The Forex Daily Digest – October 21, 2009
The USD reentered positive territory after experiencing a 14-month low against a basket of currencies as a result of policymaker comments, but options-related buying kept it from pushing through $1.50 against the EUR and 90 JPY. The dollar was also affected by the U.S. equities markets, as well as data showing continued weakness in the U.S. housing sector. The USD has been under sustained pressure this year due to expectations of low U.S. interest rates and questions about its status as the world's leading reserve currency. Gold gained, reversing an earlier loss, as the USD traded near a 14-month low against the euro, fueling demand to use gold as an alternative investment.
ECB chief Jean-Claude Trichet discussed exchange rates with euro zone finance ministers but said nothing new on a USD slide that some fear could slow Europe's economic recovery. The European Central Bank repeated a now well-worn line that he had no reason for doubt when U.S. Treasury Secretary Tim Geithner or Federal Reserve Chairman Bernanke said a strong dollar was in U.S. interests.
Currency traders reportedly waved off comments from euro-zone finance ministers expressing concerns about the strength of the single currency. The officials repeated their support for the U.S. Treasury's self-acknowledged strong-dollar policy. The EUR has climbed 20% against the USD since March, making euro-zone exports more expensive to buyers outside the region.
French Finance Minister Christine Lagarde said the EUR at a level of $1.50 is a disaster for European industry and the economy and results from the U.S. policy aimed at inflating away its debt. He said at some point the euro's strength against the USD would become unbearable and Europe would have to react, most likely by printing euros that would also lead to inflation. ECB President Trichet backed Lagarde's comments, saying excessive volatility in foreign exchange rates will hinder global economic recovery.
The CAD extended a drop after the nation’s central bank amplified a warning about the currency’s strength, saying it will “more than fully offset” recent signs of economic growth in the nation. The Bank of Canada kept its overnight rate target at 0.25% and repeated its conditional commitment to keep it there until the end of the second quarter of 2010. It also said that the CAD’s increase toward parity with the USD threatens an economic recovery. The CAD has gained as much as 5.1 percent since the bank’s last rate decision in September, when policy makers said its “persistent” strength could postpone the return of inflation to the 2 percent target.
New Zealand’s largest non-government fund manager said the nation’s central bank needs to respond to increasing inflation pressure and raise interest rates in March of next year. Reserve Bank Governor Alan Bollard has held the official cash rate unchanged at a record-low 2.5 percent since April and recently said he didn’t expect to raise the benchmark until “the latter part” of 2010. Economists expect he will increase the rate in March and nine say it will be higher by June 30th.
Federal Reserve Chairman Bernanke urged the U.S. to save more by cutting the federal deficit and said Asian nations should promote domestic consumption to avert a return of trade distortions that preceded the financial crisis. Bernanke didn’t take part in the debate among his colleagues on the FOMC over the pace or timing of a change in monetary policy. Fed Governor Kevin Warsh recently said that interest rates may need to rise “with greater force” than usual, while New York Fed President William Dudley said the recovery’s pace “is not likely to be robust” and inflation risks are “on the downside.”
On the economic calendar today is the Crude Inventories report for the week of October 16th and the Fed’s Beige Book scheduled for release at 2 pm (ET). A number of major companies are scheduled to release their earnings today including Boeing, eBay, AMR Corp, Eli Lilly, Air Tran Holdings, Piper Jaffray, U.S. Bancorp, Tractor Supply, Wells Fargo, and Amgen.
Happy Trading,
James Dicks
ECB chief Jean-Claude Trichet discussed exchange rates with euro zone finance ministers but said nothing new on a USD slide that some fear could slow Europe's economic recovery. The European Central Bank repeated a now well-worn line that he had no reason for doubt when U.S. Treasury Secretary Tim Geithner or Federal Reserve Chairman Bernanke said a strong dollar was in U.S. interests.
Currency traders reportedly waved off comments from euro-zone finance ministers expressing concerns about the strength of the single currency. The officials repeated their support for the U.S. Treasury's self-acknowledged strong-dollar policy. The EUR has climbed 20% against the USD since March, making euro-zone exports more expensive to buyers outside the region.
French Finance Minister Christine Lagarde said the EUR at a level of $1.50 is a disaster for European industry and the economy and results from the U.S. policy aimed at inflating away its debt. He said at some point the euro's strength against the USD would become unbearable and Europe would have to react, most likely by printing euros that would also lead to inflation. ECB President Trichet backed Lagarde's comments, saying excessive volatility in foreign exchange rates will hinder global economic recovery.
The CAD extended a drop after the nation’s central bank amplified a warning about the currency’s strength, saying it will “more than fully offset” recent signs of economic growth in the nation. The Bank of Canada kept its overnight rate target at 0.25% and repeated its conditional commitment to keep it there until the end of the second quarter of 2010. It also said that the CAD’s increase toward parity with the USD threatens an economic recovery. The CAD has gained as much as 5.1 percent since the bank’s last rate decision in September, when policy makers said its “persistent” strength could postpone the return of inflation to the 2 percent target.
New Zealand’s largest non-government fund manager said the nation’s central bank needs to respond to increasing inflation pressure and raise interest rates in March of next year. Reserve Bank Governor Alan Bollard has held the official cash rate unchanged at a record-low 2.5 percent since April and recently said he didn’t expect to raise the benchmark until “the latter part” of 2010. Economists expect he will increase the rate in March and nine say it will be higher by June 30th.
Federal Reserve Chairman Bernanke urged the U.S. to save more by cutting the federal deficit and said Asian nations should promote domestic consumption to avert a return of trade distortions that preceded the financial crisis. Bernanke didn’t take part in the debate among his colleagues on the FOMC over the pace or timing of a change in monetary policy. Fed Governor Kevin Warsh recently said that interest rates may need to rise “with greater force” than usual, while New York Fed President William Dudley said the recovery’s pace “is not likely to be robust” and inflation risks are “on the downside.”
On the economic calendar today is the Crude Inventories report for the week of October 16th and the Fed’s Beige Book scheduled for release at 2 pm (ET). A number of major companies are scheduled to release their earnings today including Boeing, eBay, AMR Corp, Eli Lilly, Air Tran Holdings, Piper Jaffray, U.S. Bancorp, Tractor Supply, Wells Fargo, and Amgen.
Happy Trading,
James Dicks
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