Pound Rebounds Versus Euro After BOE Relaxes Bank Lending Rules
By Anchalee Worrachate
Sept. 13 (Bloomberg) -- The pound rallied against the euro, erasing earlier losses, on speculation the Bank of England's move to ease the lending drought in the credit market may alleviate the effect of the financial crisis on U.K. economic growth.
The central bank today relaxed restrictions on the amount of money financial institutions need to hold with the central bank, encouraging them to lend more to each other. The pound earlier fell to a 14-month low against the euro on speculation the credit market crisis, which has pushed up money market lending rates, will crimp expansion.
``The Bank of England is clearly aiming to reduce the overnight rate,'' said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh. ``This might be a small step but it's very well-received by the market and is positive for the pound, at least for now.''
The pound rose to 68.45 pence by 4:40 p.m. in London from 68.51 pence yesterday, after falling to as low as 68.75 pence earlier, its lowest since July last year. The currency was little changed against the dollar at $2.029.
The new BOE's rule will allow commercial banks, which agree to hold a specific amount of money at the central bank at the end of each monthlong maintenance period, to undershoot that target by 37.5 percent and still earn interest at the benchmark rate. That compares with the previous restriction of just 1 percent.
The overnight Libor for pounds fell 3 basis points to 5.87 percent. The three-month rate declined 2 basis points to 6.88 percent, still near its highest since 1998.
The pound fell earlier as a report showing U.K. house prices declined for the first time since 2005 stoked speculation five interest-rate increases by the BOE in the past year are cooling the housing market.
Gilt Auction
Gilts erased earlier gains after the BOE relaxed its deposit rules and as a five-year bond auction drew lower demand than expected.
The Debt Management Office sold 2.5 billion pounds of a 5.25 percent gilt maturing in 2012. The sale drew bids 1.98 times the amount of securities on offer, compared with an average bid-to- cover ratio of 1.66 times in the previous two auctions.
Gilts sold off as some traders had expected stronger bids on speculation the financial market crisis would boost demand for safest assets, said Richard McGuire, London-based strategist at Royal Bank of Canada, which is one of the DMO's 17 gilt primary dealers.
`Impressive' Result
``The auction was taken down without any difficulty, but it's not quite the impressive result that we in the market had been looking for,'' said McGuire. ``We expected the financial market backdrop to drive demand for short-dated safe-haven assets.''
The two-year gilt yield rose 10 basis points to 5.14 percent after falling to 5.03 percent, its lowest since December. Bond yields move inversely to prices.
The 10-year gilt yield rose 3 basis points to 4.92 percent. The price of the 4 percent bond maturing September 2016 fell 0.19, or 1.9 pounds per 1,000-pound face amount, to 93.35.
Still, gilts outperformed European debt on speculation Britain's interest rates have peaked. The extra yield investors demand for holding 10-year gilts over the equivalent German bund fell to 75 basis points today, the narrowest in a year.
The yield on the December interest-rate futures contract fell 9 basis points to 6.31 percent. The contract settles to the three-month London interbank offered rate for the pound, which has averaged about 15 basis points more than the central bank's key rate for the past decade.
The June 2008 contract rose by 6 basis points, suggesting investors are scaling back their expectations that the central bank may need to cut interest rates next year.
Yen Declines Versus Euro on Risk Appetite and Japanese Politics
Sept. 13 (Bloomberg) -- The yen fell the most against the dollar and euro in more than two weeks as investors took advantage of political uncertainty in Japan and increasing risk appetite to buy assets funded by loans in the country.
Japan's yen fell versus all 16 most-active currencies as global stocks gained and the unexpected resignation of Prime Minister Shinzo Abe yesterday raised speculation whether the Bank of Japan will boost interest rates this year. The dollar rose after reaching a record low versus the euro as a technical gauge showed the U.S. currency may be poised to rally.
``Political disorder in Japan is entering the mix and is adding to the pressure on the yen,'' said Greg Salvaggio, vice president of capital markets at currency-trading company Tempus Consulting in Washington. ``The BOJ has proven to be unwilling to move in times of political turmoil and is likely to take a wait- and-see approach following Abe's resignation.''
The yen fell 0.9 percent to 115.27 versus the dollar at 12:56 p.m. in New York. It declined 0.8 percent to 160.18 versus the euro. The dollar rose to $1.3895 per euro, from $1.3904 yesterday, after trading at a record low of $1.3927 earlier.
Investors' appetite for risk rose as the Dow Jones Industrial Average gained 1.1 percent to 13,430.98 while the Standard & Poor's 500 Index increased 0.9 percent to 1,485.19. Stocks in Europe and Asia also strengthened.
The yield on three-month euro-yen December futures has fallen to 0.81 percent from 1.03 percent two months ago as investors pare expectations of rate increases by the BOJ.
`Unlikely to Raise'
``The question is whether the new government will press the BOJ to keep rates on hold to spur growth,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``Unless U.S. growth improves, and the growth picture in Japan improves, which I don't think we will have in the next few months, the BOJ is unlikely to raise rates.''
Japan's economy contracted at a 1.2 percent annual rate in the three months ended June 30, almost twice the pace forecast by analysts, the Cabinet Office said in Tokyo this week. The government initially forecast a 0.5 percent expansion.
The BOJ's key overnight lending rate of 0.5 percent is the lowest among major economies, encouraging investors to put on so- called carry trades in which they borrow in countries with low interest rates, such as Japan, to invest in higher-yielding assets elsewhere. Higher borrowing costs in Japan would decrease the profitability of the trade.
The benchmark rate is 11.25 percent in Brazil and 6.5 percent in Australia. The yen fell 1.8 percent versus the Brazilian real and 0.8 percent against the Australian dollar.
The Japanese currency fell 1.6 percent versus the New Zealand dollar after its central bank left the key interest rate at a record-high 8.25 percent today.
Swiss Franc
The Swiss franc, a popular funding source for the carry trades, fell even after policy makers raised borrowing costs a quarter-percentage point today to 2.75 percent. It declined to 1.6487 versus the euro, from 1.6475 yesterday.
Goldman Sachs Group Inc.'s Global Alpha hedge fund fell 22.5 percent in August. Its biggest losses stemmed from selling the yen and buying Australian dollars. The carry trade unraveled when the Australian dollar fell 6 percent against the yen in August, according to an update sent to investors.
The dollar has lost 3.3 percent versus the euro since Aug. 16, pushing the 14-day relative strength index for the dollar against the euro to 68.93, up from about 32 on Aug. 16. A reading above 70 indicates a reversal may occur.
Decreases in interest rates on interbank loans and commercial paper indicated some resumption in lending after the past month's losses in asset-backed securities.
Three-month Libor, a key indicator of bank willingness to lend, decreased to 5.69 percent, the lowest since Sept. 3, from 5.70 percent, the British Bankers' Association said.
`Dollar Strength'
``You may see some short-term dollar strength against the euro as investors are waiting for what the Fed is going to do next week,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York
Fitzpatrick sees ``heavy'' option barriers between $1.3940 and $1.40 slowing further losses. The options are put in place by traders betting the dollar won't fall past that point, and they will protect these wagers by dollar buying once the currency approaches these levels.
Traders lowered bets the Fed will cut its benchmark interest rate to 4.75 percent from 5.25 percent at its Sept. 18 meeting.
Interest-rate futures show 60 percent odds the Fed will lower borrowing costs by half a percentage point, down from 74 percent yesterday.
Pound Versus Euro
The pound rallied from a 14-month low versus the euro on speculation the Bank of England's move to ease the lending drought in the credit market today may alleviate the effect of the financial crisis on U.K. economic growth.
The pound gained to 1.4601 against the euro, from 1.4596 yesterday.
Turkey's lira, the best performer among emerging-market currencies versus the euro and dollar in the last six months, continued to gain even after the central bank unexpectedly lowered its benchmark interest rate by a quarter-percentage point to 17.25 percent today. The lira has jumped 13.4 percent versus the dollar and 7.8 percent against the euro the last six months.
Yen Volatility Falls to 3-Week Low on Easing Credit Concerns
By Kosuke Goto
Sept. 13 (Bloomberg) --Volatility on options for the yen versus the dollar fell to a three-week low as concerns eased that credit-market losses will deepen.
Volatility, a gauge of expected exchange-rate fluctuations, slid for a third day as the risk of owning corporate bonds declined in Europe and the U.S., prompting traders to decrease the demand for options to hedge against further strength in the yen. So-called risk-reversal rates on dollar-yen options show traders paid the smallest premium in almost a month for yen calls, which grant the right to buy the currency, versus puts, giving the right to sell.
``With the markets calming down, traders are hardly expecting any panic yen-buying,'' said Ryousei Ishida, senior vice president of foreign-exchange options at Mizuho Corporate Bank Ltd. in Tokyo. ``Speculation the dollar-yen will trade in a small range is pushing down the volatility.''
Implied volatility on one-month dollar-yen options fell to 11.53 percent as of 3:59 p.m. in Tokyo, the lowest since Aug. 23, from 12.50 percent yesterday.
The risk-reversal rate on one-month options was at minus 3.4 percent compared with minus 4.4 at the beginning of the month. A negative value indicates greater demand for yen calls.
Declining Risk
Volatility reached 23.50 percent on Aug. 17, the highest since January 1999, and the risk reversal rate reached minus 6.5 as traders dumped investments funded by loans in Japan. The yen touched the strongest since June 2006 the same day as traders were spooked by a rout in credit markets stemming from losses in securities tied to U.S. subprime mortgages.
The yen was little changed at 114.28 per dollar following a 3.2 percent gain the past month.
The risk of owning U.S. and European corporate bonds fell yesterday, according to traders of credit-default swaps.
Contracts on the CDX North America Investment-Grade Index, a benchmark for the cost of protecting investment-grade bonds from default, decreased 1 basis point to 74 basis points, according to Phoenix Partners Group in New York. A fall signals improving perceptions of credit quality.
Credit-default swaps on the iTraxx Europe Index of 125 companies with investment-grade debt also slid 1.75 basis points to 52.25 basis points, according to JPMorgan Chase & Co.
Contracts on the iTraxx Crossover Series 7 Index of 50 European companies with mostly high-risk, high-yield credit ratings decreased 4 basis points to 349 basis points, JPMorgan prices show. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Carry Trade
Falling volatility may drive the yen lower by giving investors confidence to borrow in Japan, where the benchmark interest rate is 0.5 percent, and buy assets in higher-yielding markets, known as carry trades.
The yen may also fall on signs the U.S. and European asset- backed commercial paper market is improving and global stock markets stabilizing, reviving confidence of investors to buy riskier assets funded by loans in Japan, according to Kosuke Hanao, head of foreign exchange in Tokyo at HSBC Bank.
The U.S. and European asset-backed commercial paper market is showing signs of improving following a monthlong slide, the American Securitization Forum and the European Securitisation Forum said in a statement yesterday.
`Calming Down'
The Morgan Stanley Capital International Asia-Pacific Index of shares has gained 10.4 percent from a seven-month low on Aug. 17. The 10-day historical volatility of the index was at 10 percent, down from the 40.2 percent reached Aug. 27, the highest since May 2004.
``The ABCP market is doing relatively well, so is the equity market in emerging economies,'' Hanao said. ``The markets are calming down. This will encourage the yen carry trade, pushing up yen-crosses.''
The yen may fall to as low as 115 per dollar today, he said.
In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.
Dollar Declines to All-Time Low Versus Euro on Slowing Economy
By Lukanyo Mnyanda and Ron Harui
Sept. 13 (Bloomberg) -- The dollar fell to an all-time low against the euro on speculation signs of slowing U.S. economic growth will prompt the Federal Reserve to cut interest rates, reducing the appeal of assets denominated in the U.S. currency.
The dollar is poised for the longest losing streak since October 2004 as investors increase bets the Fed will cut its target rate on Sept. 18. A government report today will probably show U.S. jobless claims rose this month. The euro also gained as a report showed inflation in France, the second-largest of the 13 economies sharing the currency, quickened last month.
``We're still in a weak dollar environment,'' said Mitul Kotecha, head of currency strategy at Calyon in London. ``Concerns about the U.S. economy have intensified and that's played negatively for the dollar.''
The dollar was at $1.3906 per euro at 11:08 a.m. in London from $1.3904 in New York late yesterday after trading at a record low of $1.3927. The dollar bought 114.68 yen from 114.25 yen and was at $2.026 versus the British pound from $2.0291.
The Labor Department in Washington will say initial jobless claims rose by 7,000 to 325,000 in the week ended Sept. 8, according to a Bloomberg News survey of 43 economists. That may cause investors to raise bets the Federal Open Market Committee will trim the main lending rate next week from 5.25 percent.
``The focal point for investors remains the FOMC meeting next week,'' said Kamal Sharma, a currency strategist at Bank of America in London. ``The bias remains for a weak dollar.''
Rate Cut Expectations
Interest-rate futures show 74 percent odds policy makers will lower borrowing costs half a percentage point to 4.75 percent. A month ago, traders expected a quarter-point cut. The equivalent rate in the euro zone is 4 percent.
Investors have this week increased bets the European Central Bank will increase its key rate this year after the bank vowed to keep ``upside'' inflation risks at bay. A report today showed prices in France rose by the most in four months.
``The medium-term outlook for price stability remains subject to upside risks,'' the Frankfurt-based ECB said in its monthly bulletin published today. ``By acting in a firm and timely manner, the governing council will ensure that risks to price stability over the medium term do not materialize.''
ECB council member Guy Quaden told the De Tijd newspaper in an interview that a squeeze on credit caused by concern over losses linked to U.S. subprime mortgages may have ``negative consequences'' on the U.S. economy.
Banks and companies are seeking to refinance about $700 billion of commercial paper in the U.S. currency this week, analysts led by Michael Hart at Citigroup Inc. wrote in a research report on Sept. 11. Borrowers in the commercial paper market are struggling to sell new notes because of concern some of the short-term debt is linked to subprime-mortgage assets.
Euribor Futures
The implied yield on the December Euribor futures contract has risen 8 basis points since the end of last week and was at 4.53 percent today. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 18 basis points above the ECB's key rate since 1999.
``Oil is surging, so there's an upside risk to inflation in Europe,'' said Hideaki Inoue, chief manager of derivatives and fixed-income investment at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ``The ECB is hawkish, so rates are likely to go up.'' The euro may rise to $1.3950 and 159.50 yen today, he said.
Crude for October delivery was at $79.80 a barrel on the New York Mercantile Exchange at 9:37 a.m. in London, after yesterday rising above $80 a barrel for the first time. Higher prices may increase import prices in the $10.4 trillion euro- zone economy and increase pressure on the ECB to raise rates.
Yen Weakens
The yen weakened as Japanese investors put money into more than 2.4 trillion yen ($21 billion) of mutual funds marketed this month to lure investment in overseas assets, according to data compiled by Bloomberg.
New Zealand's central bank left its key rate at a record- high 8.25 percent today, as predicted by all 14 economists surveyed by Bloomberg, pushing the yield spread with two-year Japanese bonds to 6.05 percentage points from 6.01 percentage points yesterday. The Bank of Japan's key overnight lending rate of 0.5 percent is the lowest among major economies. The benchmark rate is 6.50 percent in Australia and 5.75 percent in the U.K.
``The speed may have slowed, but there are constant capital outflows by Japanese retail investors related to investment trust funds,'' said Junya Ota, who oversees the equivalent of about $7 billion at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest lender. ``This is stemming the yen's appreciation.''
The yen traded at 82.06 against New Zealand's dollar from 79.91 a week ago. It also was at 96.65 versus Australia's dollar from 95.66 on Sept. 6 and at 232.22 a British pound from 231.84 yesterday. It may fall to 117 per U.S. dollar by year-end, Ota forecast.
Japanese investors bought 1.4 trillion yen more foreign bonds than they sold during the week ended Sept. 8, the most since October 2005, according to figures based on reports from designated major investors released today by the Ministry of Finance in Tokyo.
Swiss Franc Gains Against Dollar, Euro Before SNB Rate Decision
By Agnes Lovasz
Sept. 13 (Bloomberg) -- The Swiss franc rose to its highest against the dollar in almost 2 1/2 years on speculation the central bank will lift interest rates today to ward off inflation.
The franc also snapped three days of losses against the euro before Swiss National Bank policy makers are expected to raise rates a quarter point to 2.75 percent, according to a Bloomberg News survey of economists. This would make the franc less popular to carry trade investors, who sell the currency to fund higher- yielding purchases elsewhere.
``They are going to raise rates because they are very focused on normalizing monetary policy,'' said Niels From, a currency strategist at Dresdner Kleinwort in Frankfurt. ``The focus will be on the comments after the meeting and the baseline is they're going to hike further. The franc could gain ground.''
Against the dollar, the franc advanced to 1.1814, the highest since April 2005, and was trading at 1.1821 by 11:16 a.m. in Zurich. It rose to 1.6455 per euro, from 1.6475 yesterday.
The Zurich-based central bank has raised borrowing costs seven times since 2005 and has signaled it's prepared to lift them again. The decision is due at 2 p.m. local time.
Switzerland's main rate is the second lowest among major economies after Japan. The franc has risen 2.1 percent this month against its U.S. counterpart as investors shunned high-yielding assets funded with loans in the Swiss and Japanese currencies on concern the collapse of the U.S. subprime mortgage market will drag down global economic growth.
In a carry trade, investors borrow funds in a country with low borrowing costs and convert the proceeds into a currency they can lend out a higher rate. They earn the spread between the borrowing and lending rates. The risk is that currency market moves may erase their profit.
Swiss government debt advanced, with the yield on the 4.25 percent bond due June 2017 falling 3 basis points to 2.80 percent. Yields move inversely to bond prices.
Dollar Trades Near All-Time Low Versus Euro on Slowing Economy
By Ron Harui and Kosuke Goto
Sept. 13 (Bloomberg) -- The dollar traded near an all-time low versus the euro on signs U.S. economic growth is slowing, suggesting an interest-rate advantage over Europe will narrow.
The currency is poised for the longest losing streak since October 2004 as investors increase bets the Federal Reserve will reduce its target rate next week. Faster wage growth signaled borrowing costs in Europe may rise, while a U.S. government report today will probably show higher unemployment claims.
``The dollar is likely to continue falling with the potential rate cut in the U.S.,'' said Jonathan Cavanagh, a strategist at Westpac Banking Corp. in Sydney. ``The European Central Bank has a tightening bias, which puts them at a favorable differential to the U.S.''
The dollar traded at $1.3901 per euro at 9 a.m. in London from $1.3904 late in New York yesterday, when it declined to a record low of $1.3914. The dollar bought 114.46 yen from 114.25 yen and was at $2.0268 versus the British pound from $2.0291.
The U.S. currency may extend this month's 2 percent decline versus the euro as the Labor Department will probably report in Washington today initial jobless claims rose by 7,000 to 325,000 in the week ended Sept. 8, according to a Bloomberg News survey of economists.
Interest-rate futures show 74 percent odds the Fed will lower borrowing costs half a percentage point to 4.75 percent. A month ago, traders expected a quarter-point cut.
The dollar also may weaken after ECB council member Guy Quaden told the De Tijd newspaper in an interview that the subprime-mortgage crisis may have ``negative consequences' on the U.S. economy.
``The subprime loan problem is the main worry for investors,'' said Xing Wei, a currency dealer at Shinsei Bank Ltd. in Tokyo. ``The dollar may be sold'' to $1.3950 per euro and 114.00 yen today, she said.
Japanese Mutual Funds
Banks and companies are seeking to refinance about $700 billion of commercial paper in the U.S. currency this week, analysts led by Michael Hart at Citigroup Inc. wrote in a research report on Sept. 11. Borrowers in the commercial paper market are struggling to sell new notes because of concern some of the short-term debt is linked to U.S. subprime mortgage assets.
The yen weakened as Japanese investors put money into more than 2.4 trillion yen ($21 billion) of mutual funds marketed this month to lure investment in overseas assets, according to data compiled by Bloomberg.
New Zealand's central bank left its key rate at a record- high 8.25 percent today, as predicted by all 14 economists surveyed by Bloomberg, pushing the yield spread with two-year Japanese bonds to 6.05 percentage points from 6.01 percentage points yesterday. The Bank of Japan's key overnight lending rate of 0.5 percent is the lowest among major economies. The benchmark rate is 6.50 percent in Australia and 5.75 percent in the U.K.
`Constant Capital Outflows'
``The speed may have slowed, but there are constant capital outflows by Japanese retail investors related to investment trust funds,'' said Junya Ota, who oversees the equivalent of about $7 billion at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest lender. ``This is stemming the yen's appreciation.''
The yen traded at 81.52 against New Zealand's dollar from 79.91 a week ago. It also was at 96.21 versus Australia's dollar from 95.66 on Sept. 6 and at 231.95 a British pound from 231.84 yesterday. It may fall to 117 per U.S. dollar by year-end, Ota forecast.
Japanese investors bought 1.4 trillion yen more foreign bonds than they sold during the week ended Sept. 8, the most since October 2005, according to figures based on reports from designated major investors released today by the Ministry of Finance in Tokyo.
The euro may climb to a record against the dollar for a second day on speculation ECB council member Yves Mersch will reiterate policy makers' concern that inflation will accelerate. He speaks at 9 a.m. in Luxembourg.
ECB Rate Bets
Traders added to bets the ECB will raise interest rates to curb rising prices as crude oil advanced to a record high yesterday on concern storms in the Gulf of Mexico and the Atlantic will disrupt output.
``Oil is surging, so there's an upside risk to inflation in Europe,'' said Hideaki Inoue, chief manager of derivatives and fixed-income investment at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ``The ECB's hawkish, so rates are likely to go up. The euro is heading higher'' to $1.3950 and 159.50 yen today, he said.
The euro may gain for a fourth day versus the yen, the longest run since July 9, after ECB council member Erkki Liikanen said yesterday there's a risk inflation will accelerate as the region's economy continues to expand.
Crude oil for October delivery was at $79.76 a barrel today after the contract reached $80.18 yesterday, its highest intraday price since trading began in 1983.
The implied yield on the December Euribor futures contract was at 4.55 percent today, up from 4.54 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 18 basis points above the ECB's key rate since 1999.
Pound Falls Against Dollar on Signs House-Price Growth Slowing
By Anchalee Worrachate
Sept. 13 (Bloomberg) -- The pound fell versus the dollar as a survey showing U.K. house prices declined in August for the first time since 2005 stoked speculation three Bank of England interest-rate increases this year are slowing property gains.
The number of real-estate agents saying house prices fell exceeded those reporting gains by 1.8 percentage points, the Royal Institution of Chartered Surveyors said. The pound is near a four-month low versus the euro as higher borrowing costs from the U.S. subprime loan slump prompt traders to cut bets the U.K. central bank will lift rates again this year.
``We still expect the BOE to leave rates on hold over the next few months,'' said Nick Bate, economist at Merrill Lynch & Co. in London who used to work for the Treasury. ``With the underlying growth in the economy expected to weaken going forward, and inflation risk abating, we think the bank may cut rates towards the middle of 2008.''
The pound slipped to $2.0256 by 8:23 a.m. in London, from $2.0292 yesterday. It was also at 68.56 pence per euro, compared with 68.51 pence.
BOE Governor Mervyn King indicated yesterday the bank is reluctant to bail out the financial markets as it would encourage risk behavior in the future. His comments fuelled speculation the lending drought will drag on, hurting the economy and forcing it to cut rates.
The three-month rate banks charge each other for pounds held at its highest in nine years after King's comments.
Gilt Sale
Gilts gained before a five-year bond auction today. The Debt Management Office will sell 2.5 billion pounds of the 5.25 percent gilt maturing in June 2012.
Two-year gilt yields fell 2 basis points to 5.02 percent in London. The 10-year yield also slipped 2 basis points to 4.87 percent.
The yield on the December interest-rate futures contract fell 4 basis points to 6.36 percent. The March 2008 contact yield declined 5 basis points to 5.86 percent, indicating investors believe the BOE may cut rates next year.
The contract settles to the three-month London interbank offered rate for the pound, which has averaged about 15 basis points more than the central bank's key rate for the past decade.
Dollar Broke 1.39 vs Euro
The dollar broke the 1.39 handle against the euro on Wednesday on raising concerns about US economy and the Fed outlook. The sterling rose to as high as 2.03 versus the dollar.
The market focus has shifted from general risks aversion to US-economy related risk aversion. Last Friday's unexpectedly weak non-farm payrolls added to the worries about the US economy. It is still hard to measure how much impact the subprime and credit market crunch may have on the broad economy. The Fed needs to cut interest rates to avoid economic recession. The market has fully priced in an interest rate cut by the Fed on September 18 meeting. Most in the market has a bearish sentiment over the greenback.
The Fed is the only central bank that is going to lower the rates, while the ECB and BOE are expected to raise interest rates by at least once this year.
ECB Governing Council member Victor Constancio said on Wednesday that the central bank are keeping all options open, reinforcing expectations for a rate hike by the year-end.
Besides, oil set a record intraday high at 78.84 per barrel today, pushing the dollar down futher.
Tomorrow will see US weekly jobless claims, which is expected to increase from 318k to 325k.
EURUSD will face interim resistance at 1.3920, followed by 1.3950 and 1.3980. Additional ceilings will emerge at 1.40, backed by 1.4020. Support starts at 1.3880, backed by 1.3850, 1.3830 and 1.38. Subsequent floors are eyed at 1.3770.
GBPUSD encounters interim resistance at 2.03, backed by 2.0320 and 2.0350. Subsequent ceilings will emerge at 2.0380, followed by 2.04 and 2.0450. On the downside, support begins at 2.0280, followed by 2.0250 and 2.0220. Additional floors are eyed at 2.02, backed by 2.0180 and 2.0150.
USDJPY encounters interim resistance at 114.50, backed by 114.80 and 115. Subsequent ceilings will emerge at 115.30, followed by 115.50 and 115.80. On the downside, support begins at 114 and 113.80, followed by 113.50. Additional floors are eyed at 113.30, backed by 113 and 112.70.
By MG Finance Group
Australia Sep Inflation Expectations 3.1% Vs 3.8% In Aug
Australia Sep Inflation Expectations 3.1% Vs 3.8% In Aug
SYDNEY (Dow Jones)--A survey of inflationary expectations shows Australian consumers expect prices to rise 3.1% over the next 12 months, down from 3.8% in August.
The Melbourne University's Institute of Applied Economic and Social Research said Thursday the proportion of survey respondents expecting annual inflation to fall within the Reserve Bank of Australia's target band of 2.0% to 3.0% increased to 18.7% in September from 17.8% in August.
The survey uses the median rate for price rises expected over the next 12 months.
The institute said the RBA's 25 basis point cash rate hike to 6.5% in August appeared to have curbed inflationary expectations.
Australia's consumer price index rose 2.1% year-on year in the June quarter of 2007.
-By Sam Holmes
Japanese Bought Net Y1.39T Foreign Bonds Last Week
Japanese Bought Net Y1.39T Foreign Bonds Last Week
TOKYO (Dow Jones)--Japanese investors were net buyers of foreign bonds last week for the second week running, Ministry of Finance data showed Thursday.
They bought Y1.39 trillion of foreign bonds on a net basis in the week of Sept. 2-8, up from net purchases of Y140.1 billion the week before, according to the MOF's weekly portfolio flows data.
Japanese investors increased their buying last week amid growing speculation that the U.S. Federal Reserve would cut interest rates to help the economy fight off the effects of the subprime loan turmoil, market players said.
Meanwhile, Japanese investors remained net buyers of foreign stocks last week. They bought a net Y98.3 billion, compared with net purchases of Y66 billion the week before.
Elsewhere, foreign investors were net sellers of Japanese bonds for a second consecutive week. They sold Y95.9 billion of Japanese bonds last week, compared with net sales of Y52.5 billion the previous week.
Web site:
http://www.mof.go.jp/english/e1c009.htm
-By Hiroshi Inoue
