Traders took advantage of a dollar rally in the prior session to sell on views the Fed will signal plans to maintain loose monetary policy well into 2010.

Currency investors are also bracing for G20 leaders to discuss rebalancing the global economy this week, a process that would almost certainly require a weaker dollar.

A document obtained by Reuters showed how Washington would urge G20 leaders to launch a new push this year to get debtor nations like the United States to save more and exporters like China, Germany and Japan to spend more.

“If you take the view that too much of U.S. growth has been domestically driven, the next logical step is to say an orderly decline of the dollar — it’s not in anyone’s interest to see a collapse — in many ways makes sense,” said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.

“And at the end of the day, the U.S. has a zero interest rate policy and the highest fiscal deficit in peacetime while (foreign investors) are holding a lot of dollars, so the path of least resistance for the dollar is down,” he added.

The euro was up 0.8 percent at $1.4794 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. The dollar fell 1 percent to 91.09 yen and 0.9 percent to 1.0231 Swiss francs , near a 14-month low touched earlier.

Sterling rose 1.0 percent to $1.6375 while the New Zealand dollar surged more than 2.0 percent to a 13-month high after dairy exporter Fonterra raised its estimated payout to farmer shareholders. Fonterra accounts for some 7.0 percent of the New Zealand economy.

With no major economic data on the calendar, traders said $1.4825 may be the next target in euro-dollar, with many predicting an eventual move back to $1.50.

“Every time we get to a round number in euro-dollar, we’ll probably try to chip away on the way to $1.50. But for now $1.4825 is the next line in the sand, and then we’ll have to wait and see about $1.49,” said Steven Butler, head of FX trading at Scotia Capital in Toronto.

DOLLAR IN FOCUS AT G20?

European Central Bank Governing Council member Axel Weber said on Tuesday recent moves in currency markets were “not out of line” given the euro zone’s economic performance relative to other areas.

Some said this suggested the ECB was comfortable with the euro’s level and was a green light to push it even higher, especially in light of the U.S. proposals to put fixing global imbalances on the G20 agenda in Pittsburgh this week.

But others said there is still a risk of dollar bearishness engulfing the market and selling turning into a rout.

“A discussion at the G20 on currencies, and especially the dollar, is not only appropriate but essential, as this move could accelerate swiftly,” said Maurice Pomery, managing director at Strategic Alpha in London.

Sept 22 (Reuters)

Analysts attributed the continuing weakness to anxiety among traders over what finance ministers and central bankers from the Group of Seven nations gathering in Washington may say regarding their countries’ reserves.

Officials from the G7 met yesterday afternoon ahead of the weekend spring meetings of the IMF and World Bank. The G7 gathering will be followed by a meeting of the broader G20, which includes China and other powerful emerging economies.

At issue will be discussions with Chinese officials over calls by China’s central bank chief for replacement of the U.S. dollar as the world’s premier reserve currency by IMF special drawing rights.

The day’s hard numbers came in weak. The Commerce Department reported that durable goods orders fell 0.8% in March, marking the seventh decline in the past eight months.

Inventories fell 1.1%, a sign that manufacturers are bringing supplies of unsold goods in line with demand. But shipments fell faster than inventories did, suggesting that production will need to be reduced further.

Separately, Commerce reported that new home sales fell 0.6% in March, but added that sales in the first two months of the year were stronger than initially reported.

Source: Dollar Slides Again

The next meeting is April 30, barring some calamity between now and then.  That’s when things might start to get interesting.

The big news of the weekend turned out to be the president-elect’s interview on 60 Minutes, in which either 1) he showed the back of his hand to the people who sounded alarm bells in I.O.U.S.A., or 2) the subsection of people who sounded alarm bells in I.O.U.S.A. who serve as his economic advisers have shifted sentiment on a dime.  “The consensus is this,” he declared, “that we have to do whatever it takes to get this economy moving again, that we have to — we’re going to have to spend money now to stimulate the economy… And (consensus is) that we shouldn’t worry about the deficit next year or even the year after; that short term, the most important thing is that we avoid a deepening recession.”

Ah, I love the sound of printing presses in the morning!

(By the way, the “Personal Bailout Bundle” that features a free copy of the I.O.U.S.A. DVD is still available.)

The new president’s “consensus” announced last night was presaged yesterday morning by that fount of depressingly conventional wisdom, Thomas Friedman.  He actually went a step further and urged the new president to take a page from the George W. Bush post-9/11 playbook and tell folks to go shopping.  Of course, that’s a challenge right now for folks who have no savings, no retirement, and no home equity.  (Perhaps Friedman’s judgment is clouded at the moment by the fact the family fortune he married into, once worth $3.6 trillion, is now worth under $25 million.  Poor baby.)

Still, Friedman’s flaky musings make me wonder exactly what the next “stimulus” will be all about.  When bankers collected their bailout money, they used a good chunk of it to shore up their balance sheets rather than loan it out.  You and I might not have the same option.  Imagine: When we collect our next “stimulus” check, it might come on the condition that it can’t be used to shore up our personal balance sheets and pay off debt.  Maybe our checks will come in the form of vouchers that can be spent only on consumer goods.

Source: The G20, The New President, And Tom Friedman

The bloodletting continues.

On Friday the 15-nation Euro-zone announced that it is officially in a recession. GDP contracted by 0.2% for a second consecutive quarter over on the continent with Germany and Italy leading the way backwards. France narrowly escaped an “official” recession – two consecutive quarters of negative growth – by the narrowest of margins, posting 0.1% growth.

It has been 15 years since the last time Europe experienced such a large-scale downturn. Back then, of course, each country was able to act independently on monetary policy. Now they must seek permission from EU executive before rushing to save their own behinds. We wonder how the bureaucratic behemoth is taking the news and, more to the point, how it will react.

Socialist E.U. MPs were quick to satisfy our curiosity, outlining their solutions hours after the recession was announced in a report containing five helpful tips on how to deal with it. They read:

• Targeting measures to help on those who need it most and in particular small firms and vulnerable households. This will involve rapidly restoring levels of lending to households and businesses, especially SMEs
• A European ban on mega-bonuses and golden parachutes;
• Refusal of compulsory redundancies
• Implementation of a European Green Investment package to boost the economy, avoid a long-lasting recession and help Europe to meets its climate and energy goals
• Revival of the Doha world trade talks to reach successful, development-friendly conclusions.

Let’s see here… We’ve got a promise of more talking, an increase in needs-based lending, protectionism in the job market, oversight on private compensation and a twist of environ-socialism, just to keep the voters happy. We’ll be interested to see how that turns out for them.

Meanwhile in capitalist Japan, the world’s second largest economy is losing fluids quicker than like a hemophiliac in a samurai fight. It too announced this morning that the long gray cloud of recession hangs over its islands. Growth there slowed 0.1% during the past three months, on top of a 0.9% slump the previous quarter.

It seems recession known’s no party lines.

Here in the Middle East, where the political process has scarcely evolved beyond medieval feudalism, markets continue their relentless slide, wiping out billions of investor dollars and bringing the much-lauded real estate sector to its knees.

Since July 1, Dubai’s real estate index has shed a stunning 75%. Emaar, the largest developer in the region, has fallen more than 57% in the past seven trading days alone! When even the king’s newspapers start using words like “battered” and “thrashed,” you know you’re in trouble.

Preposterous as it may seem, the expectations of kings, prime ministers, dictators and the Joe the Plumbers of the world now rest on the shoulders of one man.

Source: Recession Runs Rampant

The only question was how quickly the money would hit the streets, and Jing Ulrich, J.P. Morgan Chase, said that, “With a healthy fiscal surplus and low government debt, China appears to have considerable resources to ramp up its fiscal spending in a short period of time.”

Weekend news of the Chinese package had lifted equity markets around the world and revived risk appetite, but only momentarily in the U.S. as domestic stock markets ended the day down and the buck—which has been a primary destination for the risk-averse for some time now—gathered some late steam.

China’s plan “could well form the starting point of a coordinated fiscal-stimulus plan as world leaders [the G20] gather in Washington later this week,” wrote strategists at Lloyds TSB.

And it could prove to be a defining moment in the global crisis, thinks Neil Mellor, currency strategist at Bank of New York Mellon. But Mellor wrote that “even if this optimistic scenario ultimately proves to be correct, the inevitable and continued deterioration in global economic data may prove to be a rather overwhelming test of the market’s mettle in the meantime.”

Source: Dollar cuts early losses -  China’s stimulus package the talk of the trade