US dollar mixed after Thai coup; Fed meeting in focus Wednesday, September 20, 2006
NEW YORK- The dollar traded mixed Tuesday as news of a coup in Thailand prompted investors to turn away from risky assets, and traders looking ahead to a Federal Reserve announcement on US monetary policy.
At 2100 GMT, the euro fell to 1.2675 usd from 1.2705 usd late Monday in New York.
The dollar stood at 117.71 yen, compared with 117.91 yen late on Monday.
Reports from Thailand said a state of emergency had been declared after an apparent military coup, with plotters said to have taken control of all six of the kingdom's public television stations, as well as radio stations.
The news sparked selling in the Thai baht and quickly spread to other Asian and Latin American currencies as the news caused investors to curb their risk appetite, with the Australian dollar also falling to a day low of 0.7515 against its US counterpart.
"It's been a long time since the word contagion has been in use but the events in Thailand could prove to be just that if players decide to take risk off the table by taking money off on their other emerging market trades," said Divyang Shah at IDEAglobal.com.
The US dollar benefited from the news meanwhile, erasing some of its earlier losses which came in the wake of weaker-than-expected US housing starts and inflation data which further reduced the chances of the Federal Reserve raising interest rates any further.
Jamie Coleman at Thomson IFR Markets said the trouble in Thailand was likely to spark jitters in financial markets, particularly as the Thai devaluation of July 1997 was the catalyst for the Asian financial crisis.
The initial dollar reaction during that crisis was a period of dollar strength, he noted, followed by a weakening as Asian nations repatriated foreign holdings.
"This present crisis looks contained, but few felt a devaluation by a small country would have such profound impact around the world for more than a year in its wake," he cautioned.
The yen made a sharp recovery after Monday's selloff, which came after the Group of Seven made no specific reference to the Japanese currency.
Ian Gunner at Mellon Financial said the yen saw "a dramatic turn of fortune" after comments by Japanese Finance Minister Sadakazu Tanigaki who dismissed the notion of a secret deal between Japan and the euro zone on exchange rates.
In the United States, the Federal Reserve was widely expected to keep its key interest rate unchanged at 5.25 pct at its meeting on Wednesday, but market will be looking for clues on future moves by the central bank.
A report Tuesday showed US wholesale prices edged up 0.1 pct in August, in a further sign of easing inflation pressures.
Peter Morici, an economist at the University of Maryland School of Business, said inflation may be even less of a problem as a result of the decline in energy costs in recent weeks.
"Since early August, crude oil prices have fallen nearly 15 usd a barrel and gasoline has dropped more than 50 cents a gallon," he noted.
"Inflation should cool significantly in September and October, and the Fed should become more comfortable, keeping interest rates at current levels."
In late New York trade, the dollar stood at 1.2512 sfr after 1.2505 Monday. The pound was being traded at 1.8813 usd from 1.8802.
At 2100 GMT, the euro fell to 1.2675 usd from 1.2705 usd late Monday in New York.
The dollar stood at 117.71 yen, compared with 117.91 yen late on Monday.
Reports from Thailand said a state of emergency had been declared after an apparent military coup, with plotters said to have taken control of all six of the kingdom's public television stations, as well as radio stations.
The news sparked selling in the Thai baht and quickly spread to other Asian and Latin American currencies as the news caused investors to curb their risk appetite, with the Australian dollar also falling to a day low of 0.7515 against its US counterpart.
"It's been a long time since the word contagion has been in use but the events in Thailand could prove to be just that if players decide to take risk off the table by taking money off on their other emerging market trades," said Divyang Shah at IDEAglobal.com.
The US dollar benefited from the news meanwhile, erasing some of its earlier losses which came in the wake of weaker-than-expected US housing starts and inflation data which further reduced the chances of the Federal Reserve raising interest rates any further.
Jamie Coleman at Thomson IFR Markets said the trouble in Thailand was likely to spark jitters in financial markets, particularly as the Thai devaluation of July 1997 was the catalyst for the Asian financial crisis.
The initial dollar reaction during that crisis was a period of dollar strength, he noted, followed by a weakening as Asian nations repatriated foreign holdings.
"This present crisis looks contained, but few felt a devaluation by a small country would have such profound impact around the world for more than a year in its wake," he cautioned.
The yen made a sharp recovery after Monday's selloff, which came after the Group of Seven made no specific reference to the Japanese currency.
Ian Gunner at Mellon Financial said the yen saw "a dramatic turn of fortune" after comments by Japanese Finance Minister Sadakazu Tanigaki who dismissed the notion of a secret deal between Japan and the euro zone on exchange rates.
In the United States, the Federal Reserve was widely expected to keep its key interest rate unchanged at 5.25 pct at its meeting on Wednesday, but market will be looking for clues on future moves by the central bank.
A report Tuesday showed US wholesale prices edged up 0.1 pct in August, in a further sign of easing inflation pressures.
Peter Morici, an economist at the University of Maryland School of Business, said inflation may be even less of a problem as a result of the decline in energy costs in recent weeks.
"Since early August, crude oil prices have fallen nearly 15 usd a barrel and gasoline has dropped more than 50 cents a gallon," he noted.
"Inflation should cool significantly in September and October, and the Fed should become more comfortable, keeping interest rates at current levels."
In late New York trade, the dollar stood at 1.2512 sfr after 1.2505 Monday. The pound was being traded at 1.8813 usd from 1.8802.
Labels: Forex News, US Dollar
Dollar dented by drop in investment flows; yen continues lower Monday, September 18, 2006
LONDON - The dollar drifted lower after a day of conflicting signals, with the slump in portfolio flows into the US denting sentiment eventually outweighing other factors.
The trading day started off quite well for the dollar, with the G7's omission of any mention of recent yen weakness only serving to worsen the currency's downtrend. The dollar, along with most other majors managed to gain on the Japanese unit.
That aside, the dollar got a fleeting boost earlier when US Treasury Secretary Henry Paulson said that the US will not budge from its strong dollar policy.
He was speaking after annual talks of the G7 and the IMF.
Things changed, however, when the US Treasury revealed that portfolio capital flows to the US slowed sharply, to their lowest level in over a year, during July. Inflows during the month totaled just 32.9 bln usd in July, down from 75.1 bln in June and their lowest level since May 2005.
Significantly, the inflow was not enough to cover the trade deficit of 68 bln usd over the same month.
"The final total looks grim at 32.9 bln usd -- an outcome that could hit the dollar and halt its recent appreciation," said Mitul Kotecha at CALYON.
"The fact that the data is backward looking, but more importantly, the lack of attention to structural imbalances at present suggests that the dollar may escape from significant damage, however," he added.
Kotecha was proven correct as the dollar's falls were limited after sharp initial knee-jerk selling.
Earlier, the dollar ignored a wider US current account gap. The Commerce Department said the US current account deficit widened to 218.4 bln usd in the second quarter to reach 6.6 pct of GDP. The shortfall was wider than expected and the second highest ever. And, to make matters worse, the deficit in the first quarter was revised to 213.2 bln usd from the initial estimate of 208.7 bln usd.
"The US current account deficit came in about 4 bln usd wider than expected, but with numbers this large, 4 bln seems like a rounding adjustment. Dealers are mostly sitting back," said Jamie Coleman at Thomson IFR markets.
The yen, meanwhile, continued lower after the weekend's G7 meeting failed to make mention of the yen's weakness.
The final communique from the G7 meeting called for greater currency market flexibility from emerging economies and especially China. The yen appeared to have escaped notice even though behind-the-scenes wrangling is almost certain to have occurred.
There were pointed comments from Japanese Finance Minister Sadakazu Tanigaki and European Central Bank Governor Jean-Claude Trichet. The former said there was no specific discussion on the yen or euro during the meeting.
But Trichet hinted that more did go on: "We noted that the exit from the zero interest rate policy (in Japan) and that its recovery is now broadly based -- we agree that the yen will reflect these developments."
Analysts at BNP Paribas believe the yen has scope to weaken further. Against the euro, any break above the 149.85 yen initial resistance level will trigger renewed pressure towards 150.75, they said.
However, they recommended caution as the yen's weakness against the euro "remains vulnerable to a corrective pullback".
Elsewhere, the pound stayed little changed after news that a growing majority of Britons are predicting a rate hike over the next 12 months, signifying a rise in inflation expectations.
According to the Bank of England's latest quarterly survey of inflation expectations, the proportion of Britons predicting higher interest rates over the next 12 months has hit a 2-year high as inflation expectations stay at elevated levels.
The survey, conducted in August by pollsters NOP, found that 65 pct of respondents expect a rate hike over the next 12 months, up from just 48 pct in the previous survey in May.
The trading day started off quite well for the dollar, with the G7's omission of any mention of recent yen weakness only serving to worsen the currency's downtrend. The dollar, along with most other majors managed to gain on the Japanese unit.
That aside, the dollar got a fleeting boost earlier when US Treasury Secretary Henry Paulson said that the US will not budge from its strong dollar policy.
He was speaking after annual talks of the G7 and the IMF.
Things changed, however, when the US Treasury revealed that portfolio capital flows to the US slowed sharply, to their lowest level in over a year, during July. Inflows during the month totaled just 32.9 bln usd in July, down from 75.1 bln in June and their lowest level since May 2005.
Significantly, the inflow was not enough to cover the trade deficit of 68 bln usd over the same month.
"The final total looks grim at 32.9 bln usd -- an outcome that could hit the dollar and halt its recent appreciation," said Mitul Kotecha at CALYON.
"The fact that the data is backward looking, but more importantly, the lack of attention to structural imbalances at present suggests that the dollar may escape from significant damage, however," he added.
Kotecha was proven correct as the dollar's falls were limited after sharp initial knee-jerk selling.
Earlier, the dollar ignored a wider US current account gap. The Commerce Department said the US current account deficit widened to 218.4 bln usd in the second quarter to reach 6.6 pct of GDP. The shortfall was wider than expected and the second highest ever. And, to make matters worse, the deficit in the first quarter was revised to 213.2 bln usd from the initial estimate of 208.7 bln usd.
"The US current account deficit came in about 4 bln usd wider than expected, but with numbers this large, 4 bln seems like a rounding adjustment. Dealers are mostly sitting back," said Jamie Coleman at Thomson IFR markets.
The yen, meanwhile, continued lower after the weekend's G7 meeting failed to make mention of the yen's weakness.
The final communique from the G7 meeting called for greater currency market flexibility from emerging economies and especially China. The yen appeared to have escaped notice even though behind-the-scenes wrangling is almost certain to have occurred.
There were pointed comments from Japanese Finance Minister Sadakazu Tanigaki and European Central Bank Governor Jean-Claude Trichet. The former said there was no specific discussion on the yen or euro during the meeting.
But Trichet hinted that more did go on: "We noted that the exit from the zero interest rate policy (in Japan) and that its recovery is now broadly based -- we agree that the yen will reflect these developments."
Analysts at BNP Paribas believe the yen has scope to weaken further. Against the euro, any break above the 149.85 yen initial resistance level will trigger renewed pressure towards 150.75, they said.
However, they recommended caution as the yen's weakness against the euro "remains vulnerable to a corrective pullback".
Elsewhere, the pound stayed little changed after news that a growing majority of Britons are predicting a rate hike over the next 12 months, signifying a rise in inflation expectations.
According to the Bank of England's latest quarterly survey of inflation expectations, the proportion of Britons predicting higher interest rates over the next 12 months has hit a 2-year high as inflation expectations stay at elevated levels.
The survey, conducted in August by pollsters NOP, found that 65 pct of respondents expect a rate hike over the next 12 months, up from just 48 pct in the previous survey in May.
Labels: Japnese Yen, US Dollar
U.S. stocks rise as energy shares stage rebound
NEW YORK, Sept 18- U.S. stocks gained on Monday as oil prices rebounded from last week's sell-off, lifting energy company shares, and investors were optimistic the Federal Reserve will keep interest rates steady.
Crude prices rose nearly 1 percent to $63.95 a barrel after suffering their steepest slump in more than a decade last week.
Exxon Mobil Corp was up 2 percent to $65.98 while oil field services provider Schlumberger Ltd. gained 2.7 percent to $57.81.
"Energy's bouncing after the short correction that we saw last week. There's still some downside risk to energy stocks in the weeks to come, but there's some energy stocks that are oversold," said Sam Rahman, portfolio manager at Baring Asset Management Inc. in Boston.
The Dow Jones industrial average <.DJI> was up 22.89 points, or 0.20 percent, at 11,583.66. The Standard & Poor's 500 Index <.SPX> was up 4.33 points, or 0.33 percent, at 1,324.20. The Nasdaq Composite Index <.IXIC> was up 10.80 points, or 0.48 percent, at 2,246.39.
Gains in the microchip industry helped to keep the Nasdaq on the positive side. Freescale Semiconductor Inc. rose 5.7 percent to $39.28. The chip maker said on Friday it agreed to be bought for $17.6 billion by a private equity consortium. [ID:nN15193123]
Applied Materials Inc. shares climbed 2.9 percent to $17.69, after the supplier of chip making tools said it bought $2.5 billion worth of its own stock in an accelerated stock repurchase program. [ID:nWNAS7183]
Semiconductor maker Intel Corp. rose despite a brokerage downgrade. Intel shares added 0.7 percent to $19.65.
Trading was light as many investors were reluctant to place big bets before the Federal Reserve's policy meeting on Wednesday, traders said. Stocks ended a strong week on Friday, closing near their 2006 highs. The Nasdaq closed higher for a sixth consecutive session.
Home Depot Inc., the biggest drag on the Dow, fell 1.8 percent to $36.55 after Credit Suisse lowered its rating on the largest home improvement retailer and cut its price target to $37 from $40. [ID:nBNG153909].
Shares of Ford Motor Co. fell more than 2 percent to $7.83 after the company was downgraded by Thomas Weisel Partners. Ford had risen in electronic trading before the market's open on a report in industry newspaper Automotive News that senior executives at Ford and General Motors Corp. discussed a merger or alliance. [ID:nN18229034]. General Motors slid 0.6 percent to $31.48.
Weakness in housing has increased concern about a slowdown in consumer spending, so investors will scrutinize the National Association of Home Builders Index for September, which will be released at 1 p.m. (1700 GMT). Economists on average expect a decline to 31 from 32.
Crude prices
Exxon Mobil Corp
"Energy's bouncing after the short correction that we saw last week. There's still some downside risk to energy stocks in the weeks to come, but there's some energy stocks that are oversold," said Sam Rahman, portfolio manager at Baring Asset Management Inc. in Boston.
The Dow Jones industrial average <.DJI> was up 22.89 points, or 0.20 percent, at 11,583.66. The Standard & Poor's 500 Index <.SPX> was up 4.33 points, or 0.33 percent, at 1,324.20. The Nasdaq Composite Index <.IXIC> was up 10.80 points, or 0.48 percent, at 2,246.39.
Gains in the microchip industry helped to keep the Nasdaq on the positive side. Freescale Semiconductor Inc.
Applied Materials Inc.
Semiconductor maker Intel Corp.
Trading was light as many investors were reluctant to place big bets before the Federal Reserve's policy meeting on Wednesday, traders said. Stocks ended a strong week on Friday, closing near their 2006 highs. The Nasdaq closed higher for a sixth consecutive session.
Home Depot Inc.
Shares of Ford Motor Co.
Weakness in housing has increased concern about a slowdown in consumer spending, so investors will scrutinize the National Association of Home Builders Index for September, which will be released at 1 p.m. (1700 GMT). Economists on average expect a decline to 31 from 32.
Labels: US Dollar
USD Loses Ground Ahead of CPI
The dollar slid against the majors, relinquishing the 1.27-level against the euro and briefly falling beneath 1.89 versus the British pound. Upbeat US economic data failed to deter selling in the greenback as markets look ahead to Friday’s inflation report and the upcoming weekend’s G7 Finance Minister’s meeting in Singapore. The major currency pairs have continued to consolidate within range as traders remain reluctant to commit prior to the forthcoming events.
US economic data released on Thursday included retail sales and weekly jobless claims. The August retail sales report unexpectedly improved to 0.2%, beating calls for a drop of 0.1%. The ex-autos figure was slightly softer than forecasts at 0.2%, and down from last month of 1.0%. The weekly jobless claims improved to 308k also, down from 310k previously. The key highlight will be Friday’s consumer inflation data. The August CPI report is expected to slip to 0.2%, from a month earlier at 0.4%. The core CPI is unchanged at 0.2%. Also due out tomorrow is industrial output, forecasted to slip to 0.2%, capacity utilization at 82.5% and the University of Michigan Consumer Sentiment at 83.7.
US economic data released on Thursday included retail sales and weekly jobless claims. The August retail sales report unexpectedly improved to 0.2%, beating calls for a drop of 0.1%. The ex-autos figure was slightly softer than forecasts at 0.2%, and down from last month of 1.0%. The weekly jobless claims improved to 308k also, down from 310k previously. The key highlight will be Friday’s consumer inflation data. The August CPI report is expected to slip to 0.2%, from a month earlier at 0.4%. The core CPI is unchanged at 0.2%. Also due out tomorrow is industrial output, forecasted to slip to 0.2%, capacity utilization at 82.5% and the University of Michigan Consumer Sentiment at 83.7.
Labels: Forex News, US Dollar
USD Mixed, Awaits Data Friday, September 15, 2006
The foreign exchange market continues to seek direction, with the dollar’s performance mixed versus the majors in the Monday session. The greenback advanced against the yen while relinquishing ground versus the euro. With the key G7 Finance Ministers meeting this upcoming weekend, traders are exhibiting reluctance in committing to any particular direction.
The dollar however, was initially softer on a delayed response to PBOC Governor Zhou’s comments, in which he said China already possesses enough foreign exchange reserves. His comment can be interpreted as China not needing to further purchase dollars for its fx reserves. Zhou also added that the yuan was currently in the process of strengthening and moving toward greater flexibility in its currency regime. Yuan revaluation will no doubt be a topic of discussion at the G7 FinMin meeting, as will other Asian currencies with history of artificially weak exchange rates. The key will be how the G7 addresses the issue in its communiqué and whether it strongly condemns currency manipulation.
Meanwhile, St Louis Fed President Poole provided little fresh clues on upcoming monetary policy, but did say that it needs to be as tight as it needs to be and would rather act earlier than later if inflation does not diminish. He said that although monetary policy could not create jobs in the long-run, policy mistakes could result in painful unemployment – highlighting fears of overshooting. Poole added that future Fed policy is going to depend on surprises that cannot be predicted and that upcoming data could push the Fed to either a hike or to lower rates. Markets will look ahead to this week’s US CPI data on Friday and gauge whether the FOMC will continue to leave rates unchanged at its upcoming meeting next Wednesday.
The dollar however, was initially softer on a delayed response to PBOC Governor Zhou’s comments, in which he said China already possesses enough foreign exchange reserves. His comment can be interpreted as China not needing to further purchase dollars for its fx reserves. Zhou also added that the yuan was currently in the process of strengthening and moving toward greater flexibility in its currency regime. Yuan revaluation will no doubt be a topic of discussion at the G7 FinMin meeting, as will other Asian currencies with history of artificially weak exchange rates. The key will be how the G7 addresses the issue in its communiqué and whether it strongly condemns currency manipulation.
Meanwhile, St Louis Fed President Poole provided little fresh clues on upcoming monetary policy, but did say that it needs to be as tight as it needs to be and would rather act earlier than later if inflation does not diminish. He said that although monetary policy could not create jobs in the long-run, policy mistakes could result in painful unemployment – highlighting fears of overshooting. Poole added that future Fed policy is going to depend on surprises that cannot be predicted and that upcoming data could push the Fed to either a hike or to lower rates. Markets will look ahead to this week’s US CPI data on Friday and gauge whether the FOMC will continue to leave rates unchanged at its upcoming meeting next Wednesday.
Labels: US Dollar
