Dollar Declines to Record Low Versus Euro Before Fed Meeting

[Andy Nguyen]

I experience the effect of this at work which I shared on my blog
Apparently, the mid-office people (risk manager/controller) now take a very hard look at every single trade that has FX exposure. Some trade when put on the book using USD can show some profit but when put on another book using EUR can show a loss. It's a very complicated and delicate dance. Traders approach their own P&L book differently from the risk managers and I don't see both side agreeing on everything anytime soon. It's a global market now and almost everything has some short of FX exposure. If both side don't agree then they just cancel the trade. If one side makes a mistake and the book shows a couple of M loss, lot of heads will roll.

It seems in this market condition, lot of banks heavily stress risk management. So the risk manager and controllers have lot of say in the trades.

 

[kean]

Not a threat

China is not a threat. For example China investment in Blackstone could be considered just a FDI. Everyone will do the same if their pocket is full of $$$. We learn how to make our $$ work harder for us instead of keeping it in the bank.

I think we are also overlooking Middle East roles in the USD aspects. Iran has abandoned USD in their oil trades. The oil trade between Iran and Japan is denominated in Yen. Middle East is in short positing as far as USD concerns.

China is holding lots of US Bonds. So, why would they short USD? I don't think they will do so.

My guess.:D

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

 

[Yuriy]

China's Yuan Must Rise Faster, U.S.'s McCormick Says

China's Yuan Must Rise Faster, U.S.'s McCormick Says

By Bernard Lo and Li Yanping

Sept. 21 (Bloomberg) -- U.S. Treasury Undersecretary David McCormick said China needs to let the yuan rise faster, after a 10 percent appreciation in the past two years failed to prevent the trade gap between the nations widening to a record.

The Chinese government needs ``to move more quickly'' on yuan gains to enhance consumption at home and ``better balance'' the economy, McCormick said in an interview in Beijing today. Zhou Xiaochuan, Governor of the People's Bank of China, said currency reform is a ``step-by-step process.''

The yuan rose to its highest since the end of a dollar link in July 2005 following McCormick's remarks. Treasury Secretary Henry Paulson's top international adviser is the latest recruit to the U.S.'s four-year campaign to convince President Hu Jintao's government to let the yuan trade more freely.

``Debate about a more flexible yuan will help China tackle its problems and boost consumption and is in line with Chinese authorities' own advocacy,'' said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. McCormick's tone ``will help China become less defensive and more cooperative with the U.S.''

The yuan climbed as much as 0.15 percent to 7.5030 against the dollar before trading at 7.5055 as of 11:23 a.m. in Shanghai.

A higher yuan would lower the price of imported goods and, as exports become less competitive, create incentives for companies to make products for consumers at home, economists say.

`Common View'

``The thing that I take away from my visit here is how much agreement we have'' on the need for a market-based currency, financial-service liberalization and higher domestic consumption, said McCormick, who was making his first trip to China since he was sworn in last month. ``We really have a common view on where these efforts should be headed.''

There is no timetable for lifting restrictions on inflows and outflows of yuan for investment purposes, central bank Governor Zhou said at a financial forum in Hong Kong today.
China allowed the yuan to be freely convertible under the current account in December 1996, removing limits on the use of foreign exchange for trade in goods and services. The government limits the exchange of currency for investment, allowing the central bank to dominate the currency market.

The dollar yesterday dropped to a record low, measured against the currencies of major U.S. trading partners, a Federal Reserve index showed. The euro surpassed $1.40 for the first time since its introduction in 1999 and Canada's dollar traded at par with the American currency for the first time since 1976.

Trade Gap

The gap between Chinese exports to the U.S. and U.S. exports to China has widened 35 percent since China ended the direct peg to the dollar two years ago.

China's economy grew 11.9 percent in the second quarter this year, the fastest expansion in more than 12 years.

McCormick's call for faster change in China's economic policies comes as the Bush administration tries to blunt criticism from Congress that China-U.S. trade relations are biased in favor of the world's largest developing economy.

The Senate Finance Committee in July approved legislation aimed at pressuring China and other countries to allow their currencies to trade more freely. U.S. lawmakers argue that China has kept its currency undervalued by as much as 50 percent, giving its exporters an unfair edge in global markets and damping Chinese demand for U.S.-made goods.

Won't Slow Growth

McCormick, an economic adviser to President George W. Bush before joining the Treasury, said yesterday at Beijing's Peking University that a higher yuan wouldn't slow China's expansion.

``For China, more currency flexibility will not restrain growth, nor will it lead to deflation,'' McCormick said in his first policy speech. ``We have already seen the resilience of China's exporters to currency appreciation, with many enjoying higher profit margins than they did two years ago.''

McCormick said China should let its currency rise to counter the ``perceived unfairness'' in trade, dulling the protectionist sentiments in the legislatures of China's trading partners. At the same time, he disputed the notion that a higher yuan would reduce the trade deficit, as lawmakers such as New York Senator Charles Schumer contend.

To contact the reporters on this story: Bernard Lo in Hong Kong at blo2@bloomberg.net ; Li Yanping in Beijing at yli16@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601083&sid=a05ZXP3dWrJE&refer=currency

 

[Yuriy]

Dollar Falls to All-Time Low Versus Euro on Fed Rate Outlook

Dollar Falls to All-Time Low Versus Euro on Fed Rate Outlook


By Min Zeng

Sept. 22 (Bloomberg) -- The dollar fell to a record low against the euro and touched the weakest since 1976 versus the Canadian dollar on speculation the Federal Reserve will keep cutting U.S. interest rates.

The dollar posted the biggest weekly losses versus the euro since March as the Fed's half-percentage-point interest-rate cut on Sept. 18 dimmed the allure of U.S. assets. The Fed's trade- weighted dollar index sank to its lowest in 36 years. The dollar may extend its loss next week on reports forecast to show declines in home sales, durable goods and consumer confidence.

``The Fed has untied the dollar and let it slip,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter.

The U.S. currency fell 1.6 percent this week to $1.4091 per euro and touched $1.4120 yesterday, the lowest since the euro's inception in January 1999. The dollar has lost 6.3 percent this year against the euro. It will drop to $1.45 per euro within two months, according to Gartman.
The New York Board of Trade's dollar index comparing the U.S. currency against six primary peers including the euro and yen, touched 78.398 yesterday, the lowest since September 1992. The Fed's major currency trade-weighted dollar index dropped to 74.78 on Sept. 20, the weakest since its inception in 1971.

4.75 Percent

The New Zealand dollar led the advance among the 16 major currencies this week, gaining 4.4 percent versus the U.S. dollar. The Canadian dollar increased 2.9 percent against its U.S. counterpart, the most since November 1998, and rose above $1 for the first time since November 1976.

The Fed on Sept. 18 cut its benchmark rate a half-point to 4.75 percent, the first reduction since 2003, as the biggest housing slump in 16 years threatens to weaken the world's largest economy. The European Central Bank's rate is 4 percent.

``Dollar weakness will drag on,'' said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. ``The crisis is not over and the Fed is likely to cut rates further.''
An index of U.S. consumer confidence probably fell to 104 this month from 105 in August, while new home sales slowed to an annualized rate of 830,000 in August, from 870,000 in July, according to the median forecast in Bloomberg News surveys.

Rate Bets

Durable goods orders last month may have declined 3.4 percent following a 5.9 percent gain in July, according to the median forecast in a separate Bloomberg News poll.

Futures contracts show traders see a 72 percent chance of a quarter-percentage point cut to 4.5 percent at the Fed's next meeting on Oct. 31, up from 26 percent a week earlier.

The yen declined against all 16 most-active currencies this week as a decline in corporate borrowing costs and an advance in stocks encouraged investors to buy higher-yielding assets funded by loans in Japan, a practice known as the carry trade.

``The funding market is unfreezing and borrowing costs are coming down,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``It helps spur risk appetite and gives a boost to the carry trade.''

The London interbank offered rate, which banks charge each other for overnight loans in dollars, dropped 4 basis points to 4.90 percent yesterday, according to the British Bankers' Association. A basis point is 0.01 percentage point.

Speculative borrowers sold $1.83 billion of debt this week, the most since July, according to data compiled by Bloomberg. The Standard & Poor's 500 Index rose 2.9 percent this week, for a second straight week of gains.

The yen fell 1.6 percent this week to 162.64 per euro and 0.1 percent to 115.50 per dollar.

Japan's 0.5 percent benchmark borrowing rate, the lowest among industrialized nations, compares with 4 percent in the euro region, 6.5 percent in Australia and 8.25 percent in New Zealand.

In the carry trade, investors borrow in a country with low interest rates and invest where rates are higher, earning the difference. The risk is that currency moves may erase profits.

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net .

http://www.bloomberg.com/apps/news?pid=20601083&sid=ae27HJKkvLmg&refer=currency

 

[Yuriy]

Even the Canadian Dollar is traiding almost 1 to 1. Where is all of this going?