The Forex Daily Digest – October 13, 2009
The dollar lost ground against major rivals as U.S. equities extended a rally ahead of a heavy flow of corporate earnings this week. Earlier in the day, the USD hit a two-week high against the JPY with traders covering short positions in the U.S. currency as they debated the timing of tightening in U.S. monetary policy. Despite its gains against the JPY, dollar sentiment remained bearish, and it gave up early gains against the EUR, after a 1 percent increase in European shares. The dollar remains under selling pressure due to factors including large deficits and concern about the U.S. currency's status as the pre-eminent reserve currency.
The weak USD is increasing anxiety for currency reserve and fund managers who are watching the value of their portfolios erode, increasing the dollar's volatility against some currency pairs in the options market. Key measures of market sentiment are also showing unusually high prices for options used to protect against risk, indicative of nervousness even though risk appetite has improved as major world economies appear to be in economic recovery. Investors have apparently been using the options market to hedge their short dollar positions, purchasing EUR or AUD puts as portfolio insurance in the event of an unexpected gain in the USD.
Activity was light with Tokyo markets closed for a one-day holiday and a federal holiday in the United States. Sterling fell broadly, hitting a six-month low against a basket of currencies after a report said British interest rates would stay at rock-bottom levels for some time. The AUD traded near a 14-month high versus the USD as investors bet the nation’s central bank will raise interest rates. The JPY fell to a two-week low against the EUR.
Central banks are increasingly ignoring U.S. dollars in favor of the EUR and the JPY, pressuring the USD after its biggest double quarter loss in almost two decades. World leaders are acting on threats to abandon the dollar, while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the US economy, as long as it doesn’t drive away creditors. The diversification signals the USD won’t rebound anytime soon, after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
The GBP fell to its lowest level in more than six months against the EUR after the Center for Economics and Business Research said U.K. interest rates will stay at a record low until at least 2011. The British currency also traded at its lowest level in almost four months against the dollar. After leaving its benchmark rate unchanged all next year, the Bank of England will keep it below 2 percent until 2014.
According to a consultant who speaks regularly with top Federal Reserve officials, the Federal Reserve could be looking at a benchmark interest rate hike as early as next April. That contradicts the majority view among analysts at top Wall Street firms that the U.S. central bank will keep interest rates at near zero percent until mid-2010 or later.
The undersecretary of the Kuwaiti finance ministry said Kuwait strongly backs the launch of the Gulf monetary union and single currency on time in January 2010. Over the weekend, a statement by the finance ministry called for a delay in the 2010 launch date to allow committees and other concerned parties to complete unfinished technical issues. Kuwait is one of four Gulf States to sign a pact in June to create a joint monetary union council and launch the monetary union and single currency with Saudi Arabia, Qatar and Bahrain the other signatories.
There are no major U.S. economic reports scheduled for release today but there are a few events that could affect your trading today. First thing in the morning, the ICSC-Goldman Sacks Store Sales reports will be released. At noon (ET), Federal Reserve Vice-Chairman Donald Kohn will address the National Association of Business Economists annual meeting in St. Louis. Then at 1:15 pm (ET), New York Fed President William Dudley speaks to the Institute of International Bankers.
On the earnings calendar, you can expect to see quarterly numbers from Johnson & Johnson, CSX Corp., Intel Corp., NovaGold Resources, Audiovox Corp., Domino’s and the Bank of the Ozarks.
Happy Trading,
James Dicks
The weak USD is increasing anxiety for currency reserve and fund managers who are watching the value of their portfolios erode, increasing the dollar's volatility against some currency pairs in the options market. Key measures of market sentiment are also showing unusually high prices for options used to protect against risk, indicative of nervousness even though risk appetite has improved as major world economies appear to be in economic recovery. Investors have apparently been using the options market to hedge their short dollar positions, purchasing EUR or AUD puts as portfolio insurance in the event of an unexpected gain in the USD.
Activity was light with Tokyo markets closed for a one-day holiday and a federal holiday in the United States. Sterling fell broadly, hitting a six-month low against a basket of currencies after a report said British interest rates would stay at rock-bottom levels for some time. The AUD traded near a 14-month high versus the USD as investors bet the nation’s central bank will raise interest rates. The JPY fell to a two-week low against the EUR.
Central banks are increasingly ignoring U.S. dollars in favor of the EUR and the JPY, pressuring the USD after its biggest double quarter loss in almost two decades. World leaders are acting on threats to abandon the dollar, while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the US economy, as long as it doesn’t drive away creditors. The diversification signals the USD won’t rebound anytime soon, after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
The GBP fell to its lowest level in more than six months against the EUR after the Center for Economics and Business Research said U.K. interest rates will stay at a record low until at least 2011. The British currency also traded at its lowest level in almost four months against the dollar. After leaving its benchmark rate unchanged all next year, the Bank of England will keep it below 2 percent until 2014.
According to a consultant who speaks regularly with top Federal Reserve officials, the Federal Reserve could be looking at a benchmark interest rate hike as early as next April. That contradicts the majority view among analysts at top Wall Street firms that the U.S. central bank will keep interest rates at near zero percent until mid-2010 or later.
The undersecretary of the Kuwaiti finance ministry said Kuwait strongly backs the launch of the Gulf monetary union and single currency on time in January 2010. Over the weekend, a statement by the finance ministry called for a delay in the 2010 launch date to allow committees and other concerned parties to complete unfinished technical issues. Kuwait is one of four Gulf States to sign a pact in June to create a joint monetary union council and launch the monetary union and single currency with Saudi Arabia, Qatar and Bahrain the other signatories.
There are no major U.S. economic reports scheduled for release today but there are a few events that could affect your trading today. First thing in the morning, the ICSC-Goldman Sacks Store Sales reports will be released. At noon (ET), Federal Reserve Vice-Chairman Donald Kohn will address the National Association of Business Economists annual meeting in St. Louis. Then at 1:15 pm (ET), New York Fed President William Dudley speaks to the Institute of International Bankers.
On the earnings calendar, you can expect to see quarterly numbers from Johnson & Johnson, CSX Corp., Intel Corp., NovaGold Resources, Audiovox Corp., Domino’s and the Bank of the Ozarks.
Happy Trading,
James Dicks
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