Archive for category Currency
Is A Global Reserve Currency A Necessity?
Posted by Tetyana Matychak in Currency, Favourites on June 28th, 2010
Recently Asian Development Bank (ADB) suggested, China’s yuan could rapidly become an internationally used currency and serve as an alternative to the U.S. dollar in central bank reserves. There weren’t many takers for ADB’s suggestion. I beg to differ from ADB’s stance. If China’s yuan becomes a reserve currency then, I ask, is there a guaranty that we won’t see another global financial crisis of the present order? In the wildest of possible pollyannaism, even ADB wouldn’t say that replacement of one reserve currency (US Dollar) with another (China’s yuan) would guarantee us a world free of a future global financial crisis of the present order. At best, I guess, that would be a temporary solution.
I think it is high time we ask the fundamental question – do we need a global reserve currency? Yes of course, there are significant economic incentives in agreeing to have a global reserve currency. But, hasn’t the concept of international reserve currency outlived its usefulness? I, for one, definitely believe so.
A decade ago, in the wake of the Asian financial crisis, Malaysia’s former Prime Minister, Dr Mahathir Mohammed, called on the world to ban currency trading and outlaw hedge funds, which he blamed for spectacular declines in the value of the Malaysian ringgit. His comments focused on the fact that currency trading served no tangible economic purpose and that hedge funds were opaque beasts wielding billions of dollars in vested interests. Though, I don’t agree with his thoughts in toto, I must say his thoughts did inspire me to ask the fundamental question – do we need a global reserve currency? Whatever, one’s answer to the above question may be, there is a broad consensus in the world that the global central banks are risking too much by holding much of their reserves in dollars. The consensus is so strong; there have been a rush of proposals such as – replacing greenback with a new reserve currency system based on the IMF’s special drawing rights; or a more coordinated approach to exchange rate policy involving target zones etc. There are plusses and minuses in all those proposals. But scrapping a global trade based on the concept of international reserve currency seems to be a better idea than all those proposals. Read the rest of this entry »
Bank Issues, Jobs Data Drives Euro To 4-Year Low
Posted by Tetyana Matychak in Currency on June 8th, 2010
After holding steady for a few days, the Euro plunged through the recent bottom to post a 4-year low. This morning’s move came as a surprise to many traders who had expected the single-currency to hold its range until after the release of the employment number.
Traders are saying that this morning’s sharp break was a reaction to new concerns about the health of European banks. Investors are concerned that mounting debt issues across the Euro Zone will erode investor confidence in the Euro and slow down the rebound in the global economy. Many traders were surprised by this morning’s move which caught traders off guard as they awaited the release of the important U.S. jobs data report.
The GBP USD is also under pressure because of the drop in risk appetite. The charts indicate that a test of 1.4499 to 1.4435 is likely over the near-term.
Plunging equity markets are triggering a possible reversal top in the USD JPY. Traders are dumping risky assets following the plunge in the Euro and the weaker than expected U.S. jobs data report. The Dollar/Yen is trading back under a .618 retracement level at 92.41 which makes 91.61 a new downside target.
Falling demand for higher risk assets is helping to drive the USD CAD higher. The main trend is down, but upside momentum is building which could trigger a reversal of this trend on a breakout over the last swing top at 1.0573. Read the rest of this entry »
Commodity-Linked Currencies Suffer Huge Losses
Posted by Tetyana Matychak in Currency, Favourites on June 7th, 2010
The weaker-than-expected U.S. employment report helped trigger a flight-to-safety rally in the Dollar while driving investors out of commodity-linked currencies. Aversion to risk weakened U.S. equity and global commodity markets, helping to drive up demand for the lower-yielding Japanese Yen. All three major commodity-linked currencies – Australian Dollar, New Zealand Dollar and Canadian Dollar – suffered huge losses, leading to speculation that this trend is likely to continue next week.
The U.S. Dollar Index made a new high for the year, boosted by the sharp sell-offs in the Euro, British Pound and the commodity-linked currencies. Gains were limited slightly by the rise in the lower-yielding Japanese Yen.
The initial catalyst behind the U.S. Dollar’s rise on Friday was the news that Hungary is in the midst of a fiscal crisis of its own. This news caught many traders by surprise because most were focused on the upcoming U.S. Jobs Data Report. After the first thrust to the upside, gains were extended when the government reported that the number of jobs created during May fell far below the consensus.
Economist estimates were for an increase of about 513,000 new jobs. The U.S. Labor Department reported an actual increase of 431,000. This news was bearish in itself, but the traders were really surprised when the internals of the report showed that of the 431,000 new positions, 411,000 jobs were created by the U.S. government. This figure was primarily made up of short-term census workers. Read the rest of this entry »
Greek uncertainty hurts euro
Posted by Tetyana Matychak in Currency on April 27th, 2010
Confusion about the timing and amount of emergency aid for Greece prompted investors to sell the euro on Monday as markets worried whether the euro zone country will manage to avert a debt default.
The euro dipped briefly below $1.33, falling against the greenback for the seventh trading session in the last eight. It also hit a three-month low against sterling on investor concern about potential conditions attached to a loan for Greece.
The Federal Reserve’s policy meeting this week drew renewed attention to when the U.S. central bank will likely begin raising interest rates. The dollar rose above 94 yen as investors bet the Fed would raise rates before year end, well ahead of any move by the Bank of Japan.
Confusion over aid for debt-stricken Greece arose on Monday after German Chancellor Angela Merkel said the euro zone member, which on Friday had requested emergency aid, must commit to further savings measures and show it can return to a sustainable economic path before Germany can approve aid.
Greece had tried to reassure investors over the weekend that the 45 billion euros ($60.5 billion) in aid from the European Union and the International Monetary Fund would arrive in time to avert the euro zone’s first sovereign default. Read the rest of this entry »
WORLD FOREX: Euro Hits 10-Month Low Vs Dollar
Posted by Tetyana Matychak in Currency, Favourites on March 25th, 2010
The euro dropped to a fresh 10-month low against the dollar in Asia Thursday as investors in the region sold the common currency on growing concerns over fiscal problems in Europe.
The euro fell below $1.3300 to $1.3283, its lowest level since May 7, after People’s Bank of China Vice Gov. Zhu Min said Greece’s debt crisis is just the tip of the iceberg. The comments came after Fitch Ratings downgraded Portugal’s credit rating overnight, adding to worries that other euro-zone members may face such downgrades.
Zhu’s remark provided “already edgy players with the latest reason to sell into the euro downtrend,” said Hideaki Inoue, chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking. The common currency could fall to $1.3200 later in the global day, Inoue said.
Other dealers concurred, saying the euro may tumble as many investors believe a summit of European Union leaders beginning later Thursday may highlight divisions on any rescue package for Greece.
Germany, the bloc’s paymaster and the country most opposed to putting aid on the table, has signaled it may support a bailout, but only if the International Monetary Fund plays a substantial role. Read the rest of this entry »
Greece woes push euro to 10-month low
Posted by Tetyana Matychak in Currency on March 24th, 2010
The euro sank to a 10-month low against the dollar and a lifetime trough versus the Swiss franc on Wednesday as speculation Greece may have a difficult time securing debt aid highlighted instability in the euro zone.
European shares hit their highest since October 2008, following a climb in U.S. stocks, but broader global shares slipped as traders were cautious about taking on big positions ahead of a European Union summit which begins on Thursday.
EU Monetary Affairs Commissioner Olli Rehn on Wednesday said the union must decide on a way to help debt-laden Greece this week, or run the risk of causing a “serious disruption” for the euro.
His comments came after Germany on Tuesday signaled for the first time that it may accept European financial aid for Greece as a last resort, but only if the IMF is involved and euro zone partners accept tougher budget discipline rules.
Germany had been holding out against proposals to offer Greece bilateral loans because opinion polls show Germans do not want Berlin to be the main paymaster. Read the rest of this entry »
The Carry Trade Can Be Unforgiving
Posted by Tetyana Matychak in Currency on March 2nd, 2010
Billions of dollars are wagered daily in the “carry trade,” in which traders sell the currencies of countries with low interest rates like the U.S. and Japan while simultaneously buying the currency of countries with higher rates like Australia and Brazil.
These arbitrage opportunities can persist for years at a time. But before you try your hand at the carry trade, be aware that currency values can change in seconds, causing sudden losses. And because currency trading typically involves heavy financial leverage—traders borrow as much as $500 for each dollar they invest to amplify results—the carry trade can rapidly become the scary trade.
That is what happened in the fall of 2008, when traders suddenly rushed to the safety of U.S. dollars during the financial crisis. Those who had sold the dollar and Japanese yen to own higher-yielding currencies quickly piled up big losses as these other currencies sank in value. The losses wiped out several years’ worth of gains in the carry trade.
While amateur traders see the carry trade as a road to riches, “I see it as a way to get broke,” says Amarjit Sahota, chief executive at HiFX Inc., which helps companies and individuals manage currency exposure. Read the rest of this entry »
US Dollar Likely to Continue Upward Swing This Week
Posted by Tetyana Matychak in Currency on December 21st, 2009
The dollar is likely to extend gains in the upcoming week, continuing to draw support from growing signs of a stable U.S. recovery as well as a Federal Reserve plan to wind down most of its emergency lending early next year.
Both factors have pushed the market’s U.S. interest rate expectations forward despite pronouncements from the Fed that it will keep interest rates low for an extended period.
The rate futures market Friday has priced in at least one quarter-point rate increase by the beginning of the second half next year. A few months ago, futures traders had factored in Fed tightening late in 2010.
“We see the U.S. economy continuing to recover and monetary policy settings starting to move back to normal,” said Nick Bennenbroek, head of FX strategy at Wells Fargo in New York.
“Although our economics team does not expect actual rate tightening to take place until late in 2010, the withdrawal of non-conventional measures could start tipping the scales in the dollar’s favor,” he added. Read the rest of this entry »
WORLD FOREX: Euro Choppy After Middling US Retail Sales Data
Posted by Tetyana Matychak in Currency, Favourites on November 17th, 2009
The euro traded in choppy waters early in New York Monday, after a slight improvement in U.S. retail sales failed to spark an extension of its overnight gains.
The retail sales report came on the heels of data that showed an expansion in Japanese economic activity, which set the stage for the euro and other higher-yielding currencies to rise against the low-yielding dollar.
But until more convincing data supporting the global economic recovery are released, the euro and its higher-yielding counterparts are likely to remain in their recent ranges, analysts said.
With the morning’s U.S. economic reports out of the way, attention will shift to the 12:15 p.m. EST speech of Federal Reserve Chairman Ben Bernanke in New York for clues as to any changes in monetary policy or the state of the U.S. economy. Read the rest of this entry »
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Consumer Spending in U.S. Rises More Than Forecast
30 August 2010
Monetary Policy Gets No Respect
19 July 2010
Stocks May Surprise By Year-End
5 July 2010Is A Global Reserve Currency A Necessity?
28 June 2010
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