Dollar Declines to Record Low Versus Euro Before Fed Meeting

[Yuriy]

Dollar Declines to Record Low Versus Euro Before Fed Meeting


By Bo Nielsen

Sept. 15 (Bloomberg) -- The dollar fell to an all-time low versus the euro as traders bet the Federal Reserve will cut borrowing costs at least a quarter-percentage point next week.

The U.S. currency declined for a second week against the euro for the first time since July. A government report yesterday showed slowing retail sales growth, suggesting the housing slump is starting to affect the rest of the economy. The Fed will meet on Sept. 18.

``The U.S. economy is slowing, and the pace of consumer spending growth has slipped somewhat, and that's dollar negative,'' said Jay Bryson, global economist with Wachovia Corp. in Charlotte, North Carolina, who previously analyzed currencies at the Fed. ``The Fed will cut rates by 25 basis points and make sure they can act again if necessary.''

The dollar weakened 0.8 percent to $1.3875 per euro from $1.3768 on Sept. 7. The U.S. currency fell to an all-time low of $1.3927 on Sept. 13. The dollar snapped a two-week losing streak and gained 1.8 percent versus the yen, to 115.36 from 113.38 a week ago.

Interest-rate futures show traders bet there's a 58 percent chance of a half-percentage-point cut in the benchmark interest rate by Fed policy makers. It compares with 76 percent a week ago and no chance one month ago.

On Sept. 7, a report showed U.S. nonfarm payrolls decreased by 4,000 last month. It was the first time in four years the economy shed jobs and prompted traders to boost expectations of a 0.50 percentage point rate cut from 5.25 percent.

`Giant Question Mark'

Fed Chairman Ben S. Bernanke ``is a giant question mark,'' said Michael Kaizer, a foreign-exchange dealer in Buffalo, New York, at Manufacturers & Traders Trust Co., which has $50 billion in assets. ``There's little doubt that the U.S. economy is slowing, but in terms of Fed reaction, there is a lot of room to surprise.''

A government report yesterday showed retail sales rose a less-than-forecast 0.3 percent last month following a revised 0.5 percent increase a month earlier. Economists in a Bloomberg News survey had forecast a 0.5 percent gain. Sales not including cars and trucks fell 0.4 percent after a revised 0.7 percent gain a month earlier.

The yen fell versus all 16 most-actively traded currencies this week as investors resumed borrowing in Japan to fund purchases of higher-yielding assets elsewhere in the so-called carry trades.

Japan's yen fell 4.8 percent versus the New Zealand dollar and 3.5 percent versus the Australian currency as Prime Minister Shinzo Abe's unexpected resignation on Sept. 13 raised doubts the Bank of Japan will boost borrowing costs again this year.

Interest Rates

Japan's benchmark interest rate of 0.5 percent is the lowest among major economies and compares with 8.25 percent in New Zealand and 6.5 percent in Australia.

Futures traders reversed bets the yen will decline against the U.S. dollar as wagers on an advance in Japan's currency compared with those on a drop, so-called net longs, totaled 5,585 on Sept. 11, compared with net shorts of 7,053 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

The pound had its steepest weekly decline since July 2005 against the euro after Northern Rock Plc, a U.K. home lender, received the biggest emergency bailout of a British lender in 30 years yesterday. The currency fell 1.8 percent to 1.4468 versus the euro.

Canada's dollar rose 2.4 percent this week, climbing above 97 U.S. cents for the first time in 30 years as crude oil reached a record. The increase raised speculation the currency will trade on par with the U.S. dollar for the first time since November 1976.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601083&sid=atIuIRZqjnII&refer=currency

 

[Yuriy]

I remember there were times when I could buy 100 euros with just 85 or so dollars.

 

[Yuriy]

2.5 years ago euro was worth $1.36, year later it went down to $1.20, and now its back up to $1.37.

 

[Vadim]

Euro/Dollar

Yen/Dollar

Canadian dollar hit a 30-year high against dollar.

 

[Yuriy]

Do you think it is good if the dollar is losing value (for you personally and for US economy in general)?

I personally like to see the strong dollar like 1:1 against the euro, that way I can travel to Europe. But if the dollar is weak, then European tourists come to US, which is good for US economy

 

[kean]

Good for me so that I can buy more US dollars to save for my future Baruch tuition fees. The current trade deficit mainly comes from China trade. I think weak dollar is no good. US has to pay more to buy China products. The costs will transfer to consumers. Inflation!

Again, weak dollar will improve export trade. However, I don't how much can it improve the mainstream export.

 

[Christian]

Good for me so that I can buy more US dollars to save for my future Baruch tuition fees.

I don't know what country you're posting from, calvin, but why would you want to buy more dollars as it's becoming weaker in order to spend them later?

 

[Andy Nguyen]

There goes my dream European vacation :D
I read a while ago a very interesting article on NYT about how the new rate affect American tourists. Surprisingly, they still flock to Euro where a coke costs $5.50 and hotel costs $500 a night.
http://www.nytimes.com/2007/07/18/business/worldbusiness/19dollar.html

 

[Yuriy]

Andy, I don't know about $5.50 for a coke, but I can confirm that in some countries things are just much more expensive

For example, in Denmark, 1 Denmark Kroner is worth $5.36... but when you go to McDonalds and buy a BigMac that costs $5 here, you pay 50 Kroners. So basically, lots of things are twice as expensive. The good part about Denmark is that Health Care is either Free or very Cheap. People can stay in a hospital for a week or two and pay $0.00.

 

[kean]

dollar

US Dollars can't be weak all the time. It has its cycle.

I buy US Dollars since Aussie is strong. Use it to trade on US stock markets.

if US strengthen, then I make from both sides>> FX and Stock Investment.

I don't know what country you're posting from, calvin, but why would you want to buy more dollars as it's becoming weaker in order to spend them later?

 

[Erica]

more thought on USD

Weak dollar means strong US multinational profits(good for KO, PEP, GE, MCD etc)

Not so good for the US consumer(imports look more expensive)

Also not good for keeping commodity prices low(for example, oil is priced in USD, if the dollar declines it takes more dollars to keep pace with demand..)

Agreed that currencies cycle but there are secular trends that can't be ignored. namely, China has made it no secret that they are actively pursuing a diversification strategy for their fx holdings. The implication is long term pressure on US t-bonds and by implication, the USD.

Secular trends such as this will prolong the cycle. Regardless, dollar down vs dollar rebound is neither good nor bad. It is however, something to be cognizant of when making investment decisions.

Have a nice day:dancedon't you just love this guy?)

 

[Yuriy]

I also have a feeling that the dollar is going to gain some strenth vs. the euro. It has to go up even if it is bound to reach $1.40 per euro one day.

 

[kean]

You are right

I love you if you are pretty girl but not if you are a man

You are absolutely right. It is a trade war. See who get plays the backside!

Weak dollar means strong US multinational profits(good for KO, PEP, GE, MCD etc)

Not so good for the US consumer(imports look more expensive)

Also not good for keeping commodity prices low(for example, oil is priced in USD, if the dollar declines it takes more dollars to keep pace with demand..)

Agreed that currencies cycle but there are secular trends that can't be ignored. namely, China has made it no secret that they are actively pursuing a diversification strategy for their fx holdings. The implication is long term pressure on US t-bonds and by implication, the USD.

Secular trends such as this will prolong the cycle. Regardless, dollar down vs dollar rebound is neither good nor bad. It is however, something to be cognizant of when making investment decisions.

Have a nice day:dancedon't you just love this guy?)

 

[pauljack]

"Repatriation" of US dollars

I've read that there is a lot of money that has been made in the Global economy, Particularly China and Petrodollars, about 4 trillion dollars in wealth. They are looking to diversify these holdings. It's mainly in US dollars and US treasuries.
I read they are looking to buy Hard Assets in the US as part of the diversification, in effect repatriating the money. Has anyone else read that? Is this good for the US economy?

Paul

 

[kean]

China

I think Baruch Chinese students or Alumni can give a better picture. I went to China many times but I can tell you that China practice and cultures are very different to the rest of the world. You want to know China, please start reading Confucius theory.....their history and evolution.

Apparently there is a trade war between the West and China. You read lots of negative comments about China. I don't think this one-sided comment is correct and clearly described the situation. This is beyond my knowledge indeed. US is trying to push the RMB higher because of trade deficit. Again, my question is that if one dislike his neighbor's red painted car doesn't mean you have to force other to sell their car. It is China internal policy. China Government has to do their best in the best interest of their people and the country. Similarly, every country will do the same.

US corporations had relocated their productions off shore when US production cost increased in the last 20 years. Obviously we will do the same to reduce production costs in view of maintaining operating profits. Who will not do that? In this aspect, do you claim that Chinese people are stealing away the jobs? This is rubbish indeed. I consider this is economy flows of production frontier. Agreed or not I leave it to individual to comment.

What about Intel invested billions in South East Asia and China? Do you think this is a threat or not. Can we claim that developed countries are exploiting the low production costs and labours in the developing world? The reason is that corporations do not practice Purchasing Power Parity in accordance with the rules. They seize any profitable opportunity in any area. On contrary, these countries indeed are looking for foreign investments and technologies transfer and so on.

Asia will grow. The West will advance. It is a never ending story. Trust my words, Shanghai CSI is comparable to NYSE once they fit all their legal issues in the pipelines.

Global financial markets is just like sports. The best will win. SWOT - strengths, weaknesses, opportunities and threats. If we think that someone is our threat, simply because we are not good enough to compete. So, who to blame?

Cheers,
K

I've read that there is a lot of money that has been made in the Global economy, Particularly China and Petrodollars, about 4 trillion dollars in wealth. They are looking to diversify these holdings. It's mainly in US dollars and US treasuries.
I read they are looking to buy Hard Assets in the US as part of the diversification, in effect repatriating the money. Has anyone else read that? Is this good for the US economy?

Paul

 

[Yuriy]

China is a hidden treasure to me I don't know anything about them. But from what I've heard they are growing at a speed of light.

 

[Muting]

I've read that there is a lot of money that has been made in the Global economy, Particularly China and Petrodollars, about 4 trillion dollars in wealth. They are looking to diversify these holdings. It's mainly in US dollars and US treasuries.
I read they are looking to buy Hard Assets in the US as part of the diversification, in effect repatriating the money. Has anyone else read that? Is this good for the US economy?

Paul

I know we are trying to diversify the suppliers of important resources, like oil and ores, but I dont think the purpose of buying hard assets in US is to repatriate the money. We have already learnt a lot of lessons from negotiation with raw materials suppliers from Australia or south America. Diversifying our suppliers can also increase the negotiating power. I know there are some businessmen who bought an airport in Germany but I dont know whether we have bought some land property in US. It is really difficult for China to buy hard assets in US because there are too much protectism nowadays.

Besides, I hope the investment we made is profit-oriented rather than image-oriented. It is nonsense to show off something. I knew some skypcrapers bought by Japanese were not operating very well. I hope we can learn lessons from them.

I think this kind of purchase wont have much impact on the US economy. It just accounts for a very small part of the total economy activities. US should increase its saving rate and its productivity, while reducing its business cost. That will be good for US economy.

Muting

 

[Muting]

I think Baruch Chinese students or Alumni can give a better picture. I went to China many times but I can tell you that China practice and cultures are very different to the rest of the world. You want to know China, please start reading Confucius theory.....their history and evolution.

Apparently there is a trade war between the West and China. You read lots of negative comments about China. I don't think this one-sided comment is correct and clearly described the situation. This is beyond my knowledge indeed. US is trying to push the RMB higher because of trade deficit. Again, my question is that if one dislike his neighbor's red painted car doesn't mean you have to force other to sell their car. It is China internal policy. China Government has to do their best in the best interest of their people and the country. Similarly, every country will do the same.

US corporations had relocated their productions off shore when US production cost increased in the last 20 years. Obviously we will do the same to reduce production costs in view of maintaining operating profits. Who will not do that? In this aspect, do you claim that Chinese people are stealing away the jobs? This is rubbish indeed. I consider this is economy flows of production frontier. Agreed or not I leave it to individual to comment.

What about Intel invested billions in South East Asia and China? Do you think this is a threat or not. Can we claim that developed countries are exploiting the low production costs and labours in the developing world? The reason is that corporations do not practice Purchasing Power Parity in accordance with the rules. They seize any profitable opportunity in any area. On contrary, these countries indeed are looking for foreign investments and technologies transfer and so on.

Asia will grow. The West will advance. It is a never ending story. Trust my words, Shanghai CSI is comparable to NYSE once they fit all their legal issues in the pipelines.

Global financial markets is just like sports. The best will win. SWOT - strengths, weaknesses, opportunities and threats. If we think that someone is our threat, simply because we are not good enough to compete. So, who to blame?

Cheers,
K

Kean:

I think China and US should be partner rather than rivals. China is really a special case in the history of economy development. There is not a case that a country with such a huge population grows at such a fast pace. The main difference is we have a huge population and we incline to save money rather than spend it due to some culture factors. This might make a lot of successful practice or theories in western world fail to apply in China. That is why we are trying to reform the economy gradually rather than abruptly. The impact of emerging of China on the inflation is tricky. On the one hand, we provide cheap but productive labor and reduce product cost. On the other hand, as we get rich, there will be a huge amount of money circulating around the world. That will lower long end interest rate and lift the raw material prices. That will increase the inflation.

Currency issue indeed is a problem. We are in a dilemma because we have to increase our interest rate to fight against the high inflation, while globally, interest rate will remain flat or even be reduced in the future. That will make RMB even more attractive given that there is already strong expectation for RMB's appreciation. When money flooded in China, they will possibly create more asset bubbles and higher inflation. Then we have to increase the interest rate again and so on and so forth. This situation is really dangerous for the economy.

I have read an interesting paper before. It suggest that we reset the exchange rate immediately to, say, 6 to 1. And then fixing the exchange rate for a period, like 1 or 2 year. The main issue is that how we can stop the strong expectation for RMB appreciation.

Muting

 

[kean]

China

Muting,

I do not hope a trade war. However, this is the fact of life. It is government issues. I have some data about China/US long ago. The two countries are tied closely. China will have problems if US has recession,too. China is just Japan or Taiwan 50 years ago. Perhaps like Malaysia and Singapore 20 years ago. These countries started as OEM for global manufacturers. They do not have their so called own brands though China started to have a few like Lenovo, TCL and so on. Apparently only Lenovo has so called global sales because of the acquisition of IBM PC division. Again, I heard they lost ground after the acquisition. It is about consumer confidence towards China made products.
In the event, if China has not yet built up their own global marketing strengths but merely relies on OEM or intermediate manufacturing business, US recession will reduce China manufacturing output. Upstream and downstream profits will reduce tremendously. Reduction of exports mean also reduction of foreign exchange cash-flow. If the inflation rate continues go up, then the effects will hit China market entirely. I foresee currency devaluation and recession will China too. Subsequently the stock markets in China will collapse.
China has capital controls. In fact, China tried to allow more outflow than inflow to reduce RMB liquidity in China. However, they changed the policy on last Friday to tight up the outflow. It is not easy to transfer funds to China too. The hot money in China are mainly derived from the manufacturing output at this stage (if you read the economy data). The reason is that China imports have reduced tremendously in the last few months. It uses to purchase intermediate parts from overseas, now China manufacturers can produce their own substitutions. This scenario increases RMB liquidity in China. Even the interest rate increases 5 times this year. It is still very low indeed. The increment of consumer foods prices were caused by poor internal control. The Government should set the ceiling price.
China is huge and population is huge too. You can't expect it has sudden changed. It takes time to smooth up. If China appreciate the RMB, what impact will cause to US imports when most US consumer goods are made in China and USD is weaken. US will have to face inflation with a weakening dollar. Fed will have problems to decide whether they should increase interest rate or not because of the credit crisis. It is a contagion effects and it is contracting to current economic theories.

I wish that we can model all these I called fear factors. Can I? My personal opinion is that China stocks markets will collapse in the next 6 months if the current situation continues. I foresee a sharp drop in US stock market one more time, followed by the China's one. I will sell off all my holding and wait for the sharp drop. The crisis has just begun...


Thanks buddy...I like some of your models posted in this forum.

Cheers,

Kean:

I think China and US should be partner rather than rivals. China is really a special case in the history of economy development. There is not a case that a country with such a huge population grows at such a fast pace. The main difference is we have a huge population and we incline to save money rather than spend it due to some culture factors. This might make a lot of successful practice or theories in western world fail to apply in China. That is why we are trying to reform the economy gradually rather than abruptly. The impact of emerging of China on the inflation is tricky. On the one hand, we provide cheap but productive labor and reduce product cost. On the other hand, as we get rich, there will be a huge amount of money circulating around the world. That will lower long end interest rate and lift the raw material prices. That will increase the inflation.

Currency issue indeed is a problem. We are in a dilemma because we have to increase our interest rate to fight against the high inflation, while globally, interest rate will remain flat or even be reduced in the future. That will make RMB even more attractive given that there is already strong expectation for RMB's appreciation. When money flooded in China, they will possibly create more asset bubbles and higher inflation. Then we have to increase the interest rate again and so on and so forth. This situation is really dangerous for the economy.

I have read an interesting paper before. It suggest that we reset the exchange rate immediately to, say, 6 to 1. And then fixing the exchange rate for a period, like 1 or 2 year. The main issue is that how we can stop the strong expectation for RMB appreciation.

Muting

 

[charlesdwright]

my $0.02

just a comment on the sensational headlines about "record low for dollar vs eur blah blah blah."

The Euro has no history prior to 1999, unless one digs out the data on the ill-fated "ecu."

The US Dollar Index, which is based on the dollar vs. 6 trading partners' currencies (and, prior to the Euro, ten), has data going back to 1973 (see attached).

As it turns out, since the surprise 50bp cut, we are very near the low of that data series, but not quite there. I find it curious that it didn't blast through the low given all the menacing "news."

***

It's very interesting to hear the perspective of so many on this subject.