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Friday, July 25, 2008
Thursday, July 24, 2008
The Yen
JPY Falls on Downgrade, USD Edges Higher
by Korman Tam
The greenback was higher against the euro and yen, rising to 1.5669 and 107.90, respectively. The dollar continues to benefit from further declines in oil, which fell to $123.63 per barrel, and renewed confidence stemming from government measures to support Fannie Mae and Freddie Mac.
Hawkish Fed commentary has also propped the currency higher. The Fed's Plosser reiterated his view that current interest rates at 2% are pretty low and ultimately, rates have to go up. He said it was important to protect the Fed's credibility by reinforcing its commitment to low inflation through action. Plosser added that it would be too late if the Fed waited for inflation expectations to become unanchored.
Markets will look ahead to Thursday's economic reports consisting of weekly jobless claims and existing home sales. Weekly jobless claims are estimated to increase to 375k, up from 366k a week earlier. Existing home sales are seen slipping to 4.93 million in June units versus 4.99 million units a month earlier.
by Korman Tam
The greenback was higher against the euro and yen, rising to 1.5669 and 107.90, respectively. The dollar continues to benefit from further declines in oil, which fell to $123.63 per barrel, and renewed confidence stemming from government measures to support Fannie Mae and Freddie Mac.
Hawkish Fed commentary has also propped the currency higher. The Fed's Plosser reiterated his view that current interest rates at 2% are pretty low and ultimately, rates have to go up. He said it was important to protect the Fed's credibility by reinforcing its commitment to low inflation through action. Plosser added that it would be too late if the Fed waited for inflation expectations to become unanchored.
Markets will look ahead to Thursday's economic reports consisting of weekly jobless claims and existing home sales. Weekly jobless claims are estimated to increase to 375k, up from 366k a week earlier. Existing home sales are seen slipping to 4.93 million in June units versus 4.99 million units a month earlier.
The Dollar & The Yen
Dollar Rises to Four-Week High as Fannie, Freddie Plan Advances
July 23 (Bloomberg) -- The dollar rose to a four-week high against the yen and advanced versus the euro as a U.S. government rescue of Fannie Mae and Freddie Mac moved closer to congressional passage and oil prices fell.
The currency also gained as signs of stability in the financial industry fueled bets that the Federal Reserve will raise interest rates in September. The yen touched a record low against the euro as reduced currency and stock volatility encouraged investors to add to holdings of higher-yielding assets funded in Japan.
``The government's backstop for Fannie and Freddie is containing systemic risk,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It created a blue sky for the financial markets and gave a boost to the dollar.''
The dollar rose 0.4 percent to 107.81 yen at 10:59 a.m. in New York, from 107.33 yesterday. It reached 107.92, the highest since June 26. The U.S. currency appreciated 0.6 percent to $1.5687 per euro, from $1.5783. The yen gained 0.2 percent to 169.15 per euro, from 169.43 yesterday. It touched 169.96, the weakest since the euro's 1999 debut.
The Chinese yuan fell 0.1 percent to 6.8298 versus the dollar. China will slow the local currency's gains to about 3 percent in the second half of the year to help exporters weather a decline in global demand and rising costs, said Zhang Ming, a researcher at the Chinese Academy of Social Sciences in Beijing.
Fed Rate Outlook
Futures traded on the Chicago Board of Trade showed a 55 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by Sept. 16, up from 49 percent odds yesterday. Policy makers next meet Aug. 5.
Lawmakers reached a deal on legislation that authorizes the U.S. to bail out Fannie Mae and Freddie Mac, the two largest buyers of home loans.
Treasury Secretary Henry Paulson told reporters in Washington today the bill will send a ``very strong message'' to markets. The legislation is ``key to helping us turn the corner,'' he said.
The dollar touched a record low of $1.6038 per euro on July 15 as traders speculated that Fannie and Freddie, which own or guarantee almost half of the $12 trillion in outstanding home loans, would be forced to seek a bailout.
Better-than-expected earnings at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo sparked a rally in global financial stocks last week.
`Bottoming Process'
``The gloomiest expectations for banking losses'' weren't realized, said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The dollar is in a bottoming process.''
The yen dropped 0.8 percent to 215.46 against the pound and 0.3 percent to 68.12 versus the Brazilian real as the drop in volatility encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 5 percent in the U.K. and 12.25 percent in Brazil.
Implied volatility on one-month dollar-yen options touched 10.775 percent, the lowest since July 14. The VIX index, an indicator of U.S. stock option volatility, touched the lowest level in almost a month. Reduced price fluctuation makes carry trade profit easier to predict.
The euro extended its decline versus the dollar as a report showed industrial orders in the euro region fell in May more than twice as much as forecast. Orders dropped 3.5 percent from April, the European Union statistics office in Luxembourg said today, compared with a 1.3 percent decline predicted by economists in a Bloomberg News survey.
Yield Spread
The yield on the U.S. two-year Treasury note increased 6 basis points, or 0.06 percentage point, to 2.77 percent. The yield advantage of the comparable-maturity German bund decreased to 180 basis points, the narrowest since June 25, making U.S. securities more attractive.
Crude oil for September delivery fell for a second day, declining 1.4 percent to $126.18 a barrel. It has dropped 15 percent from a record $147.27 a barrel reached July 11. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.
The Fed will issue its Beige Book report, a survey of regional economic performance, at 2 p.m. today in Washington. Economic growth was ``generally weak'' in April and May as consumer spending slowed, the Fed said in its June 11 report.
July 23 (Bloomberg) -- The dollar rose to a four-week high against the yen and advanced versus the euro as a U.S. government rescue of Fannie Mae and Freddie Mac moved closer to congressional passage and oil prices fell.
The currency also gained as signs of stability in the financial industry fueled bets that the Federal Reserve will raise interest rates in September. The yen touched a record low against the euro as reduced currency and stock volatility encouraged investors to add to holdings of higher-yielding assets funded in Japan.
``The government's backstop for Fannie and Freddie is containing systemic risk,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It created a blue sky for the financial markets and gave a boost to the dollar.''
The dollar rose 0.4 percent to 107.81 yen at 10:59 a.m. in New York, from 107.33 yesterday. It reached 107.92, the highest since June 26. The U.S. currency appreciated 0.6 percent to $1.5687 per euro, from $1.5783. The yen gained 0.2 percent to 169.15 per euro, from 169.43 yesterday. It touched 169.96, the weakest since the euro's 1999 debut.
The Chinese yuan fell 0.1 percent to 6.8298 versus the dollar. China will slow the local currency's gains to about 3 percent in the second half of the year to help exporters weather a decline in global demand and rising costs, said Zhang Ming, a researcher at the Chinese Academy of Social Sciences in Beijing.
Fed Rate Outlook
Futures traded on the Chicago Board of Trade showed a 55 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by Sept. 16, up from 49 percent odds yesterday. Policy makers next meet Aug. 5.
Lawmakers reached a deal on legislation that authorizes the U.S. to bail out Fannie Mae and Freddie Mac, the two largest buyers of home loans.
Treasury Secretary Henry Paulson told reporters in Washington today the bill will send a ``very strong message'' to markets. The legislation is ``key to helping us turn the corner,'' he said.
The dollar touched a record low of $1.6038 per euro on July 15 as traders speculated that Fannie and Freddie, which own or guarantee almost half of the $12 trillion in outstanding home loans, would be forced to seek a bailout.
Better-than-expected earnings at Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo sparked a rally in global financial stocks last week.
`Bottoming Process'
``The gloomiest expectations for banking losses'' weren't realized, said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The dollar is in a bottoming process.''
The yen dropped 0.8 percent to 215.46 against the pound and 0.3 percent to 68.12 versus the Brazilian real as the drop in volatility encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 5 percent in the U.K. and 12.25 percent in Brazil.
Implied volatility on one-month dollar-yen options touched 10.775 percent, the lowest since July 14. The VIX index, an indicator of U.S. stock option volatility, touched the lowest level in almost a month. Reduced price fluctuation makes carry trade profit easier to predict.
The euro extended its decline versus the dollar as a report showed industrial orders in the euro region fell in May more than twice as much as forecast. Orders dropped 3.5 percent from April, the European Union statistics office in Luxembourg said today, compared with a 1.3 percent decline predicted by economists in a Bloomberg News survey.
Yield Spread
The yield on the U.S. two-year Treasury note increased 6 basis points, or 0.06 percentage point, to 2.77 percent. The yield advantage of the comparable-maturity German bund decreased to 180 basis points, the narrowest since June 25, making U.S. securities more attractive.
Crude oil for September delivery fell for a second day, declining 1.4 percent to $126.18 a barrel. It has dropped 15 percent from a record $147.27 a barrel reached July 11. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.
The Fed will issue its Beige Book report, a survey of regional economic performance, at 2 p.m. today in Washington. Economic growth was ``generally weak'' in April and May as consumer spending slowed, the Fed said in its June 11 report.
Wednesday, July 23, 2008
USD Dollar
Dollar Advances as Paulson Stresses Support for U.S. Currency
July 22 (Bloomberg) -- The dollar rose the most against the euro in almost a week as Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised.
July 22 (Bloomberg) -- The dollar rose the most against the euro in almost a week as Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised.
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