Archive for category Currency
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 »
Euro Advances Against Yen, Dollar on Signs of Economic Recovery
Posted by Tetyana Matychak in Currency, Favourites on November 2nd, 2009
The euro rose against the yen and the dollar as signs the global economy is recovering trimmed demand for the relative safety of the U.S. and Japanese currencies.
The Australian dollar climbed against all 16 most-traded currencies as Treasurer Wayne Swan said economic growth will be faster than expected and a government report showed house price increases accelerated. Japan’s currency earlier rose to the strongest level in three weeks against the dollar and the euro after New York-based CIT Group Inc. filed for bankruptcy.
“Global data still suggest that the economy is on the mend,” said Minoru Shioiri, chief manager of foreign exchange trading at Mitsubishi UFJ Securities Co. “The underlying need to invest in higher-yielding currencies through carry trades remains intact.”
The euro earlier fell to 131.01 yen, the least since Oct. 9, before trading at 132.91 as of 7:34 a.m. in London from 132.61 in New York on Oct. 30. The yen was little changed at 90.12 per dollar, after touching 89.20, the strongest level since Oct. 14.
Japan’s currency slid to 81.47 per Australian dollar from 81.05 last week, after rising to 79.47, the most since Oct. 8. Australia’s currency fetched 90.42 U.S. cents from 89.97 cents. New Zealand’s dollar was at 72.02 U.S. cents from 71.81 cents last week. Read the rest of this entry »
Dollar Falls on Global Recovery
Posted by Tetyana Matychak in Currency, Favourites on October 26th, 2009
The dollar fell and metals rose, driving copper to a 13-month high, as South Korea’s fastest economic growth in seven years and profits that almost doubled at Electrolux AB signaled the global recovery is accelerating.
The dollar declined against 13 of the 16 most-traded currencies tracked by Bloomberg as of 11:20 a.m. in London. Copper climbed as much as 1.2 percent to $6,728 a metric ton in London, while zinc rallied for a ninth day. South Korea’s Kospi Index advanced 1 percent and futures on the Standard & Poor’s 500 Index added 0.2 percent.
South Korea’s gross domestic product increased 2.9 percent in the third quarter from the previous three months, beating the 1.9 percent median estimate of economists surveyed by Bloomberg. Copper rose to the highest level since September 2008 after refined imports by China expanded for the first time in three months. Electrolux, the world’s second-biggest household appliance maker, topped analysts’ profit estimates as sales of consumer products in North America climbed.
“Risk appetite is increasing and we can expect more earnings surprises,” said Beat Siegenthaler, chief emerging- market strategist at TD Securities Ltd. in London. “That’s bad for the dollar.”
The dollar fell as low as $1.5063 per euro, the weakest level since August 2008. The U.S. currency also slid to 91.78 yen from 92.06 yen, helping send IntercontinentalExchange Inc.’s Dollar Index 0.2 percent lower to 75.32. Read the rest of this entry »
Watching those dollar correlations
Posted by Tetyana Matychak in Currency, Favourites on October 12th, 2009
The dollar’s decline — enough so far to trigger intervention from some Asian central banks — should dominate investors’ attention in the coming week if only because of the way it is so closely matched with other assets.
There was a near-perfect negative correlation between the dollar index .DXY, which tracks the greenback against a basket of major currencies, and world stocks as measured by MSCI .MIWD00000PUS in September and early October.
In other words, when the dollar was weak, global stocks nearly always rose, or vice versa.
While this link has eased a bit in the last week, it is still very strong — meaning that dollar-boosting comments such as those on Thursday from Federal Reserve chief Ben Bernanke still have a particularly strong spillover potential.
Bernanke reminded investors that the Fed had the tools at hand to pull back the flood of money it has released into the market — the so-called exit strategy — although it was not likely to act immediately.
Dollar weakness has also been behind the sharp rise in gold prices, which are now at record non-inflation adjusted highs well above $1,000 an ounce. Read the rest of this entry »
Euro weakens as European Union grows wary of currency’s rise
Posted by Tetyana Matychak in Currency on October 2nd, 2009
The U.S. dollar was on the rise Thursday, gaining ground versus the euro after European Union officials signaled discomfort with the single currency’s recent rise.
According to news reports, E.U. Economic and Monetary Affairs Commissioner Joaquin Almunia said finance ministers from the 16 nations that share the euro would discuss the currency’s rise in order to prepare a common position ahead of a meeting of Group of Seven officials in Istanbul this weekend.
The move sent the euro tumbling through the $1.46 level versus the dollar. Following on the heels of similar remarks by French President Nicolas Sarkozy at the Group of 20 summit in Pittsburgh last week, the remarks indicate European authorities are becoming increasingly worried about the euro’s ongoing rise versus the dollar, said Boris Schlossberg, director of currency research at GFT.
The euro (CUR_EURUSD 1.46, -0.01, -0.53%) traded at $1.4546, down from $1.4634 in afternoon trade in New York Wednesday. The single currency notched new one-year highs versus the dollar last month and rose 3.9% in the third quarter.
The euro had traded below $1.25 in March, before beginning a steady upward March as global equity markets began a rebound and investors showed a steady rise in risk appetite. Read the rest of this entry »
Dollar gets modest boost from rising trade tensions
Posted by Tetyana Matychak in Currency on September 15th, 2009
The U.S. dollar got a modest lift versus the euro and most other major currencies Monday, with rising U.S.-China trade tensions prompting investors to unwind some short positions on the beleaguered greenback.
China said Sunday it would launch an anti-dumping investigation into U.S. sales of chicken and auto products, a move apparently in response to Washington’s decision to impose punitive sanctions on Chinese tire imports late last week.
“Talk of rising trade tensions after President Obama announced tariffs on Chinese imports may have acted as a catalyst [for a dollar rebound], but the move is unlikely to lead to a trade war,” wrote strategists at Brown Brothers Harriman. “So far the dollar’s recovery has been muted.”
The euro traded at $1.4558 versus the dollar in recent action, down from $1.4587 in North American trade late Friday. Rising risk appetite last week helped push the euro to a new high for the year above $1.46.
The British pound changed hands at $1.6553, down from $1.6685. Read the rest of this entry »
Stocks Retreat Before U.S. Jobs Report as Yen, Dollar Advance
Posted by Tetyana Matychak in Currency, Favourites on July 2nd, 2009
European stocks and U.S. index futures fell while the yen and the dollar rose on speculation a report today will show that America’s unemployment rate climbed to the highest level since 1983.
The MSCI World Index of 23 developed countries slipped 0.6 percent at 9:21 a.m. in London, while Standard & Poor’s 500 Index futures slipped 0.5 percent. The yen and the dollar strengthened 0.3 percent against the euro.
The U.S. jobless rate may have risen to 9.6 percent last month, economists surveyed by Bloomberg News said before today’s Labor Department report. That increase would suggest the $12.8 trillion pledged by the U.S. government and the Federal Reserve is doing little to shore up the labor market. The European Central Bank probably will keep borrowing costs at a record low to battle the recession, while Sweden’s Riksbank unexpectedly cut its benchmark rate to 0.25 percent today.
“People have become a little bit too optimistic,” Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels told Bloomberg Television. “People will be disappointed. Gradually over the summer and into the autumn we will move lower,” he said. Read the rest of this entry »
Euro-Zone Unemployment Rate Hits 10-Year High
Posted by Tetyana Matychak in Budget, Currency on July 1st, 2009
The unemployment rate in the 16 countries that use the euro rose more than expected and to the highest level for a decade in May as more companies laid off staff in a bid to survive the deepest recession since World War II, official data showed.
The euro-zone jobless rate rose to 9.5% in May from an upwardly revised 9.3% in April, the highest level since May 1999 and 2.1 percentage points higher than in May last year, the European Union’s Eurostat statistics agency said.
The increase was stronger than the market consensus estimate of a rise to 9.4% from a Dow Jones Newswires survey of economists last week. April’s jobless rate was also revised up from 9.2% reported last month.
Eurostat said 273,000 people joined unemployment queues across the euro zone in May, bringing the total number of jobless to 15 million, more than the entire populations of Austria and Ireland combined.
The rise in the number of people out of work darkens the outlook for consumer spending and suggests it may take longer for the region to recover from recession. Read the rest of this entry »
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