to 52! You know me, I can’t ever, for the life of me, figure out how Consumer Confidence can even be this high! But then, if every one worried about the stuff I worry about, this would be a dull place to live, eh? HA!

The S&P Case/Shiller Home Price Index will also print this morning, so expect more rot on the vine with home prices here… And finally… The Fed begins a two day meeting today… The Fed’s FOMC begins today with a rate announcement expected tomorrow. What do you think it will be… A 25 BPS cut? Or 50 BPS cut? I’m thinking that it will be 50 BPS… I’ve always kidded that I wondered what the Fed Heads do for two days before announcing their rate moves… I think they play Battleship! By Joe you’ve sunk my Battleship! HA

One of my fave economists, Nouriel Roubini, said in interview that he believed the Fed was going to have to move rates to zero! That’s a big fat goose egg folks! Wow! What country does this all remind you of? Come on, you know what I’m referring to here, as I keep bringing this up over and over again… Oh, I think I’m turning Japanese, I really think so… (my good friend, and big fan of the 80’s, Rick, tells me that song was by the Vapors)

Let me add up the facts here… A collapsing stock market, check. Falling bond yields, check. Economic stimulus packages, check. Bailouts, check. Dire times for the economy, check. A Central Bank that believes cutting interest rates to near zero is the right thing to do, check, and checkmate! Which country was I talking about there? The U.S. or Japan in the 90’s? Oh, I think I’m turning Japanese, I really think so! This all reminds me of those Memorex commercials… Remember? “Is it live or Memorex?” Is this Japan or U.S.?

Speaking of Japan… The yen saw selling yesterday for the first time in a while… I know from my view in the cheap seats, most yen selling that I saw was simply profit taking… You have to think that given the price action in almost all assets these days, seeing one with a profit is very inviting, eh?

So… With yen weakening just a bit, did it mean that the risk takers were back? I don’t think so… Not yet anyway. As I said, it all looked like profit taking to me. Not even the threat of Bank of Japan (BOJ) intervention was going to bring the risk takers back out… By that I mean, that if the BOJ was going to intervene, which means sell yen to weaken it, the risk takers might use that information to their advantage and put Carry Trades back on the books… But, that didn’t happen, I think the risk takers have had the bejeebers scared out of them with all that’s going on, and it will be awhile before we see them in the places with bright shiny faces!

And… While I don’t want to spend the whole letter today on Japan… I must say that I think we should all be very wary of the BOJ and their history of intervening to keep yen weak. This will be a huge battle between the Carry Trade unwinders and Uridashi Bond sellers VS the BOJ… Just don’t get caught up in it… If it happens, stay to the sidelines, you don’t want to get caught up in an intervention battle…

I was reading friend, Bill Bonner’s Daily Reckoning (www.dailyreckoning.com) last night, and noticed that he was talking about the Dow going to 5,000… He had this to say about it, which plays well with our thought about all the deleveraging going on in the world right now… Here’s Bill…

“It probably would have corrected to the 5,000-range already. But the feds intervened. And now we’ve really got trouble. Because in trying to head off a recession/bear market, the authorities provoked a housing bubble, a financial bubble, and a worldwide credit bubble. Homeowners over-bought. Banks over-lent. Consumers over-stretched. Almost everyone seemed to over-do it. So, what might have been a typical bear market has been transformed into a monster of deleveraging.”

Gold is up $13 this morning! But Silver has dropped below $9… And we still can’t find physical Gold or Silver supplies anywhere! We did find 2,000 Gold Olympic Coins from Canada a few weeks ago, and those went out the door as fast as they came in! This whole lack of physical metals and slumping prices is beyond my ability to figure it out… I get asked all the time why isn’t Gold going higher, and I went through all that yesterday, but it’s important to know that I’m a firm believer that all this stimulus, and low interest rates are going to fuel much higher inflation, and that should be a good thing for Gold prices.

The Swiss franc continues to remain well bid and resist the strong pull down of the euro. I would think that given all the “risk” in the global markets these days, that francs would be well bid, which means that there are buyers of the currency. There’s little in the way of yield here in Swiss francs, but it’s better than nothing, nada, zero, zilch, a big fat goose egg like we’ll soon see here in the U.S!

In its semi annual Financial Stability Report released overnight, the Bank of England (BOE) said that the five biggest banks and Nationwide building society could lose as much as 130 Billion pounds over the next five years, well in excess of the 50 Billion pounds that the banks recently promised to raise as part of the Treasury’s bailout plan, forcing the banks to ask shareholders for even more cash. Things don’t look rosy for the U.K. or pound sterling, folks…

And speaking of not looking so rosy… Nothing has changed in Iceland… We can’t get payment for our maturities, as the clearing mechanism for currencies has been shut down, with the takeover of the largest banks in Iceland. Now, I read that the Icelandic Central Bank raised interest rates 400 BPS to 18% this morning… For what? I don’t get it… That’s like rearranging the deck chairs on the Titanic! I just wish the Central Bank would worry more about getting maturities paid! UGH!

You know… I talked a lot about foreign bonds when I was doing the Currency Tours. Foreign bonds are a great way to take a long term position in a currency, and not worry so much about the day-to-day moves of the currency. You lock in a yield to maturity on the bond, and it’s liquid… Seems like a lay-up to me, especially when you consider that in a lot of countries your yield to maturity would be higher than what you can find here. Foreign Bond trading is how I got my feet wet in the currencies… I cut my teeth on Foreign Bonds, so they have always been near and dear to my heart…

I was thinking the other day about all these people taking losses breaking their CD’s and attempting to catch a falling knife, and said to myself… “Chuck, why don’t you tell people about taking that currency they own, and using it to buy a foreign bond?” So… There! I did just that! Should you want to talk to somebody about that, our bond guy is Don Ries… He can be reached at the same 800#, 800-926-4922, that you call us on everyday…

Chris Gaffney sent me a note yesterday regarding our first MarketSafe CD maturity, which happened yesterday! Recall, we created MarketSafe CD’s on different assets (before all the volatility in the markets squeezed us out of the structured product creation), and the owner of the CD would have upside potential of the underlying asset, and enjoy 100% principal protection… Well, this first maturity was one based on the S&P 500… And it sure looks like the owners of that CD did quite well!

Chris tells me that the ending price of the S&P 500 index today was 848.92, which equates to a 29% fall vs. the original S&P price of 1196.54. Investors in this MarketSafe CD will be receiving their original investments with no upside payment. So… We saved investors 29% (assuming they would still be holding stocks)… Pretty cool…

And on that note… I think I’ll head to the Big Finish! Oh, and the currencies have risen a bit since I first came in, so we’ve got that going for us today!

Currencies today 10/28/08: A$ .6190, kiwi .5495, C$ .7720, euro 1.2505, sterling 1.5680, Swiss .8615, ISK (no quote), rand 10.66, krone 6.8650, SEK 7.9950, forint 212.75, zloty 2.9775, koruna 19.48, yen 94.60, baht 34.90, sing 1.5075, HKD 7.7520, INR 49.87, China 6.8385, pesos 13.21, BRL 2.19, dollar index 87.13, Oil $64.03, Silver $8.91, and Gold… $742.50

Source: FOMC Meeting Begins Today…

Is the Fed to Blame for Chinese Inflation?

Contrarian Profits — Mon, 16 Jun 2008 12:17:35 +0000

Last year, China was viewed as the driver behind rising commodities prices.

Now the blame for spiraling food and oil prices is increasingly being laid at the door of Fed Chairman Ben Bernanke for cutting the fed funds rate to 2% and unleashing yet another wave of inflationary surplus liquidity.

The fallout is now being seen as India, China, the Philippines and Indonesia hike their own interest rates to rein in rising prices.

Consumer prices jumped 7.7% last month, down from 8.5% in April, but inflation there remains top of the list of economic concerns.

While the US and most of Asia struggle to put the inflation geenie back in the bottle, David Stevenson in Money Week heaps praise on European Central Bank president Jean-Claude Trichet, who is fast becoming the hero of inflation fighters everywhere…

Because yesterday, amid the usual turgid guff that central bankers usually churn out when they’re doing nothing very much, he came up with a bit of a bombshell – an imminent interest rate rise.

Although key rates are being kept unchanged for now, the ECB’s Governing Council has been getting more and more twitchy about climbing consumer prices which have risen “significantly” since last autumn due to soaring energy and food prices. And now Monsieur Trichet and co. expect inflation to stay high for longer than it first thought, because money supply is still growing too fast.

So not only are Euro central bankers staying “in a state of heightened alertness”, they’re prepared to “act in a firm and timely manner to ensure that medium term risks to price stability do not materialize”, and to show “strong determination to anchor medium and long-term inflation expectations in line with price stability.”

In short, expect an ECB rate hike next month.

It’s certainly seems to have come as a bit of a shock to many analysts. Just a week ago, Capital Economics was fairly confidently predicting that with eurozone inflation set to ease later this year, “the next move in interest rates should be down”.

But it’s good to see that some central bankers this side of the Atlantic are still taking their jobs seriously and trying to maintain the value of their currency. Which, it seems, the ECB can do rather more easily than Bank of England governor Mervyn King.

He’d probably like to do the same as the eurozone, with UK inflation seeping above the 3% mark at which he has to pen an open letter to Chancellor Darling explaining what’s gone wrong, but his hands are tied while the UK economy is falling off a cliff. And it looks like the knots are getting tighter by the day, with the unwelcome news that Mr Darling has now decided to give Mr King some extra outside ‘help’ in “advising” the Bank about “financial stability”.

That sounds horribly like Government-speak for finding ways to fiddle around with the Old Lady’s independence, and specifically to find ways of altering the Bank’s 2% inflation mandate. That would be a serious mistake – changing the target again would just chuck any remaining financial credibility the UK has left, right out of the window.

Talking of being a credible inflation-battling central banker, US Federal Reserve boss Ben Bernanke certainly isn’t one, having presided over a cavalier slashing of American interest rates in the face of a worse inflationary storm than the ECB is battling. But to be fair to the Fed, not quite all his colleagues are in quite the same boat.

Richmond Fed president Jeffrey Lacker has just ‘fessed up to his fears that the Fed’s lending to securities firms introduced in March could stoke up problems in the future, because it might “induce greater risk taking, which in turn could give rise to more frequent crises”.

In other words, we could soon be right back in the same boom-to bubble-to-bust mess from which we’re now suffering.

Thank goodness someone in authority in the US has seen the dangers. Though it’s a shame that Mr Lacker isn’t running the whole Stateside central bank show. Then we might see some rate rises over there, too.

Greenspan: A US Recession Still Likely

Contrarian Profits — Tue, 27 May 2008 12:01:12 +0000

The US economy is still more than like to fall into recession, former Fed chairman Alan Greenspan has told British newspaper the Financial Times.

The former chairman of the Federal Reserve said: “I still believe there is a greater than 50 per cent probability of recession.” But, he said, “that probability has receded a little and I think the probability of a severe recession has come down markedly”.

His comments, in an interview with the FT, come as a counter to the increasing optimism in some quarters. In the past six weeks, most economists have scaled back their estimates of the likelihood of a US recession following a better-than-expected jobs report and stronger business activity surveys. Many now think the US will narrowly dodge outright economic contraction.

John Maudlin in Outside the Box, agrees with Greenspan’s bearish case. John says, we are in a “sell in May and go away” summer.