FOREX-Dollar index drops to record low on economic outlook

Thu Oct 18, 2007 4:29 PM BST144

NEW YORK, Oct 18 (Reuters) - The dollar dropped to a record low against a basket of currencies and the euro on Thursday after Bank of America's third-quarter earnings results missed estimates and renewed concerns of a U.S. economic slowdown.

Weak earnings from the second-largest U.S. bank on the back of mounting credit losses sent U.S. stock indexes lower and U.S. Treasury prices higher on expectations slowing activity might prompt the U.S. Federal Reserve to cut interest rates.

The yen gained against the dollar as investors became more risk-averse and unwound carry trades in which they buy high-yielding currencies funded by borrowing low-yielders such as the yen.

It was the yen's fourth straight day of gains against the dollar, the longest streak of gains since the four days leading up to the Fed's surprise 50 basis point cut of the discount rate, at which it lends to banks, on Aug. 17.

"Bank of America earnings play up concerns about the health of the financial sector and suggest we are likely to see fall out from market volatility, with the yen being the main beneficiary," said Omer Esiner, foreign exchange analyst at Ruesch International in Washington.

Late morning in New York, the euro was up around 0.6 percent on the day at $1.4287 , after climbing to a lifetime peak at $1.4310 in the opening hours of the New York session, according to Reuters data.

from: http://investing.reuters.co.uk/

Banks seek to buy time with rescue fund

Banks seek to buy time with rescue fund

Wed, Oct 17 2007, 21:13 GMT
http://www.afxnews.com

WASHINGTON (AP) - A lifeline banks are extending to owners of mortgage-backed securities that have plunged in value will avert a near-term crisis but not necessarily a painful reckoning long-term.

At some point, banks and others will have to update their balance sheets to reflect huge losses from the collapse in subprime mortgages extended to risky borrowers during the housing boom.

Yet Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., with approval from the Treasury Department, have devised a scheme to spread out the balance sheet losses over time and prevent dramatic swings in asset valuations that could unbalance financial markets.

The banks hope the creation of the Master Liquidity Enhancement Conduit or M-LEC, will prevent turmoil in mortgage-backed securities from further spilling into other parts of the credit market. Not controlling the spillover could force a fire sale of distressed assets, making borrowers more reluctant to lend. The result: higher interest rates and slower economic growth.

The jury is out on whether M-LEC will be successful, especially over the long haul. Some economists argue it simply delays the inevitable, as banks will eventually have to mark down the value of securities backed by subprime mortgages now in default.

"They're just trying to buy time," said Christopher Whalen, managing director of Institutional Risk Analytics, a consulting firm.

Others, though, say M-LEC is a crucial step in restoring calm to a market near chaos.

In just the past few months, leading banks and investment houses, such as Citigroup and Merrill Lynch & Co. Inc., have already reduced the value of asset-backed securities on their books by approximately $30 billion, said Brian Bethune, U.S. economist at Global Insight, a consulting firm.

More writedowns are coming but "it's just not appropriate to have it all in two months," he added.

At the same time, M-LEC gives the market some time to asses the extent of the problem in asset-backed securities. No one is quite sure how many of the securities are in trouble in the $400 billion global market.

Part of the reason is because many of the securities are held by banks in off-balance sheet funds, known as structured investment vehicles or SIVs.

The SIVs sell short-term debt to investors and use the proceeds to buy longer-term, asset-backed securities, which earn higher yields. As investors became aware of the problems in the mortgage-backed mortgage, they began to steer clear of short-term debt sold by SIVs.

M-LEC will purchase securities held by the SIVs that aren't in trouble, strengthening balance sheets of the SIVs and restoring confidence in the market so that investors will be willing to buy short-term debt from them.

Critics of the plan though say all that's happening is postponing the re-pricing of the most troubled assets, which could prolong problems in the credit market.

"Liquidity crises last longer if there's something truly wrong with the collateral that needs to be worked out," said Joseph Mason, a finance professor at Drexel University. The banks' plan "will continue to prevent" accurate accounting of the losses, he added.

Accounting regulators have yet to weigh in on the proposal, which was the result of brainstorming sponsored in recent weeks by Treasury Secretary Henry Paulson. Of some concern, analysts say, is whether securities purchased by M-LEC will be accurately priced at the time of sale.

The answer to that question will determine how much confidence investors will have in M-LEC's ability to be effective, says Tanya Azarchs, managing director for S&P's Financial Services Ratings Group.

David Resler, U.S. economist at Nomura Securities, said M-LEC might also delay accurately accounting for the value of the securities it buys as part of the effort to buy time for a distressed market. "If they're selling for fair market value, then why do they need" the fund, he wondered.

Azarchs agreed. "How the current market prices will be determined will be key to this whole thing," she said.

Dollar, gold fall in Europe

October 17, 2007 8:59 AM

LONDON (AP) - The U.S. dollar fell against other major currencies in European trading Wednesday. Gold fell.

The euro traded at $1.4205, up from $1.4164 late Tuesday in New York. Later, in midday trading in New York, the euro fetched $1.4205.

Other dollar rates in Europe, compared with late Tuesday, included 116.60 Japanese yen, down from 116.69; 1.1800 Swiss francs, down from 1.1824; and 0.9741 Canadian dollars, down from 0.9798.

The British pound was quoted at $2.0377, up from $2.0315.

In midday New York trading, the dollar bought 116.58 yen and 1.1816 Swiss francs, while the pound was worth $2.0389.

Gold traded in London at $756.95 per troy ounce, down from $758.40 late Tuesday. In Zurich, gold traded at $754.90 bid per troy ounce, down from $755.00. Gold closed $5.40 lower in Hong Kong Wednesday at $758.15 an ounce.

Silver traded in London at $13.58, down from $13.60.

from: http://www.newspress.com/Top/Article/article.jsp?Section=BUSINESS&ID=565105808229401463

Dollar falls broadly as US housing starts plunge

NEW YORK (Reuters) - The dollar fell broadly on Wednesday after a report showed U.S. housing starts dropped to their lowest level in 14 years in September, adding to concerns that the housing market may drag on the U.S. economy.

Traders sold dollars after the Commerce Department said home construction starts fell 10.2 percent last month to below Wall Street's consensus forecast. For details, see.

A weaker housing market and a slow U.S. economy may prompt Federal Reserve policy-makers to cut benchmark interest rates again from the current 4.75 percent. Fed officials next meet on October 30-31.

"The U.S. housing market is going to continue to be a significant drag on the overall U.S. economy, and the U.S. dollar is going to weaken as a result," said Firas Askari, head currency trader at BMO Capital Markets in Toronto.

"The Federal Reserve is more likely to be easing rates, maybe not on October 31, but definitely within the next three to six months," he added.

In late morning trading in New York, the euro was 0.4 percent higher at $1.4215. The dollar index, which measures the value of the greenback against a basket of six currencies, fell 0.35 percent to 78.057.

Against the yen, the U.S. currency reversed earlier gains and fell 0.1 percent to 116.68.

According to another government report, U.S. consumer prices rose at the sharpest rate in four months in September. But core prices, which exclude volatile food and energy costs, rose in line with expectations.

"CPI came in about as expected, so there's more focus on the big drop in housing starts," said Shaun Osborne, a senior currency strategist at TD Securities in Toronto. "The general trend is toward risk-taking again today after the rebound in Asian equities."

The Federal Reserve's "beige book," a snapshot of conditions in the U.S. economy, may provide further clues on the Fed's next move on rates when it is released at 2 p.m.

Sterling rallies, breaks through stop-loss levels

LONDON, Oct 17 (Reuters) - Sterling spiked up against the dollar on Wednesday, adding half a cent to hit session highs, with traders saying the move was accelerated by the pair going through stop-loss levels.

Selling interest in euro/sterling was also helping the pound move higher ahead of minutes from this month's Bank of England meeting and UK jobs data at 0830 GMT.

By 0758 GMT, sterling was up 0.2 percent at $2.0361 , while the euro was down 0.1 percent at 69.66 pence .

"We've gone through some stops at $2.0300, and then again at $2.0340," said a trader at a UK bank.

With European equity markets moving into the black <.FTEU3> and risk aversion abating, the high-yielding sterling also benefitted from a renewed interest in carry trades.

Fonte:

Fed's Warsh says financial markets 'normalizing'

Fri, Oct 5 2007, 23:28 GMT
http://www.afxnews.com

WASHINGTON (Thomson Financial) - While it is "premature to judge the ultimate effects" of the Fed's rate cut and other actions on the financial markets or the economy, Federal Reserve Governor Kevin Warsh said it appears that "financial conditions might be normalizing somewhat."

He cited narrowing of interest-rate spreads and improvements in the markets for commercial paper market and leveraged loans.

In a speech New York State Economics Association annual conference, Warsh said "the functioning of several markets continues to be strained" and that strain may continue. A copy of remarks was released in Washington.

In explaining the Fed's recent actions, Warsh said concerns about financial stability "may rightly shape" the policymakers' views about the economic outlook and the risks surrounding it.

Looking forward, he said the Fed policymakers would be relying not only on their economic models but on "real-time, forward looking indicators" to make their judgments.

Dollar Financial opens 200th store in UK

The 200th store is located in West London on Edgware Road and offers a range of consumer financial products and services, including check cashing, payday loans, installment loans, foreign exchange, pawnbroking, Western Union money order and money transfer products, and the reloadable MasterCard branded debit card. It is the company's 39th store in London.

Jeff Weiss, chairman and CEO, said: "We are very pleased to reach this significant milestone, which underscores the successful build out of our UK operations as well as our commitment to further expanding our global store footprint."

Pound Falls Versus Euro; Building Data May Show Slowing Growth

Pound Falls Versus Euro; Building Data May Show Slowing Growth

By Agnes Lovasz

Oct. 2 (Bloomberg) -- The pound weakened against the euro before a report that may show an index of construction fell last month, heightening concern growth in Europe's second-largest economy is slowing.

The U.K. currency last week dropped to the lowest in more than 2 1/2 years versus the euro on concern a slowdown in housing and a global credit squeeze threatens to dent economic expansion. Interest-rate futures suggest there's an increasing chance the Bank of England will cut interest rates after a two- day meeting that starts tomorrow.

``The market is trying to assess whether the central bank may be cutting rates,'' said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. ``Some people think the BOE will cut rates and that will weigh on sterling. And we may see those moves in euro-sterling.''

The pound was at 69.718 pence per euro at 7:22 a.m. in London, from 69.630 pence yesterday. It was also at $2.0382, from $2.0472.

U.K. construction, which accounts for 6 percent of the economy, probably slowed, an industry survey is forecast to show today. An index based on a survey of purchasing managers at building companies dropped to 63 from 64.8 in August, the London-based Chartered Institute of Purchasing and Supply will say, according to a Bloomberg survey of economists.

The implied rate on the December interest-rate futures contract fell 2 basis points yesterday to 6.02 percent. The contract settles to the three-month London interbank offered rate for the pound, which has averaged about 16 basis points more than the benchmark rate over the past decade. The Bank of England's key interest rate is 5.75 percent.

Reports yesterday showed U.K. house-price growth stalled in September and banks approved the fewest mortgages in four months in August.

The average cost of a home in England and Wales was unchanged in September from a month earlier, at 176,300 pounds ($358,000), London-based research group Hometrack Ltd. said.

Lenders granted 109,000 loans for house purchase in August, the least since April, according to the Bank of England, as five interest-rate increases in the past year and financial-market turmoil rattled buyers' confidence

from: http://www.bloomberg.com/apps/news?pid=20601083&sid=aJK_ndxkxs20&refer=currency

Euro Weakens Against Dollar

(RTTNews) - After moving slightly higher against the US dollar, the European currency lost ground by about 8:55 pm ET, in the early Asian deals on Tuesday. Falling from 1.4243, the pair hit a low of 1.4202 by about 2:15 am ET. Downside, 1.4191 is seen as the next target level for the pair. Investors now await Euro-Zone PPI and the unemployment rate data for August, which are expected shortly. The US Pending Home sales data for the month of August is also expected later in the morning.

Forex - Dollar gains vs euro after policymakers voice concern over euro strength

Tue, Oct 2 2007, 06:44 GMT
http://www.afxnews.com

HONG KONG (Thomson Financial) - The US dollar recovered against the euro in Asia midsession after European policy makers aired concerns about the pace of the single currency's appreciation.

European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker both expressed some apprehension about the dollar's weakness, which would make European products exported to the US more expensive.

"The European officials don't want the US dollar to fall too quickly against the euro," said Mark Wan, vice president for treasury at DBS Bank in Hong Kong. "That's the reason behind the weakening of the euro. They want to slow down the appreciation of the euro."

At 1:00 pm, the euro was trading at 1.4217 dollars from 1.4236 this morning in Sydney. The euro hit all-time high record of 1.4283 dollars in Asian trade on Monday.

The dollar was quoted at 115.42 yen, down from 115.74 this morning and 115.80 in late New York trading overnight.

A decline in European exports to the US may slow growth in the euro zone, and this could prompt European policymakers to hold off hiking benchmark interest rates in the euro zone, reducing the lure of euro-denominated assets.

On the other hand, signs that the subprime mortgage crisis is subsiding and that fallout in the US economy has been contained may stay the Fed's hand from further rate cuts after this month, and that would increase investor appetite for dollar-denominated securities.

"The market is closely watching economic data releases in the US, particularly the payroll figures for September," Wan said.

If the September payroll report showed that jobless claims are improving, then "that could change the whole interest rate picture in the US," Wan said.

Jobless claims in the US unexpectedly fell in the week ending Sept 12, the second week of a decline in unemployment claims.

Wan expects the Fed to follow its bold half-a-percent rate cut on September 18 by another quarter-point cut by end of the month. That may be the last rate reduction for this year should the economy show signs of a recovery, he said.

Still, Wan is keeping his forecast that the euro may hit an all-time high of 1.44 dollars by yearend, while the yen will likely stick to the 114-117 range against the dollar.

"We have to wait and see if Japan can sustain its record-high exports to Europe and Asia in September, a sign that it has reduced its dependence on the US market," he said.

If this happens, then the yen may appreciate to the 110 per dollar level or even higher than that, he added.

In August, Japan's exports grew at an annual 14.5 percent, as sales to Europe and Asia soared while sales to the US inched up. Japan's trade surplus nearly quadrupled to 743.2 billion yen during the period.

John Noonan, analyst at Thomson IFR, said the recovery from extreme market turbulence seen in August due to the housing loan market crisis is now complete, with the Dow Jones Industrial Average at record highs and yen-funded carry trades nearly back at the levels they were in before the market turmoil began.

Carry trades refer to the practice of borrowing in low-yielding currency such as the yen to invest in high-yielding currencies elsewhere.

Noonan said the growing view that the worst might be over for the US economy could bring on a broad US dollar correction and send the euro lower, which would be a relief for euro zone officials worried that the euro was becoming too strong.

Euro Trending Down Against Yen

(RTTNews) - The European currency lost ground against the Japanese yen by about 6:55 pm ET in the early Asian deals on Tuesday. Down from 164.93, the pair hit a low of 163.75 by about 2:35 am ET. If the pair weakens further, 162.44 can probably be the next level of target. Early Asian deals were likely to have been affected by the Bank of Japan's monetary report released at 7:50 pm ET. The market now turns toward the Euro-Zone PPI and unemployment rate data for August, which are expected shortly.

BOJ Sees October Money Market Has Y2.87T Shortage

Tue, Oct 2 2007, 00:03 GMT
http://www.djnewswires.com/eu

BOJ Sees October Money Market Has Y2.87T Shortage

TOKYO (Dow Jones)--Japan's money market faces a deficit of Y2.87 trillion in October, compared with the Y3.396 trillion shortage in October last year, according to forecast by the Bank of Japan released Tuesday.

The details of the forecast are as follows:

Oct. 2007 Oct. 2006 Change
Total -2,870.0 -3,396.0 526.0
Banknotes -300.0 -308.1 8.1
Treasury funds and others -2,570.0 -3,087.9 517.9
Net JGBs and TBs -8,350.0 -10,128.2 1,778.2
Net FBs -1,060.0 -1,136.8 76.8
Other items 6,840.0 8,177.1 -1,337.1




Figures are in billions of yen. Negative figures represent a shortage of funds.

Net values show the difference between issuance and redemption of government bonds and treasury bills or financing bills.

Yen May Extend Drop Versus Euro as Stocks Fuel Risk Appetite

Oct. 2 (Bloomberg) -- The yen may fall for a sixth day versus the euro, its longest slide since January, as rallying stocks encourage carry-trade investors to borrow in Japan to buy higher-yielding assets elsewhere.

Since the Federal Reserve cut its benchmark overnight rate on Sept. 18, Japan's currency has lost 4.9 percent versus the New Zealand dollar and 4.4 percent against the Australian dollar, both beneficiaries of the carry trade. The Dow Jones Industrial Average rose to a record yesterday as investors speculated the global economy will continue to expand.

``Risk appetite is obviously coming back to the market,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. ``The stabilization in the global stock market provided a shot in the arm for carry trades.''

The yen traded at 164.64 per euro at 5:39 a.m. in Tokyo, near the weakest since Aug. 9, after falling 0.5 percent yesterday. Japan's currency traded at 115.69 per dollar after decreasing 0.8 percent.

The yen has fallen 1.5 percent versus the euro since Sept. 18, when the Fed reduced its key rate 0.5 percentage point to 4.75 percent. Japan's 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.

The Dow Jones Average rallied yesterday as investors speculated the worst of the subprime fallout may be over. The Morgan Stanley Capital International Asia-Pacific Index reached an all-time high.

Economic Outlook

The economy of the 13 countries that use the euro will expand 2.6 percent in 2007 compared with Japan's 1.8 percent, according to Deutsche Bank AG. The U.S. economy will grow 1.9 percent this year and 2.2 percent in 2008 as rate cuts help the economy weather the housing slump, the bank forecasts.

Lehman Brothers Holdings Inc. said yesterday an in-house measure showed yen carry trades have increased at an ``impressive'' rate, helped by the Fed's half-point cut.

The firm said in a note to clients yesterday its yen carry- unwind signal has fallen to 19 percent from 95 percent in early August, showing investment in the strategy has increased.

The implied volatility of a one-month euro-yen option was 10 percent yesterday, down from 17.5 percent on Aug. 16. A decline in volatility encourages investors to borrow in Japan and buy assets overseas where yields are higher.

The National Association of Realtors is forecast to report today that the number of Americans entering into contracts to buy previously owned homes fell 2.1 percent in August, according to the median estimate of 30 economists surveyed by Bloomberg. Pending home sales fell 12.2 percent in July, the most since records began in 2001.

The Turkish lira, the biggest gainer among emerging-market currencies versus the yen this year, rose 1.3 percent against the currency yesterday. Turkey's benchmark rate is 17.25 percent.

``The carry trade is fairly well established and the conditions for the trade remain in place,'' said Win Thin, a currency strategist in New York at Brown Brothers Harriman & Co.

EUR/USD: Euro enters in overbought zone

Mon, Oct 1 2007, 09:26 GMT
http://www.fxstreet.com

FXstreet.com (Barcelona) – The Euro’ upward trend has been renewed after September’s correction; Ted Wilson, technical analysts of iForex affirms: “Last week the EUR/USD sharply rose and overcame the resistance level 1.4205 and the psychological level 1.4250, after which it reached new historical level 1.4271.” About the daily trend, Wilson adds: “On a daily time frame the upwards trend accelerated but the Euro gets into overbought zone. Rising above 1.4282 may provoke further upward movement to the upper limit 1.4302. Going under 1.4195 may give signal for correction of the currency couple.”

Australian dollar surges as demand for greenback falls

October 02, 2007 07:22am

THE dollar has opened firmly above 89 US cents for the first time since 1989, and continues to test historical highs as demand for the US dollar falls.

At 7am AEST, the Australian dollar was trading at $US0.8942/45, up from yesterday's close of 0.8918/24.

Overnight, it traded between a low of $US0.8854 and a high of 0.8950 - equalling the level last traded on February 10, 1989.

Bank of New Zealand currency strategist Danica Hampton said the Australian dollar had more potential to rise, but would likely meet with some resistance at about $US0.8960.

She said it would be well bought on dips of $US0.8920.

Ms Hampton said the Australian dollar rose overnight on support from the carry trades as investor sentiment and risk appetite grew due to a strong rise in US stocks.

The Dow Jones industrial average finished up 191.92 points, or 1.38 per cent, 14,087.55 after surging to an all-time high of 14,115.51.

The Standard & Poor's 500 Index gained 20.29 points, or 1.33 per cent, to end at 1547.04.

The Australian dollar has attracted support because of its high yielding interest rate, with the differential between US and local rates expected to increase, further boosting the currency.

But while sentiment remains overwhelmingly in the Australian dollar's favour, US sub-prime concerns caused a brief sell-off in the Australian dollar overnight.

"We heard some negative news from UBS and Citigroup, and that caused a little bit of a carry trade liquidation, but the losses were short lived," Ms Hampton said.

US bank Citigroup said overnight its fourth quarter profit will drop by about 60 per cent because of $5.9 billion in losses and write-downs as a result of sub-prime and leveraged loans.

Meanwhile, UBS said it would write down the value of its assets by $US3.4 billion because of losses in sub-prime mortgages.

"The US equity market shrugged them off and finished really strongly, so renewed the appetite for carry trades," Ms Hampton said.

"And so we saw a lot of momentum buying and a solid demand for Aussie/yen helped support the Aussie."

Also overnight, the US Institute of Supply Management's (ISM) performance of manufacturing index (PMI) index for September was
slightly weaker than expected at 52 points compared with expectations of a 52.6 reading.

However, the result remained above the critical 50 level, which separates expansion from contraction, with economic activity in the sector growing for the eighth straight month.

There is no first tier local data due today to guide the market.

The board of the Reserve Bank of Australia (RBA) meets today, however, and will announce its interest rate decision tomorrow.

Interest rates are expected to remain at 6.50 per cent, but some economists are tipping another rate rise by early next year

Tokyo stocks likely to gain on Dow and soft yen

TOKYO, Oct 2 (Reuters) - Japan's Nikkei stock average is likely to open higher on Tuesday and may rise above the psychologically key 17,000 as investor snap up exporters such as Sony Corp (6758.T: Quote, NEWS , Research) following a jump on Wall Street and a fall in the yen.

KDDI Corp (9433.T: Quote, NEWS , Research) will be a focal point after the Nikkei business daily said the mobile phone operator plans to introduce a new fee system in November that cuts call charges by roughly 30 percent but raises handset prices in turn. KDDI rival NTT DoCoMo (9437.T: Quote, NEWS , Research) is expected to follow suit, the newspaper said.

Another stock in the spotlight is Matsushita Electric Industrial Co (6752.T: Quote, NEWS , Research) after the Nikkei said it sold all 17 of its large domestic distribution facilities to a real estate developer and will use the 85 billion yen in proceeds to strengthen its core businesses such as plasma screen TVs.

"Exporters are likely to lead the market on the yen's slide against the dollar. Financials are also expected to be bought amid growing expectations that the worst may soon be over" in the market turmoil of the last few months, said Kazuhiro Takahashi, a general manager of equity marketing at Daiwa Securities SMBC.

Still, he said the upside was also heavy as investors remain cautious about making big bets ahead of U.S. employment data due out later this week.

"The Nikkei is likely to test 17,000, but it's unlikely investors will keep buying to send the index further up," he said.

Market participants said the benchmark Nikkei average <.N225> will likely move between 16,900 and 17,100 on Tuesday.

SKorea's current account surplus narrows in August

SKorea's current account surplus narrows in August

SEOUL (Thomson Financial) - South Korea's current account surplus narrowed in August on higher overseas payments of royalties, interest and dividends and a smaller trade surplus, the Bank of Korea said Tuesday.

The central bank said the current account was in surplus by 610.3 million US dollars last month, compared to a revised surplus of 1.55 billion dollars in July. The figure for July was initially reported at 1.64 billion dollars.

August was the fourth straight month that a surplus was registered.

A surplus in August is uncommon. In previous years the current account has often been in deficit in August because of outbound tourism during the vacation season. But exports were brisker this August than in previous years.

The current account is the broadest measure of trade, covering the flow of goods, services and investment income across border

Dolar rose

THE dollar rose slightly from record lows against the euro as investors cashed out bets against the US currency ahead of a fresh batch of economic data and central bank meetings this week. The greenback pared some gains after a measure of US manufacturing activity hit a low, but the gauge's employment measure registered growth.