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Dollar, Euro, Pound & Yen

00:32 Thursday 3 June, 2010

The rate banks say they pay for three-month loans in dollars rose for the first time in three days as risk aversion in the wake of Greece’s debt crisis heightened institutions’ reluctance to lend to one another.

The London interbank offered rate, or Libor, for such loans rose to 0.5375 percent today from 0.53625 percent yesterday, according to data from the British Bankers’ Association. It reached 0.53844 percent on May 27, the highest level since July 6, amid speculation banks owned too many bonds from Europe’s most indebted nations.

“Today’s increase is marginal, although the ultimate trend is still higher,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London.

Libor has more than doubled this year as the European sovereign-debt crisis raised concern that bank creditworthiness was worsening, making financial firms less willing to provide funding to potentially risky counterparties.

The European Central Bank said two days ago that banks will have to write off more loans this year than in 2009 and their ability to sell bonds may be hampered as governments seek to finance fiscal deficits.

The ECB offered unlimited seven-day, fixed-rate dollar financing today in the fourth such operation since the Federal Reserve reopened dollar currency swaps on May 10 in an effort to ease funding pressures among euro-region lenders. The auction attracted no bidders. The ECB allotted $5.4 billion at the previous tender on May 26.

00:18 Thursday 3 June, 2010

The euro may decline further against the British pound after it closed below 84 pence yesterday, according to technical analysts at Citigroup Inc.

The 16-nation common currency will find support at about 82 pence, which represents the 76.4 percent Fibonacci retracement of its rally between October and December 2008, Citigroup technical analysts led by Tom Fitzpatrick in New York wrote in a note to clients.

Lows from November 2009 to January 2010 trend to create a “horizontal support” at just below 82 pence, according to the note. Support refers to areas on charts where buy orders may be clustered.

“A close below 0.84 is a bearish development which opens the way for further short-term losses,” the note said. “If tested, the 0.82 area should provide good support at least on first attempt.”

00:12 Thursday 3 June, 2010

European Commission President Jose Manuel Barroso called for a “commitment to keep the euro a strong and credible currency” during a news conference today in Vilnius.

22:30 Wednesday 2 June, 2010

European Central Bank Governing Council member Christian Noyer said the euro’s current exchange rate is “by no means an extraordinary level,” Germany’s Handelsblatt reported, citing an interview.

“The present exchange rate of the Euro vis à vis the dollar is close to the average of the last 10 years. So it is by no means an extraordinary level,” Noyer told the newspaper. “We are seeing a return to growth, starting in Germany and France in the middle of last year. It is progressively strengthening,” he was quoted as saying.

The present crisis is a “fantastic opportunity to enhance the economic governance of the euro area,” Noyer added, according to the report. “I think this opportunity should be seized. The ECB has always been in favor of that,” Noyer told Handelsblatt.

22:17 Wednesday 2 June, 2010

Canada’s dollar strengthened versus the greenback as U.S. stock-index futures advanced before a report later this week that’s expected to show the nation’s employers added jobs for a fifth month in May.

“The Canadian dollar is being driven by price action in equities,” said Jack Spitz, managing director of foreign exchange in Toronto at National Bank of Canada. “The market is going to be looking for some position-squaring ahead of Friday’s payroll numbers.”

The Canadian currency, known as the loonie, appreciated 0.3 percent to C$1.0521 per U.S. dollar at 8:14 a.m. in Toronto, compared with C$1.0554 yesterday. One Canadian dollar buys 95.05 U.S. cents.

22:13 Wednesday 2 June, 2010

The yen fell against its major counterparts amid speculation Finance Minister Naoto Kan will succeed Prime Minister Yukio Hatoyama and pursue measures to weaken the currency.

The yen declined to the lowest level in two weeks against the dollar after Hatoyama tendered his resignation today as public criticism mounted over his handling of U.S. troop deployments in Okinawa. The euro stayed near its weakest level in four years versus the dollar amid speculation the European Central Bank will tolerate a weaker single currency.

“Markets have been slightly suspicious of Kan’s attitude to the currency,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “He has said that most businesses would prefer a weaker yen and hence the fall.”

The yen depreciated to 91.98 per dollar at 6:58 a.m. in New York, from 90.94 yesterday, after reaching 92, the weakest since May 19. It traded at 112.48 per euro, from 111.22. The euro was at $1.2234, from $1.2229 yesterday, when it touched $1.2111, the lowest since April 2006.

15:30 Wednesday 2 June, 2010

The pound appreciated past 83 pence per euro for the first time since Dec. 1, 2008.

Sterling strengthened to 82.87 pence, before trading at 82.90 pence per euro as of 6:20 a.m. in London.

11:37 Wednesday 2 June, 2010

The yen fell against all of its major counterparts after Prime Minister Yukio Hatoyama told lawmakers he would resign, damping the allure of the Japanese currency as a safe haven.

Hatoyama refused to resign during a meeting last night with senior party officials, Kyodo reported, citing unidentified sources. The New Zealand dollar gained on bets its central bank will increase the benchmark rate from a record low this month.

“Emerging signs of political instability in Japan will gradually start to negatively impact the status of the yen,” said Masakazu Sato, a foreign-exchange adviser at foreign exchange margin company Gaitameonline Co. “Foreign investors normally dislike political instability.”

The yen slid to 91.37 per dollar as of 10:17 a.m. in Tokyo from 90.94 yesterday in New York. The Japanese currency fell to 111.78 per euro from 111.22 yesterday. The euro changed hands at $1.2233 from $1.2229 yesterday when it touched $1.2111, the weakest since April 2006.

11:34 Tuesday 2 June, 2010

The euro will survive Europe’s debt crisis even as spending cuts and tax increases restrain economic growth, Nobel Prize-winning economist Joseph Stiglitz said.

Political leaders will do “everything to save the euro and they will muddle through,” Stiglitz, a Columbia University professor, said in an interview in Stockholm today. “Europe is likely to go through a weak period” as governments implement “more austerity measures in the face of a weak economy.”

Euro-area ministers agreed on May 2 to provide 110 billion euros ($135 billion) of aid to Greece as the country struggled to control a deficit that reached 13.6 percent of gross domestic product last year, more than four times the European Union limit. When that failed to stop the euro’s slide, the EU and International Monetary Fund offered a financial lifeline of almost $1 trillion to member states.

A Greek default is “not so likely now,” since “Europe has committed itself to providing the funds at a reasonable interest rate,” Stiglitz, 67, said. Greece pledged to implement austerity measures equal to almost 14 percent of GDP in exchange for the rescue funds.

Stiglitz said he’s concerned about the European debt crisis “for Europe’s sake, for the world’s sake, for America’s sake” because European leaders probably won’t do “enough to build the institutions that will allow for a quick recovery” and will instead, “like we’ve seen, not give enough money early.”

08:24 Wednesday 2 June, 2010

The 3 percent decline in Russia’s Reserve fund to $39.3 billion last month may have been the result of the euro’s drop, according to BNP Paribas.

The fund, which Russia uses to finance budget shortfalls, fell $1.3 billion in May, the Finance Ministry said on its website today. The euro dropped 7.4 percent versus the U.S. dollar in May. Forty-five percent of the fund’s reserves are allocated to euros, 45 percent to dollars and 10 percent to the British pound, BNP said.

“We believe that this decline is attributed to euro depreciation against the dollar,” Julia Tsepliaeva, head of research at BNP Paribas in Moscow, wrote in a note to clients today. “The current situation with the reserve fund increases incentives for more aggressive foreign borrowing.”

08:22 Wednesday 2 June, 2010

The euro may decline to a November 2005 low after retracing 50 percent of the shared currency’s rally from October 2000 to July 2008, according to technical analysts at Citigroup Inc.

The currency dropped below $1.2134, halfway between its lifetime low of 82.30 U.S. cents and the all-time high of $1.6038 since its 1999 introduction. Today’s low is the least for the 16-nation currency since April 14, 2006.

“As we stand today, we made that break, we’ve been unable to get above it,” said Tom Fitzpatrick, the New York-based chief technical strategist at Citigroup. “It really does open up the danger that we could start a leg lower.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

The euro may fall as low as $1.164 in one to three months, a level last reached in November 2005. A close this week above $1.2329 may reverse the trend, Fitzpatrick said.

“If we got something like that, it would question whether all we were getting was a knee-jerk reaction,” he said.

08:20 Wednesday 2 June, 2010

The pound rose against the dollar on bets that Prudential Plc’s $35.5 billion takeover of American International Group Inc.’s main Asian unit may fail, easing concern the accord will prompt outflows of the U.K. currency.

Sterling also rose to the strongest level in 18 months against the euro after reports showed U.K. house prices had their biggest annual gain in more than 2 1/2 years in April and manufacturing stayed at the strongest level in more than 15 years last month. Ten-year gilt yields held near the lowest in a week after the European Central Bank said the region’s lenders may have to write off 195 billion euros ($237 billion) of bad debts by 2011, buoying demand for the safest assets.

Some investors may be “trading sterling on whether or not the Prudential deal comes off,” said Paul Bednarczyk, a currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “If the deal is off, and it looks like it is going to be off, then Prudential won’t have to sell” pounds to pay for it, he said.

The pound climbed 1 percent to $1.4683 as of 3:23 p.m. in London, after earlier losing as much as 0.7 percent. Against the euro, it climbed 1.1 percent to 83.69 pence. It earlier traded at 83.24 pence, the strongest level since Dec. 1, 2008.

08:17 Wednesday 2 June, 2010

New Zealand Prime Minister John Key, the former head of foreign exchange at Merrill Lynch & Co., said the nation’s currency may fail to keep pace with gains in the higher-yielding Australian dollar.

The kiwi strengthened 29 percent in the year through April before tumbling 7 percent in the past month as Europe’s debt crisis spurred a rally in the U.S. dollar. The South Pacific currencies have been buoyed by higher commodity prices and demand for so-called carry trades, in which investors borrow in low-interest-rate currencies to buy higher-yielding assets.

“The carry trade is there although one could make the case it is less attractive at the moment than Australia where interest rates are a full 2 percentage points higher than ours,” Key, 48, said in an interview in Wellington yesterday.

Reserve Bank of New Zealand Governor Alan Bollard, who has kept the official cash rate at a record-low 2.5 percent for more than a year, said on April 29 he plans to raise borrowing costs in coming months. The Reserve Bank of Australia kept its cash target at 4.5 percent yesterday and said its setting was “appropriate for the near term.”

“The carry trade should be more in Australia’s favor,” said Annette Beacher, senior strategist at TD Securities Inc. in Singapore. “By any stretch of the imagination the Aussie dollar should be stronger than the kiwi.”

08:11 Wednesday 2 June, 2010

The euro fell against the dollar as a tumble in U.S. stocks and concern that efforts to cut budget deficits will hamper Europe’s economic revival damped investor appetite for riskier assets.

The shared currency earlier recovered from a four-year low against the dollar as a report showed U.S. manufacturing grew for a 10th month in May. The Institute for Supply Management’s manufacturing index held near the highest in almost six years. The yen gained against 15 of its 16 most-traded counterparts.

“Equities had a bad finish to the day, and dollar-yen is well off its highs,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Losses in the euro are coming at a more measured pace.”

The euro changed hands at $1.2229, down 0.6 percent, at 5:30 p.m. in New York after rising as much as 0.4 percent to $1.2353. It earlier fell 1.6 percent and touched $1.2111, the weakest since April 2006. The euro depreciated 1 percent to 111.22 yen, from 112.31 yesterday. The yen appreciated 0.4 percent to 90.94 per dollar after paring a 0.8 percent gain.

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