U.S. S&P 500 equity futures were down 0.7 percent , which increased demand for those currencies which typically gain in times of risk aversion and weighed on higher risk currencies such as the Australian dollar.

Sterling pared earlier steep losses, however, after Bank of England minutes showed policymakers voted unanimously to maintain their quantitative easing target.

Analysts said Federal Reserve Chairman Ben Bernanke on Tuesday dented sentiment when he said U.S. interest rates would stay low for some time.

“The dollar has found a bit more of a stable footing, which is largely a function of what Bernanke said yesterday,” Bank of Scotland Treasury market economist Kenneth Broux said.

“There is no reason for the Fed to hasten its way out of QE, which should dampen some of the recent excitement on equity markets,” he added.

By 1208 GMT, the euro fell 0.5 percent to 132.55 yen , while it dipped 0.1 percent against the dollar at $1.4200 .

Traders reported hefty options activity in euro/dollar at $1.4200, set to expire later in the day. A holder of a digital option will get payout if spot is above $1.4200 at expiry, while other expiries at $1.4200 are thought to total 1 billion euros, market participants say.

On Tuesday the euro hit a seven-week high on Tuesday at $1.4278 , close to its peak for the year.

The dollar fell 0.3 percent against the yen to 93.36 yen .

Reaction in the euro was limited, however, after data showed euro zone industrial orders data unexpectedly fell 0.2 percent in May, compared with forecasts for a 1.9 percent rise month-on-month.

“It looks not really consistent with what we had seen for the euro area…so I have some doubts if we do not see a substantial revision of this May reading at a later stage,” said Juergen Michels, economist at Citigroup.

STERLING OFF LOWS

Sterling fell 0.2 percent against the dollar to $1.6410 , well above an earlier low around $1.6311.

The minutes from the Bank of England’s latest policy meeting showed a 9-0 vote to maintain the 125 billion pound asset-buying total and keep interest rates at 0.5 percent.

The market took this as a signal that UK quantitative easing could be at or near an end — suggesting the economy may be starting to recover — and sterling gained as a result.

“The MPC minutes should be bullish for sterling,” Bank of Scotland Treasury’s Broux said.

The Australian dollar fell 0.4 percent against the dollar to $0.8154 and by 0.4 percent against teh yento 76.14 , dented as oil prices fell below $65 per barrel.

“Levels look quite stretched for these big gainers,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Investors awaited further comments from the Fed’s Bernanke later on Wednesday, this time before the Senate Banking Committee.

Bernanke will repeat his testimony before the Senate Banking Committee at 1400 GMT, and then take questions

July 22 (Reuters)

A nasty day in the currencies yesterday, except Japan of course. The Dow jumped 290 points yesterday, maybe an Obama bounce? You all know that I subscribe to an Obama bounce for stocks and the dollar in the first part of this year… But given what I know about, and what you now know about, after I drew it all out yesterday, the additions to the deficit that Obama will make, the focus on the fundamentals should return by late spring, early summer… That’s my story and I’m stickin’ to it!

Well… As I said in the opening, the currencies led by the Big Dog, euro, suffered through a nasty trading day, with the euro touching below 1.29 for a good part of the day. The risk takers are nowhere to be found. Where have all the risk takers gone… Long time passing… A Reuters reporter asked me yesterday if I was still of the opinion that the yen had more to rally or was it overbought? I said, that as long as the risk takers are nowhere to be found, yen should continue on its path higher VS the dollar, euro and sterling. The RSI (Relative Strength Index) for yen, shows that it is a tad overbought, but that’s not enough to change my mind. Nor is it enough to change the mind of a currency trader at the Bank of New York (BONY), who believes yen may rise to 85 VS the dollar by midyear… Another currency trader at the Royal Bank of Scotland (RBS) believes the Bank of Japan will step in and intervene to stem the yen’s rise….

That may be, but there’s been no sign of the Bank of Japan (BOJ) to date… Of course that could be the kiss of death that I just bestowed on yen… But I somehow doubt it… Yen hasn’t been a moon shot since reaching 88… In fact it has bounced between 88 and 91…

In the overnight markets, the euro rallied all the way up to 1.3080, but since I’ve come in it has been falling and now is barely hanging on to 1.30… The rally just doesn’t seem to have legs and is fizzling out…

OK… Our long time friend, Jim Rogers, was talking again about the currencies… Let’s listen in to see what this very well respected analyst / investor was talking about…

“In a Bloomberg video interview, Jim Rogers said the U.K. is “finished.” According to Rogers, oil sales from the North Sea were the only thing supporting its economy, and the oil is running out. London, a global financial capital, is also a “disaster” because many of the current economic problems originated there. Bankers and money managers left the U.S. to operate with less regulation in London. Rogers has sold all of his pounds sterling.

And with the pound and U.S. dollar under scrutiny, where are currency traders putting their money? In the countries with the largest trade surpluses – Japan, Norway, and Switzerland. European banking giant BNP Paribas forecasts the yen will appreciate about 14% against the dollar by June. Norway’s krone is one of Goldman Sachs’ top picks for 2009 (it’s one of Jim Rogers’ top picks, too). And Bank of America says the Swiss franc will gain against every major currency.

Maybe as speculations, these are good ideas. Me? I prefer gold to any paper currency.”

Yes… Gold… The shiny metal broke its recent trend of rallying along side the dollar yesterday, but the sell off was small… Negligible at best… But a breaking of the trend nevertheless. I believe that Gold will get caught up with the currencies in the Obama bounce, but that will be a temporary thing…

OK… I’ve beaten the pound sterling sufficiently for some time now… But a U.K. reader sent me a note that he saw regarding Barclays Bank… He saw this on CNBC… “The Daily Telegraph and Times newspapers reported on Thursday that any attempt by Barclays to raise extra capital could trigger a clause that would deliver control of the bank to Middle Eastern investors. Barclays opted to raise funds privately last year rather than take part in the British government bailout. Qatar’s sovereign wealth fund and Sheikh Mansour Bin Zayed Al Nahyan, a brother of Abu Dhabi’s ruler, invested up to 5.3 billion pounds in the bank.

According to The Daily Telegraph, a clause in the agreement states that if at any time before the end of June Barclays raised more capital at a price lower than 153.276 pence per share, the Middle Eastern investors could take their stake at that lower level.”

Now that would throw a real spanner in the works for the U.K. if they truly want to go down the nationalization path for their banks… They already own majority stakes in Royal Bank of Scotland, and Lloyds… And they had to take over Northern Rock last year…

I don’t know what nationalizing the banks does to the pound sterling, but the image of this happening can’t be a good thing… Not in my opinion anyway…

So, did you see that China’s 4th QTR GDP grew at a 6.8% clip? Now, compared to the plus 10% growth rates China was posting for the past few years, 6.8% looks pretty measly… But! Let’s look around the world right now and see who has a GDP that even compares? Well, that roster would be pretty small… In fact, I can’t think of anyone other than China that has GDP of 6.8%! This 4th QTR drop puts the annual growth rate in China for 2008 at 9%… Again… I’m from Missouri, you’ll have to show me a country, other than China that posts a figure that strong!

In the whole scheme of things, this is pretty significant for China though. And all the reason I believe the Chinese officials will continue the slow appreciation of the renminbi… This is going to put a lot of people, investors, traders, into a lull regarding renminbi, as everything around the world slows down… But in China, inflation is still a problem, and that can be dealt with by allowing the renminbi to continue its slow appreciation…

Well, I came across something yesterday, I saw it, Kristin sent it to me, and then Chris sent it to me, so it hit a nerve with all three of us… Our friends over at Casey Research, did a chart, that I can’t put in the Pfennig, but I can tell you what is showed us…

Since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 Billion, while their loans and leases have increased by only $325 Billion. So you can imagine the chart with one line for cash position rising, and the other line for loans falling… Here are the people at Casey Research’s thoughts…

“In other words, rather than lending the billions of dollars received from the Treasury’s Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.

Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.

The combined affect is a “circular bailout” with the Treasury borrowing… in order to lend money to banks… that then lend it back by purchasing more Treasuries. Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public.”

>>>> back to me… We finally get a couple of data bones thrown to us today, as the data cupboard gets restocked with Housing Starts, and Building Permits for December, the House Price Index for Nov. and the Weekly Initial Jobless Claims… None of this will be good, bright, or even a warm and fuzzy, so prepare for more rot on the economy’s vine…

And don’t look now, but the price of Oil has pushed higher this week… Now trading at $44.50

Oh, and one more thing… Singapore officials have announced an economic stimulus package, which has been well received by the markets, and has allowed the sing dollar to bounce off the lows we’ve seen this week… Ok! Off to the Big Finish…

Currencies today: A$ .6565, kiwi .5275, C$ .7940, euro 1.30, sterling 1.3785, Swiss .8650, rand 10.0750, krone 6.9625, SEK 8.22, forint 217.85, zloty 3.3390, koruna 21.30, yen 88.80, sing 1.4950, HKD 7.7590, INR 49.16, China 6.8370, pesos 13.79, BRL 2.3190, dollar index 85.77, Oil $44.50, Silver $11.30, and Gold… $850.88.

Source: Euro Rally Fizzles Out

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

This from Fleet Street Daily:

But there is a market where you can always make profits from others’ bullishness. I’m talking about the currency, or Forex markets.

Because each currency is measured against another one, for every bear market, there has to be a corresponding bull market.

Let’s look at sterling. You’ll be aware that the pound has been a basket case these last few months. In fact, if you look at it over the last the year, it’s been smashed against every other major currency.

Against the US dollar, sterling has fallen 26%; against the euro, it’s fallen 21%; and it’s lost 23% of its value against the Swiss franc.

Which ever way you cut it, sterling’s in a bear market. But remember, Forex is a zero sum game. While the guy holding sterling has been losing money in a ferocious bear trend, the guy on the other side of each one of these trades has been raking it in.

And what really stands out is that whilst stock markets around the world have been in bear territory, one particular currency has been on fire. I’m talking about the Japanese yen. It’s outstripped all the others by going up 40% against the pound in the last 12 months.

As stock markets have fallen, the Japanese yen has soared…

Source: Bloomberg

The chart shows the Dow in red and the Japanese yen versus sterling in black.

The yen tends to be inversely correlated to stock markets. When stock markets are strong, the yen is weak, and vice versa.

This is because over the past several years, with Japanese interest rates at zero, investors have taken advantage of cheap yen-denominated loans. They borrowed in yen and bought into higher yielding investments – e.g. other currencies, stocks or commodities to earn the interest rate difference, or ‘carry’ (hence the name, ‘carry trade’).

This was all working well for investors. They were making money by borrowing cheap… and making inflated returns. In essence, they were using leverage. Meanwhile, the act of borrowing was, in effect, the same as selling yen – so naturally this pushed the yen down in value.

It was all going so well…

Everything was fine until the US housing market blew up and spilled over into other financial markets. Investors were forced to close out their winning trades in order to cover losing ones.

We have seen a huge deleveraging of financial markets – and a rush to pay back yen loans – in other words, buying yen. This has caused the yen to rally strongly – roughly in step with the stock market collapsing.

Now, when stock markets rally – i.e. when there is an appetite for risk – then the yen is sold off to fund trades. And when the stock market falls, the yen suddenly finds favour again as a “risk aversion” trade.

We’ve seen this week that President-elect Obama’s huge infrastructure stimulus proposals have got the confidence back for stock market investors. Hence yesterday’s impressive rally in worldwide stocks (and corresponding fall in the yen).

But stock markets are not out of the woods yet – the economic data is still weak.

When equities fall, expect to see the weakest global currency (sterling) fall and the strongest (yen) rise. It’s a bull market that could run for as long as the bear market in stocks.

Source: The One Place You’ll ALWAYS Find A Bull Market

The dollar fell against the euro on Monday as talk of an imminent bailout deal for the three U.S. automakers boosted stocks in Europe and Asia and helped to quell extreme levels of risk aversion.

The rise of 5 percent in benchmark indexes outside the U.S. sent the low-yielding Japanese yen and U.S. dollar lower against the Australian dollar, sterling and other currencies perceived in the market to have higher risk.

Analysts said expectations that a rescue of the “Big Three” U.S. automakers will materialize, along with more stimulus measures from governments around the world was helping to calm a recent sell-off in risky assets which has send yields on three-month Treasury bills to near zero.

The “U.S. dollar is sharply lower against the major currencies as markets anticipate a large fiscal stimulus package in the U.S. and a U.S. auto bailout as early as today or tomorrow,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York in a research note to clients.

In early New York trade, the euro traded 1.1 percent higher at $1.2877, after jumping as high as $1.2915, its highest level since November 28.

The single currency rose 1.6 percent to 120.20 yen, having climbed as high as 120.99 yen, according to Reuters data, as the euro was boosted by higher regional shares.

Stock market gains are seen as a sign of easing risk aversion and can curb demand for the yen, which rises when risk-taking declines and carry trades are unwound.

“Higher stocks are driving everything at the moment and currencies are trading in line with this, with higher yielders gaining and lower yielders on the defensive,” said Adam Cole, global head of FX Strategy at RBC Capital Markets.

The equities rally also benefited the pound, which gained 0.8 percent against the dollar to $1.4870, while the higher-yielding Australian dollar jumped 2.5 percent to $0.6637.

The Australian dollar, whose 4.25 percent yield for the moment continues to dwarf the yen’s 0.3 percent even as the Reserve Bank of Australia continues to slash interest rates, rose nearly 3 percent to 61.90 yen.

Against the yen, the dollar traded 0.5 percent higher at 93.32 yen, but off the session high of 93.91 yen.

BAILOUT EYED

White House and Congressional negotiators sought on Sunday to settle remaining differences over an emergency rescue for the struggling auto industry.

Hopes for a bailout gained traction after Friday’s disappointing employment figures encouraged U.S. lawmakers to take action to shield the economy from the credit crunch and a global recession.

U.S. President-elect Barack Obama also said on Saturday that his plan to create at least 2.5 million new jobs included the largest infrastructure investment since the 1950s and a huge effort to reduce the U.S. government energy use.

“President-elect Obama’s plans to introduce the largest infrastructure package since the 1950’s and progress on an auto sector rescue package have captured the market’s imagination and is weighing on the dollar,” said Brown Brothers Harriman’s Chandler.

Despite the dollar’s drop on Monday, analysts do not expect the U.S. currency to continue losing ground, as major concerns remain about the possibility of a deep global recession, which many say will keep investors extremely wary of taking on risky positions.

“We remain wary about the impact of escalating bad news on the economic front, which we believe will keep risk aversion elevated for some months to come,” analysts at Calyon said in a research note.

Nick Olivari, Naomi Tajitsu, Andrea Ricci
NEW YORK, Dec 8 (Reuters)

The dollar fell to a six-week low against the yen on Friday after government data showed the U.S. economy lost more than half a million jobs in November, the worst performance in 34 years.

The dollar, however, rose against the euro, as investors again sought shelter in the U.S. currency away from European currencies on darkening prospects for economies worldwide.

“The much weaker-than-expected November result alongside a sharp downward revision to October suggests the U.S. recession underway is going to be a long one,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

“The U.S. dollar has weakened, indicating that fundamental gravity might finally be weighing on the currency,” he added.

In early New York trading, the dollar fell as low as 91.60 yen , the lowest since Oct. 24, according to Reuters data. It was later at 91.85, down 0.3 percent on the day.

The euro held losses against the dollar to $1.2660. It earlier rose as high as $1.2732, in the wake of the payrolls report.

The dollar rose 1.5 percent against the Swiss franc to 1.2123 francs , while sterling fell 0.4 percent to $1.4615 .

Data on Friday showed U.S. employers cut payrolls by a shocking 533,000 in November, the steepest monthly loss since 1974, as recession in the world’s largest economy deepened. Markets were expecting job losses of 340,000, according to Reuters data.

The unemployment rate likewise rose to 6.7 percent, the highest since 1993.

“The November employment report was staggeringly poor, even for a market increasingly inured to ugly data,” said Alan Ruskin, chief international strategist, at RBS Global Banking and Markets in Chicago.

“Is there any good news? Only in so much as it will be hard to get worse numbers … There are simply no redeeming features in this data. Weakness is evident everywhere,” he added.

The gloomy jobs data further bolstered expectations of another interest rate cut by the Federal Reserve.

Interest rate futures now fully price a 50 basis-point Fed rate cut on Dec. 16, which would take the federal funds rate to 0.50 percent. The implied prospects for a cut to 0.25 percent jumped to 76 percent from 64 percent late on Thursday.

Gertrude Chavez-Dreyfuss
NEW YORK, Dec 5 (Reuters)