G 20 Statement Pressures Dollar

The US dollar fell to a seven month low against the Japanese yen on Friday. Forex markets were influenced by a statement from the G 20 summit in Pittsburgh which said that the G 20 nations pledged to continue stimulus spending until a sustainable recovery from the current recession is possible. The US indicated that it would continue to keep rates at record lows for the foreseeable future. The yen was also bolstered after a statement by a former Japanese financial official said that the Japanese government was unlikely to intervene unless the dollar vs. yen rate fell below 85 yen. The dollar fell 1% and traded at 90.35 yen after falling as low as 89.97.

Pound vs Dollar at Four Month Low

The dollar performed better against other currencies most notable the pound which fell to a four month low after Bank of England Governor Mervyn King said that a weak pound would help British exports. The pound fell 0.6% against the dollar and traded at $1.5966 after falling as low as $1.5917. At the G 20 conference British Prime Minister Gordon Brown said that currency exchange rate imbalances were just one of many key issues facing the global economy.

G 20 Nations to Keep Stimulus Programs in Place

Most economic data was overshadowed by the G 20 nations promising to maintain emergency economic supports and programs in place to deal with the global recession. Currency strategists believe that the G 20 pledge means that interest rates will remain low for some time. Omer Esiner of Travelex Global Business Payments stated, “In the near term, it favors continued momentum selling of the U.S. dollar.” Eisner also suggested that in the future that attention would shift back to improvements in major economies and that could possible be dollar positive if the US economy outperforms its rivals.

Last week forex markets were dominated by the Fed meeting and the ongoing G 20 summit. Monday’s trading should be very interesting.

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Fed to Keep Rates Low

The euro which recently has been a barometer of risk appetite fell after a decline in stocks after the US Federal Reserve said it would keep rates low for the foreseeable future. The euro vs. dollar rate fell 0.3% to $1.4744, after hitting an intraday low of $1.4731. The US dollar remains weaker against a basket of major currencies as risk sentiment rises. Sal Guatieri of BMO Capital Markets stated, “The U.S. dollar is generally weaker against everything. Bond markets are up, equity markets are up. The Fed will keep the monetary pumps at full throttle for another few months. Markets are rejoicing — all markets except the U.S. dollar.”

Fed to Slow Mortgage Backed Securities Program

The Fed said the US economy was in recovery and that it will slow the purchases of mortgage backed securities but will continue the purchase program until the end of March 2010. Many experts expect the dollar selling trend to continue after the Fed meeting. Michael Woolfolk of BNY Mellon stated, “And now that the risk of the Fed meeting has passed, people are comfortable returning to the trend of selling the dollar. That’s the bottom line.”

New Zealand Dollar at 13 Month High

The Kiwi dollar hit a 13 month high vs. the greenback after better than expected data that showed the New Zealand economy pulling out of the recession during the second quarter. The Kiwi rose over a penny to $0.7315. The Canadian dollar which has been weaker vs. the US dollar rose to 93.78 cents. Japanese trading was light as Japanese financial markets closed for a holiday and will reopen Thursday. The dollar index, or DXY, fell 0.27 percent to 75.913 the lowest since last September. The dollar index has declined 2.5% this month due to rising investor confidence in a global recovery.

G 20 Ahead

The G 20 summit looms ahead and will surely affect currency exchange rates. The G 20 is expected to call for a continuation of stimulus programs boosting demand for higher yielding and riskier assets. Clifford Bennett of Kinetic Securities stated, “The G20 is the fly in the ointment. We need to clear that, which has some risk of strong dollar rhetoric emerging. (The) overall down-trend in the U.S. dollar is likely to persist however.”

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Dollar Gains More Than 1% Against the Yen

The US dollar rose on Monday against the Japanese yen as investors pulled back from bets against the greenback in advance of the Federal Open Market Committee meeting and the G 20 summit scheduled later this week. The dollar vs. yen rate gained slightly more than 1% although gains were limited due to light Asian trading as Asian financial centers were closed for a holiday. The absence of economic data spurred investors to take profits from currencies which rallied against the US dollar last week.

Fed May Start Removing Stimulus Programs

Some Forex experts are speculating that the Fed may announce an exit strategy for quantitative easing. Chuck Butler of Everbank World Markets stated, “There are some thoughts in the markets that the (FOMC) might announce that they’re going to start removing stimulus. That’s why the dollar is a little bit stronger. I don’t think this is any trend reversal of what we’ve seen from March on. This could just really be a correction. Last week’s run-up (in other currencies) was huge.” Last week the Aussie and Kiwi dollars were big winners but gains have been pared in advance of the FOMC and G 20 meetings.

FOMC Expected to Keep Rates Low

Despite speculation the FOMC is expected to keep rates at their present level but Forex markets will be watching for signs of the Fed’s exit strategy. In New York the ICE futures, which tracks the greenback against a basket of major currencies, rose 0.4% to 76.746 DXY the highest since September 10th 2009. The US dollar benefited from lowered risk sentiment due to a decline in the FTSEurofirst 300 index which fell below 1,000. The FTSEurofirst 300 index tracks the performance of Europe’s largest 300 companies by market capitalization.

Caution Ahead of G 20 Summit

Investors are also cautious in advance of the G 20 summit on Thursday and Friday in Pittsburgh. Boris Schlossberg of GFT Forex said that rhetoric in advance of the G 20 meeting promoted profit taking in risky assets and any future regulation of capital markets could spark a rise in risk aversion.

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Aussie and Kiwi Dollars Big Winners

The US dollar remains on the defensive as investors get out those forex converters and seek higher yielding currencies. Two of the biggest winners have been the Australian and New Zealand dollars and the Aussie dollar is now at a one year high. Rising stocks in the US and Asia has lifted risk sentiment and investors are seeking riskier assets.

DXY May Fall to 2008 Levels

Rising risk sentiment has caused the DXY to decline to 76.226 which is near the one year low of 76.151 on Wednesday. Many currency experts believe the DXY will fall to 2008 levels of around 70.70. Hideaki Inoue of Mitsubishi UFJ Trust Bank stated, “Firm stocks suggest the dollar is probably set to slide for another week.”

Euro Rally Due For Correction

The euro has gained 2.5% this month on improved investor risk appetite and the perception that US rates are likely to remain at record lows for the near future. The euro rose 0.1% to $1.4729, near the one year high of $1.4738 on Wednesday. Some experts doubt that the Euro’s rally will be sustained. Matthew Strauss of RBC Capital stated, “With eight of the nine last sessions ending in euro rallies, the upward trend is extremely stretched. In fact, euro valuations against the U.S. dollar are the most extreme since May this year. The trend is your friend but beware the technical correction.”

Aussie at One Year High

The Aussie dollar rose to a one year high of $0.8757 and in early afternoon Asian trading rose 0.2% to $0.8743. The Kiwi dollar also rose almost 1.4% on Wednesday and is holding at 0.7134. The euro to yen rate rose 0.3% to 134.20. The US dollar rose 0.2% against the Yen to 91.10. The US dollar slid against the Yen after Japan’s Finance Minister Hirohisa Fujii said a strong yen would benefit the Japanese economy.

New Data Due

Data that will affect currency exchange rates include retail sales for August due in the UK, US jobless claims, US housing starts and the Philadelphia Fed business activity index. All are scheduled to be released Thursday.

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