The euro benefited from Thursday’s decision by the European Central Bank’s comments that strongly signal that Eurozone interest rates will rise in December. The comments came as the Bank announced that it will leave rates at 3.25 percent this month. The ECB’s president said in the remarks that “strong vigilance” against interest rates is needed. Many analysts are convinced that not only will rates rise in December, but that they will rise again after the first of the year. Strong new manufacturing data out of the Eurozone is one bit of evidence for the expected rate hikes.
By mid-afternoon in New York, the euro had added 0.2 percent against the US dollar, sterling and the Japanese yen, sitting at $1.2770 versus the greenback, at £0.6695 against sterling, and at ¥149.50 in relation to the yen. Before the decision, the euro had declined against the yen, falling as low as ¥148.86.
The US dollar dropped 0.1 percent to ¥116.90 after both the Bank of Japan and Japan’s Finance Minster made remarks that indicated a planned hike in interest rates there if the economy there continues to grow as expected.
The Australian dollar dropped 0.2 percent versus the US dollar to $0.7735 on retail sales that were slower than expected in September. Despite the new data, analysts still expect the Reserve Bank of Australia to hike interest rates by 25 basis points to 6.25 percent when it meets next week.
The US dollar was weaker on Wednesday on new data from the Institute of Supply Management that shows the manufacturing sector at its lowest level since June 2003, well below the forecast numbers. Analysts said that this new survey, coupled with other recent disappointing economic news, supports the view that the next time the Federal Reserve alters interest rates, that alteration will be in a downward direction. This view is in direct opposition to recent comments made by Richmond Fed president Jeffrey Lacker that interest rates need to be raised further.
The greenback was 0.2 percent lower versus both the euro and the yen, to $1.2780 and ¥116.80 respectively, and down 0.3 percent against the Swiss franc to SFr1.2415 by mid-afternoon in New York.
Sterling continued to strengthen, adding 0.1 percent to £0.6680 in relation to the euro and gaining 0.2 percent to $1.9110 against the US currency. The gains came even though the UK manufacturing purchasing managers’ index was down to 53.7 in October, from 54.5 in September. Output prices, however, were up, increasing the likelihood that the Bank of England will hike interest rates when its Monetary Policy Committee meets next week.
The only major currency to fall in relation to the US dollar was the Canadian dollar, on the news of a proposal by Canada’s finance minister to end the favorable tax treatment now received by income trusts in that country. The Canadian dollar dropped 0.8 percent to C$1.1310 versus the greenback.
In Norway, the krone added 1 percent to NKr6,4690 to the US dollar and was 1.1 percent higher to NKr8.2650 versus the euro after the Norges Bank hiked the interest rate there by 25 basis points to 3.25 percent and said that further hikes could come sooner than had been expected.
Sterling strengthened on Monday after new data showed that house prices in the UK rose at their fastest rate in two years in October and mortgage approvals were at their highest in two and a half years in September. Both reports appeared to indicate that the Bank of England will raise interest rates again when its monetary policy committee meets next week.
By the middle of the afternoon in New York, the UK currency was 0.2 percent higher against the US dollar to $1.9020, while it had added 0.5 percent to £0.6680 versus the euro, its highest level in a year and a quarter.
The US dollar, meanwhile, didn’t seem to know where to go as it gained 0.2 percent to $1.2715 versus the euro but dropped 0.1 percent to ¥117.40 in relation to the Japanese yen. This followed a decline by the greenback on Friday on the news that the US economy had not grown as much as had been hoped.
The yen added 0.3 percent to ¥149.30 against the euro as most analysts expected the Bank of Japan to hold interest rates at the current level of 0.25 percent when it meets on Tuesday. The yen was also helped by the news that the Swiss National Bank has added more yen to its foreign exchange reserves.
In Brazil, the reelection of Luiz Inacio Lula da Silva as president sent the real 0.3 percent lower to R$2.1340 to the US dollar.
The US dollar weakened on Thursday, following the decision by the Federal Reserve on Wednesday to keep interest rates at 5.25 percent for another month. Perhaps even more influential than the decision not to alter the rate were the comments that accompanied the announcement, which was not sufficiently concerned about the possibility of inflation for some analysts and investors. Some analysts expect that the Fed will actually cut rates after the first of the year.
In mid-afternoon trade in New York, the dollar had dropped 0.3 percent against the Japanese yen to ¥118.70 and was 0.5 percent lower versus both the euro and sterling, to $1.2665 and $1.8870 respectively.
The euro was slightly stronger against both sterling and the yen after the president of the European Central Bank said that inflation will remain a risk in 2007 and that the Bank should “remain vigilant” in the face of inflation pressures. Such wording is sometimes seen as a sign that interest rates are likely to rise soon. The euro also got a boost from former US Federal Reserve chairman Alan Greenspan, who said in comments to a group in Washington that both the private sector and central banks are starting to buy euro in preference to the dollar.
The euro added 0.1 percent to £0.6715 in relation to sterling, while it was 0.2 percent higher to ¥150.26 versus the yen.
The Australian dollar was 0.2 percent higher versus the US dollar to $0.7620, but the Canadian dollar was 0.4 percent lower versus the greenback to $1.1280 and the New Zealand dollar fell 1.1 percent to $ 0.6545 against the US currency on the news that the Reserve Bank of New Zealand had kept interest rates at 7.25 percent.
The euro gained strength on Wednesday on the heels of a new business confidence survey out of Germany. The Ifo business climate index was at 105.3 in October, up from 104.9 in September. The index had been expected to drop to 104.5. Analysts said that the growth indicated in the new data encouraged the belief that interest rates in the Eurozone will reach 4 percent in 2007. While the euro remained steady at ¥149.90 versus the Japanese currency, it had added 0.1 percent to £0.6705 in relation to sterling and was up 0.4 percent to $1.2590 versus the US dollar by mid-afternoon trade in New York.
With a trade surplus wider by 6.9 percent in September compared to the same month last year due to a growth of 20.4 percent in exports to the United States and a gain of 19.8 percent in exports to China, the yen was 0.3 percent higher versus the greenback to ¥119.10. The widening was a surprise in light of analysts expectations that Japan’s trade surplus would narrow by 10.9 percent in September.
The Australian dollar was 0.4 percent higher versus the US dollar, to a six-week high of $0.7 610 on inflation that was stronger than had been anticipated. However, the New Zealand dollar dropped 0.3 percent to $0.6610 against the greenback on inflation that was lower than predicted.
Wednesday afternoon the US Federal Reserve announced that it will leave interest rates at 5.25 percent again. While the dollar weakened against the euro initially, it returned to its level before the announcement within a few minutes. The comments released with the announcement said that while some inflation risks are still present, pressures to inflation seem, to the Fed, likely to “moderate over time”. The vote to keep rates steady was 10 to 1.
The Japanese yen was weaker on Tuesday despite comments from Japan’s vice minister for internal affairs that he did not see his nation’s currency declining beyond current levels. Some analysts said that the comments were meant for the consumption of European Central Bank officials and were in reference to the euro’s recent gains versus the yen. At midday in New York, the Japanese currency had fallen 0.1 percent in relation to the euro to ¥149.90, while it dropped 0.2 percent versus the US dollar, to ¥119.50.
Sterling dropped 0.1 percent versus both the dollar and the euro after new data showed that the UK economy was on a downward trend, reinforcing the opinion of some analysts that next month’s expected interest rate hike from the Bank of England is likely to be the last in the series. The UK currency stood at $1.8720 in relation to the greenback and at £0.6702 against the euro.
The US dollar was 0.1 percent stronger in relation to the euro and the Swiss franc, to $1.2540 and SFr1.2690 respectively ahead of the Federal Reserve’s decision on interest rates, due Wednesday. The Fed is widely expected to leave rates on hold this month, but many also expect the remarks accompanying that announcement to express heightened concern over inflation.
The Australian dollar added 0.1 percent versus the greenback to $0.75756 and was 0.2 percent higher against the yen to ¥90.56 after a report from the International Monetary Fund that predicted an interest rate hike by the Reserve Bank of Australia.
Declining oil prices and a slight easing of the North Korean situation helped the US dollar strengthen on Monday, but investors seemed unwilling to make large commitments before the scheduled meeting of the US Federal Reserve later in the week. Most analysts expect that the Fed will once again leave interest rates on hold, but many investors are looking forward to the statement accompanying the rates decision to try to figure out just when rates might rise - or fall - again.
The greenback added 0.5 percent versus both the euro and the yen, to $1.2550 and ¥119.26 respectively, while it gained 0.7 percent in relation to the Swiss franc, to SFr1.2675.
Sterling, meanwhile, was weaker, dropping 0.2 percent against the euro, to £0.6708, and falling 0.7 percent versus the US dollar to $1.8706. While analysts expect the Bank of England to raise interest rates again in November, there is some anticipation that it will be the last hike in the series before rates begin to fall sometime next year.
The Australian dollar held steady against the US dollar at $0.7585 and added 0.4 percent versus the yen to ¥90.40 on producer price data that was stronger than had been anticipated, raising expectations that the Reserve Bank of Australia will raise interest rates soon. The Saudi Arabian riyal was also up in relation to the US currency, to SR3.7420, on expeditions that the kingdom will revalue its currency after the end of Ramadan. Meanwhile, the South African rand was 1.8 percent lower against the greenback to $7.6630 after the governor of the South African Reserve Bank warned on inflation.
The Japanese yen ended the week higher after the Russian central bank announced that it would buy more yen for its foreign-exchange reserves and on a report in a Japanese newspaper that the Bank of Japan will watch carry trades more closely. Even though the Bank denied that report, analysts felt that the report indicated that there are serious concerns over the issue of carry trades. The Russian remarks, meanwhile, were not only important because of the size of Russia’s foreign-exchange reserves but also because its move could indicate the beginning of a trend.
The yen added 0.1 percent during the week against the euro to ¥149.60, while it gained 0.9 percent versus the US dollar, to ¥118.70.
The greenback fell 0.8 percent in relation to the euro over the week to $1.2610, primarily on a series of new data releases that did not do much to clear up the picture concerning where the US economy is headed.
Meanwhile, sterling strengthened during the week as new data showed UK economic growth to be stronger than expected, raising the chances that the Bank of England will hike interest rates in November. The UK currency added 0.6 percent against the euro to £0.6700, while it gained 1.4 percent versus the US dollar to $1.8820.
The Japanese yen made gains early against the US dollar and the euro on Wednesday after newspaper reports implied that the Bank of Japan is getting ready to increase its scrutiny of carry trades. The gains were lost later in the session, however, when the Bank denied that it would watch the trades more carefully or in any new ways. While analysts said that concern over these trades were nothing new, the report seemed to confirm that the Bank was starting to take the issue, which has to do with borrowing funds in less expensive yen then investing in higher-yielding assets abroad, more seriously.
Early in the day the yen traded at ¥118.33 versus the US dollar but it later dropped 0.4 percent to ¥119.10 to the dollar. The yen was at a three-week high of ¥148.49 against the euro but ended up 0.2 percent lower to ¥149.05 to the euro by mid-afternoon in New York.
The US dollar was stronger on the day after new data showed that new housing starts in the US were up 5.9 percent to 1.77 million in September, ahead of expectations of 1.62 million new starts. Some analysts discounted the figures as new data also showed that issuance of new building permits are at their lowest level since 2001. Still, the dollar was up by 0.2 percent against sterling, the euro, and the Swiss franc, to $1.8670, $1.2510, and Sfr1.2710 respectively.
New data that showed consumer prices up 2.4 percent in the UK in September, down from August’s figure of 2.5 percent, did nothing to change the opinion of most analysts that the Bank of England will raise interest rates again in September. Most of the declines was said to be due to dropping oil prices, while pressures toward inflation remained in place in other sectors. In addition, the UK retail price index was up to an annual 3.6 percent in September, further increasing the likelihood of a rate hike.
All this news helped sterling to add 0.4 percent to £0.6707 against the euro and to gain 0.5 percent versus the US dollar to $1.8700 by mid-afternoon trade in New York on Tuesday.
The dollar was also lower in relation to the euro, dropping 0.1 percent to $1.2540, despite new data which showed capital inflows into the United States higher than had been predicted and a drop in September’s industrial production in the US. The new data was dismissed by some analysts as being of little significance.
The yen continued to get help from Monday’s news from Russia that it was buying more of the Japanese currency for its foreign exchange reserves. This was notable for a couple of reasons. Not only are Russia’s reserves the third largest in the world, but new buying by Russia could lead to purchases by other central banks, which currently are deficient in yen holdings.
The Japanese currency added 0.2 percent to ¥148.90 in relation to the euro, while it gained 0.3 percent to ¥118.65 versus the US dollar.
The Japanese yen strengthened on Monday after the central bank in Russia said it has begun purchasing the currency as part of its reserves. The first deputy chairman of the Russian bank said at a conference in Moscow that it wants to diversify. By mid-afternoon in New York, the yen had added 0.3 percent against both the US dollar and the euro, to ¥119.25 and ¥149.26 respectively.
Sterling was stronger as well on new data indicating that the UK housing market is growing, which tended to confirm most analysts’ opinions that the Bank of England will raise interest rates again in November. The Rightmove housing survey showed that house prices rose 2 percent in October, which put the annual inflation figure for houses to 11.5 percent. The UK currency was up 0.2 percent to $1.8602 versus the US dollar, while it also gained 0.2 percent to £0.6726 in relation to the euro.
The US dollar held on to Friday’s gains versus the euro, staying steady at $1.2510 against the shared currency. Meanwhile, the Australian dollar added 0.2 percent to $0.7527 in relation to the greenback. Many observers believe that the Reserve Bank of Australia will raise interest rates in November.
The dollar was nearly unchanged Wednesday but managed to hold on to recent gains as the chance of an interest rate cut early next year was thought to be dropping. The opinion that a rate cut is not in the cards came largely from remarks by Federal Reserve officials that indicated no inclination to drop rates even though the US housing market has been weak recently. Not all analysts, however, see the dollar as remaining strong and predicted a pressure toward deflation in the next year due to the decline in oil prices.
At midday in New York, the greenback was steady against both the euro and the Swiss franc, at $1.2540 and SFr1.2700 respectively, while it dropped 0.1 percent to ¥119.50 versus the Japanese yen.
Sterling was stronger on the session, adding 0.1 percent to £0.6755 in relation to the euro and 0.2 percent to $1.8570 versus the US dollar. The advances came after the governor of the Bank of England commented in a speech that investors should not overreact to September’s decline in inflation in the UK. The Bank of England is still expected to hike interest rates in November.
Declining oil prices led to weakness in the Norwegian krone and the Canadian dollar. The krone was 0.3 percent lower to Nkr6.707 to the dollar, while the Canadian dollar also dropped 0.3 percent to C$1.1361 to the dollar. Norway is the third-largest oil producer in the world, while Canada produces a number of raw materials.
October 9, 2006
South Korean won weakens after nuclear test in North
North Korea’s claims that it has carried out a long-threatened nuclear test affected few currencies markets on Monday. The biggest fall came in South Korea’s currency, and while some other Asian currencies were also affected, the damage was much less. This was due primarily to the fact that North Korea is too remote to have much of an ultimate effect on the world economy.
The South Korean won was 1.5 percent lower to Won966.50 versus the US dollar, it’s largest one-day plunge since 2004. The yen dropped as well, but by much less, losing 0.1 percent to both the US dollar and the euro, to ¥119.14 and ¥150.10 respectively. Some analysts even ventured the opinion that the yen could ultimately benefit from the tension through safe-haven investment. In China, which is on record as opposing North Korean nuclear testing, was up to Rmb7.9000.
The US dollar, meanwhile, remained largely unchanged, managing to keep the gains it posted on Friday after the announcement of US employment data that was better than had been expected. The greenback remained steady against the euro at $1.2599, while it gained 0.1 percent to SFr1.2608 versus the Swiss franc.
Sterling weakened after new data showed that producer price inflation in the UK fell further in September than it had been expected to go, largely due to declining prices for fuel. The UK currency dropped 0.3 percent against both the US dollar and the euro, to $1.8646 and £0.6758 respectively. Analysts said, however, that the drop in the PPI should not have much of an effect on UK interest rates.
The euro weakened on Thursday after the European Central Bank raised interest rates in the Eurozone by 25 basis points to 3.25 percent and the president of the ECB made comments after the Bank’s meeting that indicated another rate hike is coming before the end of the year, which most analysts expect to come in December, rather than in November. Some analysts based this opinion on the missing word “vigilance” from the ECB president’s remarks, but others refused to assign any significance to this aspect of his comments.
The euro dropped 0.2 percent to ¥149.35 versus the Japanese yen, while it declined 0.3 percent against the US dollar to $1.2680.
In the UK, meanwhile, the Bank of England’s Monetary Policy Committee held interest rates steady at 4.75 percent, which was expected by most analysts despite the feeling of some that a surprise hike was coming. The euro was 0.3 percent higher versus sterling to £0.6760, while the UK currency dropped 0.5 percent against the US dollar to $1.8760.
The US currency remained steady at ¥117.70 in relation to the yen as investors waited for Friday’s release of the latest US unemployment figures.
The US dollar was higher on Wednesday as investors hoped that dropping commodities prices could help the US economy. But while some analysts said that the drop in prices, especially for crude oil, had been important psychologically, new data such as that from the US Institute for Supply Management that showed a bigger decline than had been expected in service-sector activity, did not necessarily bear that hope out. At mid-afternoon in New York, the greenback was 0.1 percent higher against the Japanese yen to ¥118.02, added 0.2 percent in relation to sterling to $1.8842, and gained 0.4 percent versus the euro to $1.2685.
A Eurozone purchasing managers’ index that was down for the third month in a row in September did not dissuade most analysts from expecting a hike in interest rates from the European Central Bank when it meets on Thursday. The euro dropped 0.1 percent to £0.6731 against the euro. The shared currency also fared poorly against the yen, which rose 0.3 percent to ¥149.70 versus the euro.
Currencies linked to commodities prices were lower on the session as prices continued to decline. The Norwegian krone was 0.3 percent lower to NKr8.4106 against the US dollar, while it fell 0.6 percent to NKr6.6271 versus the euro, a two-year low. Norway is the third biggest oil producer in the world. The Canadian dollar was 0.5 percent lower versus the US dollar, to C$1.1278. The South African rand hit a nearly four-year low versus the greenback to R7.9670 on dropping prices for precious metals.
Exceptions to the drops among commodity-exposed currencies were the Austrailan and New Zealand dollars. The Aussie was steady versus the US dollar at A$0.7430 and added 0.1 percent to ¥87.70, while the Kiwi was up 0.7 percent against both the US dollar and the yen to N$0.6613 and ¥78.05 respectively.
The US dollar was weaker on Monday after the US Institute of Supply Management’s purchasing managers’ index was lower than had been predicted in September, another indication that the economy in the United States is slowing down. With employment figures due at the end of the week, some analysts are predicting a down week for the greenback.
The dollar was 0.5 percent lower to ¥117.60 against the Japanese yen, after having been as high as ¥118.40 earlier in the session even though the Tankan Survey had shown Japanese business sentiment and manufacturing both up in the third quarter. The US currency dropped 0.6 percent to $1.2750 in relation to the euro, while it fell 0.7 percent to $1.8860 versus sterling.
In the Eurozone, the purchasing managers’ index was steady in September. It also predicted that input and output prices are both expected to rise even though the price of crude oil is going lower. Analysts took the report as yet another sign that the European Central Bank will raise interest rates again this week as well as in December. As a result, the euro added 0.2 percent to ¥150.00, while it held steady versus sterling at £0.6760. The CIPS Purchasing Manager’s Index in the UK was at 54.4 in September, more of a gain than had been predicted, which some analysts said raised the chances that the Bank of England will raise interest rates this week, as well.
The Hungarian forint was 0.8 percent lower to Ft274.90 versus the euro on the possibility that the nation’s prime minister could face a no-confidence vote in parliament this week.
The US dollar was stronger during the week after the US core personal consumption expenditures deflator figures in August were higher than had been expected. The deflator, which is the Federal Reserve’s favorite measure of inflation, was at its highest annualized rate in eleven years. The greenback was 0.9 percent higher versus the euro, to $1.2661, while it added 1.3 percent in relation to the Japanese yen to ¥118.03.
The euro was higher against the yen once more even though the new finance minister in Japan scaled back his comments from earlier in the week to say Friday that the euro/yen relationship has been “a little bit volatile” recently. The euro, however, still ended the week 0.4 percent higher versus the Japanese currency at ¥149.45, near its historic high.
Sterling lost ground over the week after second quarter economic growth was revised lower and after a member of the Bank of England’s Monetary Policy Committee’s remarks. The week saw sterling drop 0.9 percent to £0.6790 in relation to the euro, while it declined 1.8 percent versus the US dollar to $1.8650.
Even though it lost some ground on Friday ahead of China’s National Day holiday next week, the renminbi was 0.2 percent ahead for the week at Rmb7.9165 to the dollar.
Sterling was weaker on Thursday after the UK Office for National Statistics admitted that it had made an error in calculating overall inflation for goods and services produced in the UK and cut its estimate of that inflation from 3.4 percent to 2.2 percent. After the admission, sterling dropped 0.7 percent to £0.6772 against the euro and it fell 0.8 percent versus the US dollar to $1.8740. Some analysts said that the declines were an overreaction to an issue that would likely not result in any change in the consumer price index.
The euro, meanwhile, added 0.2 percent against the Japanese yen to ¥149.55, nearing the record level it reached against the Japanese currency last month. Comments from Japan’s vice finance minister implied that the yen’s recent problems in relation to the yen are not of paramount concern to the Japanese government at the moment.
The US dollar also gained in relation to the yen, adding 0.3 percent to ¥117.85. The greenback was virtually unmoved versus the euro, however, to stand at $1.2690.
The Chinese renminbi was at Rmb7.8965, setting a new post-revaluation high versus the US dollar. Some analysts see the recent gains in the Chinese currency as a sign that new US Treasury secretary Hank Paulson has been able to create an understand with the Chinese than his predecessors were able to. Part of this success, according to some analysts, is due to Mr. Paulson’s success in persuading US Senators Schumer and Graham to delay a vote on a bill that would impose tariffs on Chinese goods imported into the United States.
Comments from new Japanese finance minster Koji Omi sent the yen lower in relation to the euro on Wednesday. He proclaimed himself “not an expert” on foreign exchange markets but allowed that currency rates should “reflect economic fundamentals”. He also said that the markets should not move based on his comments, but that did not stop them from doing so. The euro was 0.5 percent higher versus the yen, to ¥149.20 at mid-afternoon in New York, while the US dollar gained 0.3 percent on the Japanese currency to ¥117.40.
The greenback was down, however, against the euro. New data showed that while new home sales in the US were up more than had been expected, durable goods orders were down more than they were predicted to be. Durable goods orders were 0.5 percent lower in August, when they had been expected to be 0.5 percent higher. The US currency dropped 0.1 percent to $1.2700 versus the shared currency.
Sterling was also weaker on Wednesday in relation to both the euro and the dollar after remarks from a member of the Bank of England’s Monetary Policy Committee as well as on a downward revision of economic growth in the UK in the second quarter from 0.8 percent to 0.7 percent. The UK currency fell 0.4 percent versus the dollar to $1.8875, while it dropped 0.5 percent to £0.6730 against the euro.
The Chinese renminbi hit another new high since its revaluation last year, trading at Rmb7.9020. The Chinese currency has added 0.5 percent since September 18.
The US dollar was weaker on Thursday after Wednesday’s decision by the Federal Reserve not to raise interest rates for the second month in a row and the comments that accompanied the announcement, which had BNP Paribas predicting that the Fed could have to lower rates before the year is out. Also hurting the greenback was the Federal Bank of Philadelphia’s economic index, which dropped from 18.5 in August to -0.4 in September, a much larger drop than had been anticipated and an indication that regional manufacturing has contracted.
The US currency was 0.7 percent lower versus both the euro and the yen, to $1.2776 and ¥116.50 respectively, while it dropped 0.9 percent against the Canadian dollar, to C$1.1178. Several emerging market currencies, however, were lower versus the dollar. The Brazilian real was 1.1 percent lower to R$2.200 to the dollar, while the South African rand dropped 2.9 percent in relation to the dollar to $7.570 and the Turkish lira fell 1.3 percent to TL1.485 to the dollar.
Sterling, on the other hand, was stronger on the day as analysts raised expectations that the Bank of England will issue a hike in interest rates in November. New data from the Bank showed that inflation is growing faster than official data has led analysts to believe. In addition, there is greater interest in the sterling being shown by central banks.
The UK currency was 0.2 percent higher to SFr2.3685 versus the Swiss franc, while it was 0.4 percent higher at one point against the euro before it slipped slightly to £0.6719 versus the shared currency. Sterling added 0.7 percent against the US dollar to $1.9012.
