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
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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
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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.