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Dollar, Euro, Pound & Yen

00:12 Tuesday 15 June, 2010

The pound rose and gilts fell after reports predicting faster economic growth and a narrower-than- forecast budget deficit spurred speculation the Bank of England will have to raise interest rates.

Sterling advanced to a one-month high versus the dollar after policy maker Andrew Sentance said officials face “interesting debates” in the second half of 2010 on how long to keep up stimulus. The Confederation of British Industry, the U.K.’s biggest business lobby, raised its forecast for gross domestic product. The Office for Budget Responsibility said the deficit will narrow to 71 billion pounds ($105 billion) by April 2015, from 155 billion pounds this fiscal year.

“We’re getting increasingly positive comments,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “Sovereign risk has clearly been a driver of risk retreat and there’s a relief to some extent that lawmakers are getting on with” tackling the U.K. budget deficit, he said.

The pound rose 1.3 percent to $1.4735 as of 2:53 p.m. in London after reaching $1.4789, the highest level since May 13. It was 0.2 percent stronger at 83.08 pence per euro. Sterling advanced against all but four of its 16 most-traded peers.

00:08 Tuesday 15 June, 2010

Canada’s dollar rose to the highest level this month and government bonds dropped as concern eased that the global economic recovery will stall.

The loonie, as the currency is sometimes known, rose 3 percent last week, the most in eight months, on speculation economic growth will fuel demand for the nation’s raw materials.

“There seems to have been a spillover of positive sentiment from Friday,” David Watt, senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest bank, said in an e-mail message.

The currency gained as much as 0.7 percent to C$1.0251 per U.S. dollar, the strongest level since May 18, before trading at C$1.0253 at 10:15 a.m. in Toronto, from C$1.0322 on June 11. One Canadian dollar buys 97.53 U.S. cents.

The MSCI World Index, a gauge of equities in 23 developed nations, climbed 1.1 percent. Crude oil for July delivery rose as much as 3 percent to $75.99 a barrel on the New York Mercantile Exchange.

“Stronger equities and crude are helping to lift the loonie,” Michael Leavitt, a Montreal-based institutional- derivatives broker at MF Global Holdings Ltd., said by e-mail. “This week, domestic headlines are few, so foreign headlines and equities should lead the way for the currency.”

00:04 Tuesday 15 June, 2010

The euro’s gain to a one-week high versus the dollar may be a “false friend” setting the currency up for a drop to $1.1875 if it doesn’t rally further, according to UniCredit SpA.

Its increase from a four-year low of $1.1877 reached June 7 may be a “fragile pullback” if it doesn’t break above $1.2290, a level that provides a test of the rebound’s momentum, UniCredit analysts led by Roberto Mialich in Milan wrote today in a research note.

The euro gained 1 percent to $1.2229 at 12:13 p.m. in London, after earlier rising to $1.2259, the highest level since June 3. Europe’s currency gained 1.2 percent to 112.28 yen after touching 112.67, the highest since June 4. The Stoxx Europe 600 Index rose for a fourth day, advancing 0.9 percent.

“We’re skeptical about this rebound,” Mialich said in an interview. “The bounce in equity markets created a positive sentiment, which is reducing the selling pressure on the euro. But the underlying weaknesses remain.”

00:00 Tuesday 15 June, 2010

The biggest currency fluctuations since the aftermath of the collapse of Lehman Brothers Holdings Inc. are signaling waning confidence in the economic recovery and prospects for a rebound in the euro.

The euro’s 15 percent plunge against the dollar this year sparked a 6 percent loss for bets tied to foreign-exchange price volatility, according to Royal Bank of Scotland Group Plc indexes. That’s the worst performance among four currency strategies tracked by RBS and compares with a 22 percent gain last year, when the global economy rebounded.

Europe’s sovereign-debt crisis, the failure of regional leaders to improve sentiment toward the euro and diverging growth rates around the world means elevated volatility for years, according to UBS AG, the world’s second-biggest currency trader. Less predictable foreign-exchange levels may endanger the recovery by driving up short-term rates, even as a weaker euro stimulates exports, the Zurich-based bank said.

“The sources of concern won’t go away anytime soon,” said Dale Thomas, head of currencies in London at Insight Investment Management Ltd., which oversees about $144 billion. “We’re defensive and still don’t like the euro.” Thomas said he owns the Swiss franc and the Japanese yen.

09:21 Monday 14 June, 2010

Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements.

Currency collapses are associated with permanent output losses of about 6 percent of GDP, on average, though the drop tends to appear beforehand, the Basel, Switzerland-based BIS said in its quarterly review yesterday.

“This suggests that it may not be the currency collapse that reduces output, but rather the factors that led to the depreciation,” Camilo E. Tovar wrote in the study. “To gain a full understanding of the implications of currency collapses on economic activity it is important to carefully examine the full circle of events surrounding the episode.”

The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said.

“They also occurred under all types of currency regimes, except possible floating-exchange-rate regimes, where there are simply too few observations to obtain meaningful estimates,” the BIS said.

09:15 Monday 14 June, 2010

The yen fell for a third day against the euro on signs the global economic recovery is gaining momentum, spurring demand for riskier investments.

Japan’s currency weakened versus all 16 of its major counterparts as speculation stocks will extend last week’s advance prompted investors to buy higher-yielding assets. The euro rose to its highest level in a week against the dollar before a European report that economists said will show industrial production expanded for an 11th month.

“The outlook for economies worldwide to rebound is still intact,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The bias is for the yen to be sold and the euro may also be bought.”

The yen declined to 111.67 per euro as of 8:18 a.m. in Tokyo from 111.00 in New York on June 11. Japan’s currency traded at 91.70 per dollar from 91.65. The euro climbed to $1.2183 from $1.2112, after earlier reaching $1.2198, the strongest since June 4.

08:22 Monday 14 June, 2010

China’s gains in retail sales, consumer prices and industrial production countered the government’s assessment that the recovery isn’t “solid,” and put more pressure on policy makers to let the yuan rise.

Inflation accelerated to an annual 3.1 percent pace in May, surpassing officials’ target for the full year, retail sales gains quickened to 18.7 percent and industrial production jumped 16.5 percent, government reports showed yesterday in Beijing. The central bank said in a June 8 statement China still doesn’t have a “solid” recovery in domestic demand.

The indicators build the case for a stronger currency to help alleviate price pressures and quiet criticism that Premier Wen Jiabao’s government has a mercantilist policy that’s hurting the global recovery. American lawmakers said they’ll go ahead with legislation targeting the yuan peg just as U.S. and Chinese leaders prepare to meet at a Group of 20 summit this month.

“China’s recovery is clearly on track and overheating risks are still building as inflation accelerated and money and investment growth remains strong,” said Kevin Lai, a Hong Kong- based economist at Daiwa Capital Markets. “The government should move on the currency as soon as possible before pressure from the U.S. intensifies again.”

08:16 Monday 14 June, 2010

The euro ended its longest stretch of weekly losses against the yen since the shared currency was created as investor appetite for riskier assets improved on signs Europe’s debt crisis is unlikely to derail global growth.

The yen fell against 15 of its 16 most-traded counterparts as stock and oil gains boosted demand for currencies linked to growth. Data showed economic expansion in Asia is accelerating. Expectations for future volatility among major currencies fell to a three-week low even as the euro swung between gains and losses over the past five days. U.S. consumer prices fell for a second month in May, a report next week is forecast to show.

“Good economic data reassures the market that even though the euro zone has a host of problems, the impact on growth may be offset by the currency and Europe’s growth might not be as bad as people thought,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto. “China’s growth, though dented by Europe, hasn’t been derailed, and that’s good for risk appetite.”

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