Posted on 31 March 2010
Euro Holds Gains
The euro held gains on Tuesday as risk sentiment was bolstered by the perception that Greece will be able to raise money via financial markets. Greece’s debt management agency reported that it sold 5 billion Euros ($6.72 billion USD) of seven year bonds at 5.9% twice what Germany pays for similar bonds. Despite the euro’s recent gains analysts see very limited euro potential because of euro zone debt concerns and slow euro zone growth and also think euro gains will be short lived. John Horner of Deutsche Bank stated, “This appears to be a short term reprieve for the euro. Apart from the festering debt-related problems, I think some strong U.S. data later this week could also give a lift to the U.S. dollar.” Investors remain optimistic about the US economy and Friday’s jobs report is expected to show that US employers added 190,000 jobs in March.
US Consumer Spending Up For Fifth Straight Month
A us government report issued Monday showed that US consumer spending rose for the fifth straight month. Most experts do not believe the Federal Reserve will raise rates until the second half of 2010 and most experts believe US rates will rise faster than those in Japan or Europe. The Japanese yen fell against most major currencies and hit an eight week low vs. the euro as signs of global recovery emerge paring demand for the safe haven of the yen. The yen hit its biggest monthly vs. the euro in advance of a Japanese report that is expected to show increasing manufacturer confidence. Sebastien Galy of BNP Paribas SA stated, “There’s a tremendous amount of pressure to push the yen lower in the next few days. The market is expecting Japanese institutional investors to be chasing steepness in yield curves globally in relatively safe places.” The yen fell 1.5% against the euro trading at 126.27 per euro and fell 0.8% vs. the US dollar to 93.47 per dollar. The euro gained 0.7% against the greenback to trade at $1.3510.
Japanese Fiscal Year Ends
The yen has posted a 4% monthly loss vs. the euro. The yen suffered accelerating losses as traders placed new bets on a weak yen. The Japanese fiscal year ended today. Investors also speculated that Japanese companies are finished repatriating funds. Lee Hardman of Bank of Tokyo-Mitsubishi UFJ Ltd said, “The fear was that heading into this fiscal year-end there would have be a significant potential for a pickup in repatriation of earnings back to Japan. If those flows have materialized, it’s had very little supportive impact on the yen.”
Posted on 30 March 2010
EU IMF Deal Gives Greece Little Respite
The EU IMF deal reached at last week’s EU summit gave debt ridden Greece little respite from high borrowing costs and exposed weakness in the EU. Greece will test financial markets with a 5 billion euro ($6.72 billion USD) bond issue. The bond issue fell short of previous Greek bond issues due to thin pre Easter trading and shorter bond maturity. The bond has a coupon of 5.9% which is twice of what Germany pays on a 7 year bond. Greece has been struggling with high borrowing costs which are making it difficult for the Athens government to finance its debts. Most analysts say that borrowing costs would be higher if last week’s agreement had not been reached. Despite the opaque agreement Fitch said its outlook on Greece remains negative. In a statement Fitch’s said “The (euro zone) statement was positive for Greece’ credit profile by enhancing its near-term financing options and flexibility as well as reaffirming the support of euro area member states for economic and fiscal reform in Greece. Nonetheless, the rating outlook remains negative because of continued uncertainty over the medium-term economic and fiscal adjustment, as well as the continuing lack of clarity over the fiscal financing strategy.”
Euro Zone Debt a Concern
Debt remains a concern throughout the euro zone. Many experts remain concerned about other eu nations in similar straits including Portugal, Italy, Ireland, and Spain.The euro zone’s fourth largest economy, Spain, could face a similar crisis soon. Unemployment in Spain is currently above 20% and Spain’s deficit accounts for 9% of the nation’s GDP. Many economists say that a crisis in Spain similar to the one in Greece could have a more devastating effect on the euro. Economist Simon Tilford of the Centre for European Reform stated; “Any economy regarded as having poor growth prospects is going to struggle to borrow at affordable levels.” Some experts warn that a breakup of the EU is possible. In some quarters the idea of forming a new currency bloc is gaining ground. The new currency bloc would be formed by Germany and northern European nations.
US Jobs Report Due Friday
Investors are waiting for Friday’s US Non Farm Payrolls report which is expected to show increased job growth in the US. The report is expected to show that US employers added 190,000 jobs this month. This would be the second time US employment figures have increased since the recession began in December 2007. Most currency experts expect the dollar hold recent gains.
Posted on 28 March 2010
IMF to Call For European Reforms
The US dollar gained on the euro and is now on track for its largest quarterly gain vs. the multi nation currency since 2008. The euro is still struggling in currency markets as European leaders try to find a solution for Greece’s debt crisis. The dollar gained 0.9% against the euro trading at $1.3410. On Friday the euro gained slightly as EU leaders agreed to provide loans to Greece with IMF aid. The IMF remains unsure of what its role will be in providing financial aid to Greece. The IMF said it was monitoring events in Greece closely. In a statement the IMF said, “We are following developments closely. And as we have said earlier, the Fund always stands ready to consider a request from a member country for our financial assistance.” The IMF’s website said that IMF Managing Director Dominique Strauss-Kahn will most likely call for closer cooperation and European economic reforms. The IMF is facing a dilemma since Greece falls under EU rules and monetary and exchange policies are set by the European Central Bank making it difficult for the IMF to set conditions for aid to Greece.
Merkel Imposes Tough Conditions
Under the EU agreement Greece will receive bilateral loans from other euro zone countries and the IMF may intervene should Greece face severe problems. An unnamed IMF source told the Reuters news agency that Greece is not expected to seek IMF aid anytime soon. Tough conditions imposed by German Chancellor Angela Merkel mean that loan mechanisms could only be activated by severe economic conditions. It remains unclear what conditions Greece could activate the EU loan mechanism and when Greece could seek IMF aid. Last Thursday Greek Finance Minister George Papaconstantinou said that Greece would prefer to acquire finding through financial markets. Many analysts have said that Greece may be allowed to borrow between 20 billion to 22 billion Euros from the IMF.
IMF Role Unclear
Former World Bank official and a Washington-based Carnegie Endowment for International Peace Uri Dadush said it was unclear who would lead intervention. Dadush stated, “While I greatly welcome the IMF’s involvement as a big step forward nevertheless the agreement as outlined has enormous ambiguity and therefore is unlikely to have the desired effect on the market.”He also said that since the ECB sets monetary policy for the euro zone the IMF may have to be aggressive on fiscal and structural reforms. The IMF may question European policies making some EU members uneasy. Dadush said, “In another context countries would welcome this with open arms, but what this is in effect is a new, somewhat unpredictable element for the euro zone”
Posted on 25 March 2010
EU Agrees on Rescue Plan for Greece
Breaking news reports have indicated that France and Germany have come to an agreement on a rescue plan for financially troubled Greece. The proposed safety net would total about 22 billion euros. ($29,230,116,554 USD) The net would only apply if Greece is unable to borrow. EU nations would provide bilateral loans and would also include “substantial” IMF loans. A majority of the funding would be European. A draft of the rescue plan says the Athens government “has not requested any financial support” and also says that “no decision has been taken to activate” to activate the rescue plan. Other breaking reports indicate a wider agreement among EU nations on a rescue plan for Greece. Greek government spokesman George Petalotis said that several EU countries have agreed on a rescue plan for Greece. Petalotis told reporters, “The plan meets our requirements fully … we agree. There is a very good plan which will be announced shortly. We consider it to be a message of stability and it will have a positive impact on the Greek economy.” When asked if EU nations were ready to sign the proposed agreement Petalotis stated, “Yes, they have agreed.” He also said that French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank President Jean-Claude Trichet, Greek Prime Minister George Papandreou and EU president Herman Van Rompuy have met to sort through the details of the agreement.
ECB to Loosen Collateral Rules
Reports indicate that the European Central Bank is ready to loosen collateral rules to help Greece to reduce its debt. A French spokesperson said that President Nicolas Sarkozy and German Chancellor Angela Merkel had met in private and agreed on “a text … which describes very precisely the conditions on which euro zone countries could be called upon to intervene.” Under the proposed agreement EU nations would provide a majority of the funding with strict conditions set by the European Commission and the European Central Bank and the IMF would provide money and its considerable expertise. Diplomats said that EU leaders may hold additional meetings on Thursday to discuss Greek aid.
Greek Crisis to Dominate EU Summit
Officially the EU summit is supposed to be officially concerned with the EU’s 10 year economic strategy and global warming agreements but most observers expect the Greek fiscal crisis to dominate the talks. The agreement puts German Chancellor Merkel in a difficult political position. Taxpayers in Germany are fiercely opposed to aiding Greece which has public debts of 12.7% of GDP-more than four times what is allowed by EU regulations.
Posted on 24 March 2010
Crisis to Push Euro Lower
Some currency experts are saying that the Greek debt crisis could provoke a split between the US Federal Reserve and the European Central bank pushing the multi nation currency even lower. In Europe the withdrawal of stimulus measures could lead to double dip recession and deflation. The possibility of stalled recovery has prompted experts from several financial institutions to predict that the European Central Bank will be slow to raise rates further damaging the euro. Many economists fear that Greece’s debt problems could spread to other EU nations such as Portugal, Spain, and Ireland and are pressing these governments to deliver on their promises to implement austerity measures. The euro fell 0.3% against the US dollar to $1.3515 and the euro has fallen a full 10% in the last four months. Recent euro declines have been prompted by speculation that no solution to Greece’s fiscal woes will emerge from Thursday’s EU summit. During the past decade several EU countries have violated EU rules limiting deficits to 3% of gross national product. The Greek crisis has prompted EU nations to implement greater fiscal discipline especially after investors doubled the risk premium on Greek 10 year bonds. Presently Greece has a 12.7% budget gap, the largest in the EU.
EU Nations Struggle to Close Budget Gaps
Other EU nations have promised to bring their budget gaps in line with EU rules by 2013 after the European Commission estimated that the EU’s budget gap hit 6% in 2009, up from 2% in 2008. The commission has forecast an increase to 6.9% in 2010. Laurence Boone of Barclays Capital in Paris stated, “Events in Greece could trigger unusual fiscal discipline in the euro area, implying tighter policy than expected.” Spain is cutting 50 billion Euros from its budget and may raise the retirement age to 67. Portugal is cutting 6 billion Euros and is considering asset sales to close an 8% budget gap. Ireland is planning wage cuts for public workers in addition to welfare cuts to address an 11.7 budget shortfall. Despite the fact that the euro zone economy grew in January unemployment remains at 9.9%, an 11 year high. Euro Zone retail sales fell 0.3% from December 2009.
US May Have Deficit of 10.6% by Year’s End
In the US the Obama administration is forecasting a deficit of 10.6% in 2010 and 8.3% in 2011. Mid term elections are hampering political solutions in the US and legislators are wary of proposing any tax increases or cuts in government programs.
Posted on 20 March 2010
UK Recovery Stalled
Concerns about the pace of recovery in the UK have pressured the pound in recent trading sessions. Bank of England policy maker Andrew Sentence said that the UK may return to recession conditions prompting speculation that BOE rates will remain at record lows. Sentence told reporters that there is “some risk of a double-dip recession” and that the UK will need “substantial” tightening. BOE policy makers left rates at 0.5% and voted to keep the central banks’ bond purchase program at 200 billion pounds. ($303 billion USD) Neil Jones of Mizuho Corporate Bank Ltd stated, “Sentance’s comments are going to be a driver. They are a reminder to foreign-exchange markets that it’s not going to be a smooth ride to recovery for the U.K. The BOE remains on the dovish side and there’s no risk of them raising rates. That should keep sterling on the backburner.” On Friday the pound fell 1.5% vs. the US dollar and traded at $1.5023. The pound fell 0.9% against the euro trading at 90.04 pence. According to Bloomberg the pound is the worst performer of the most traded currencies and has lost 7.1% so far this year.
UK Recovery Lags Behind Euro Zone
The UK economy expanded by 0.3% during the last three months of 2009 and in the UK recovery from the global recession has lagged behind the Euro Zone and the US. Last week’s data points to a stalled recovery in the UK. Mortgages approved by the nation’s largest banks fell to a nine month low in February. Other stat showed that the number of workers receiving unemployment benefits fell in February. Many investors remain wary of the pound due to the UK’s large trade deficit. Jim Rogers, chairman Rogers Holdings and co founder of the Quantum Fund stated, “Things are pretty bad for sterling for the long, long, long term. I cannot imagine buying sterling back unless it gets really cheap.”
India Raises Rates
The US dollar and the yen gained Friday after India raised interest rates and the Dow Jones Industrial Average fell dimming demand for riskier assets and currencies. The troubled euro posted its largest weekly decline against the dollar as the euro zone remains without any agreement on how to aid Greece. Greek Prime Minister George Papandreou indicated his government may turn to the International Monetary Fund for help if the EU does not establish a lending mechanism at the upcoming EU summit on March 25th and 26th. Many believe that if Greece turns to the IMF the credibility of the euro will be threatened.
Posted on 19 March 2010
Persistent Greek Concerns Pressure Euro
The euro fell for the second straight day vs. the US dollar and the yen on concerns that a political rift in the EU will hamper the multi nation group from offering financial assistance to debt ridden Greece. Greek Prime Minister George Papandreou has set a one week deadline for the EU to devise a financial aid package at the upcoming EU summit next week. Papandreou also said he will turn to the International Monetary Fund unless EU nations devise a lending plan at next week’s EU meeting. The IMF option is opposed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy who say it would show the world that the EU is incapable of solving its own problems. Sebastien Galy of BNP Paribas SA stated, “It’s political brinksmanship now. People are expressing their views on Greece and its issues by getting short euro-dollar.” The euro fell 0.8% against the dollar to $1.3625 and against the yen fell 0.8% trading at 123.04 yen.
German Opposition to Greek Aid Widespread
German opposition to an EU loan program has been fierce and has caused a political rift between Greece and Germany. German Chancellor Angela Merkel’s government is attempting to avoid making any commitment to an EU bailout program for Greece. Merkel’s government believes that Greece should turn to the International Monetary Fund for aid. Yesterday Merkel told the German Parliament in Berlin that the IMF id possible the only answer to Greece’s massive debt problems. German lawmaker Michael Meister, a member of Merkel’s Christian Democratic Union said in Berlin, “We have to think about who has the instruments to push for Greece to restore its capital-markets access. Nobody apart from the IMF has these instruments.” Meister also said that trying to bailout Greece without the IMF “would be a very daring experiment.” German opposition may hamper any EU efforts to devise a contingency rescue plan for Greece. Merkel told Parliament yesterday, “The problem has to be solved from the Greek side and everything that is being considered has to be oriented in that direction.”
Many Expect Germany to Soften Opposition
The political differences are weakening investor confidence in the multi nation currency. Simon Derrick of BNY Mellon Corp. in London stated, “The euro is weakening as investors are questioning whether there really is a plan to support Greece. From an investor’s perspective, do you feel comfortable, in these circumstances, being heavily invested in peripheral Europe?” Some experts believe that at some point Germany will stop playing hardball and relent to an EU solution. Paul Hofheinz of the Lisbon Council stated, “The Germans see the same thing that all of us see: that at the end of the day, they’re going to be part of the solution and it’s going to cost them something.”
Posted on 18 March 2010
Dollar and Yen Fall
The euro gave up recent gains after a German official said that EU finance ministers made “no decisions” regarding aid to Greece during the recent meeting of EU finance ministers. The Japanese yen and the US dollar fell after the Bank of Japan doubled its loan program designed to fight deflation and the Federal Reserve said it will keep interest rates at record lows. Demand for high yielding assets and currencies rose benefitting the Kiwi dollar, the Canadian dollar and the S African Rand. The Canadian dollar rose to its highest level vs. the greenback since 2008. Andrew Wilkinson of Interactive Brokers Group stated, “Everything is doing OK against the dollar and the yen except the euro. Greece just won’t go away, and that doesn’t sit well with the market.”
Greek Worries Persistent
German government spokesman Ulrich Wilhelm said in Berlin that no decisions on Greek aid are likely to be made at the upcoming EU summit. Public opposition to any aid for Greece is widespread in Germany and politically unpopular. Boris Schlossberg of GFT Forex said, “The Germans have been the primary sticking point in creating a pan-European solution. Any resistance casts doubt on solving the Greece problem and helps push the euro lower.” Twenty years ago Harvard University Professor Martin Feldstein said that the euro would be an “economic liability” and warned that Greece’s austerity measures will fail and that Greece may leave the euro zone to solve its massive debt crisis. Feldstein stated, “The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy.” Recently Feldstein warned that Greece’s problems may spread to other EU nations.
Loonie On Track For Parity With Greenback
Canada’s dollar hit a twenty month high vs. the US dollar as oil prices rose pushing the loonie higher in currency markets. Oil is Canada’s largest export. The loonie started its rise after the Bank of Canada said on March 2nd that Canadian economic output and inflation were higher than forecast prompting speculation that the Bank of Canada would raise rates. Christian Dupont of Desjardins Group in Montreal stated, “The Fed pledge for lower rates combined with the view that the Bank of Canada might raise rates sooner than originally thought is giving legs to the Canadian dollar” He also said that he expects parity with the US dollar. Rising commodity prices combined with a rise in risk appetite have pushed commodity linked currencies higher.
Posted on 17 March 2010
EU Nations to Aid Greece
The troubled euro gained against most major currencies on Tuesday after it was reported that EU finance Ministers had worked out strategies for Greek aid packages. The ministers backed plans by EU nations to aid Greece financially if it becomes the first EU nation to seek financial help. In a news conference in Brussels Spanish Economy Minister Elena Salgado stated, “It will be decided by the European Council (of EU leaders) when the time comes, if and when Greece were to ask.” Better than expected German investor confidence also helped the euro in currency markets. Aid to Greece will most likely come from EU nations pooling funds for direct loans to Greece. The EU meeting failed to resolve differences on which nations would offer loans and how long those loans would last. Speaking about the recent German figures and the current market environment Jessica Hoversen of MF Global Ltd stated, “A better-than-expected number counts more in this environment than it might otherwise. As long as the European plan forces peripheral nations to engage in the public retrenchment necessary to fix imbalances, the market will view it favorably.”
Fed to Keep Rates Low
The US dollar fell on expectations that the Fed will continue to keep rates at record lows. The Federal Open Market Committee will issue a statement today (March 16th) and most experts believe the Fed will leave rates low for an ‘extended period.’ Investors will be watching the Fed’s assessment of the US economy closely. Most expect the Fed’s economic assessment to be upbeat due to recent figures showing increased retail sales and more hiring by US employers. Brian Dolan of Forex.com stated, “The anticipation for the Fed is that they’re going to give a slightly more upbeat outlook for the U.S. economy, but at the same time they’re going to keep the language intact and not signal any rate increase any time soon. That combination is going to be risk positive.”
Loonie Hits 25 Year High vs. Pound
The Canadian dollar, affectionately called the ‘Loonie’ traded at its strongest level in two years and hit a twenty five year high vs. the British pound as commodities and stocks gained. Rising gold and oil prices were prompted ‘Loonie’ gains. Blake Jespersen of the Bank of Montreal stated, “Commodities are strong: Oil is up $2, gold is headed up, stocks are up, risk appetite has come back into the market that wasn’t there yesterday. With good fundamentals, on a relative basis, the Canadian dollar is strong for a reason.” Most experts believe the Canadian dollar will achieve parity with the US dollar sometime this year.
Posted on 13 March 2010
Pound Gains on Housing Data
The pound which has been pressured by UK housing and other economic data pulled back from its decline against the US dollar and the euro. The pound has also been pressured by political uncertainty and some experts believe that the upcoming elections could result in political gridlock limiting the UK’s ability to deal with economic problems caused by the global recession. U.K. inflation expectations rose to the highest since 2008 leading many to believe that the Bank of England may raise interest rates. Stuart Bennett of Credit Agricole Corporate and Investment Bank stated, “If inflation expectations are creeping up, this may be a catalyst for the market to give sterling a reprieve.” The pound rose 0.5% trading at $1.5054 in London. On March 1st the pound fell to $1.4784 its lowest level since May 2009.
UK Elections May Result in Gridlock
Many investors remain concerned that this year’s elections may give the UK its first minority government since 1974 and political uncertainty has held the pound under pressure in global currency markets. Neil Mellor of BNY Mellon Corp. in London stated, “Uncertainty related to the election remains one of the driving forces behind the weakness in sterling. Sterling has consolidated a little bit, but we’ve seen consolidation in the downtrend since October 2009. We expect more weakness.” On Wednesday Prime Minister Gordon Brown said that the nation’s budget address will be delivered on March 24th and also said that UK recovery is “fragile” and in early stages. Goldman Sachs Group strategists have reduced the three month forecast for the pound against the euro due to election concerns.
Euro Gains Slightly vs. Dollar
Thursday’s euro trading was somewhat quiet and the euro recovered slightly against the US dollar and the yen. The euro remains under pressure due to lingering investor concerns about Greece’s debt crisis and the possibility of the crisis spreading to other Euro Zone nations. German Chancellor Angela Merkel said that Greece’s first priority should be to win back the confidence of markets and said that the nation’s austerity measures are a positive beginning. Merkel stated, “Confidence in the markets and in the euro can only be regained when Greece itself makes (Greece) work.” Expressing the concerns of many traders and investors Michael Malpede of Easy Forex in Chicago said, “There’s a perception that the Greek austerity plan is only a temporary pause on sovereign debt risk, and there’s concern that there could be problems in Portugal, Spain, Ireland. If anything, traders appear to have a preference to sell the euro on rallies.”
