Chinese will re-commit to the US dollar exchange rate

Foreign Exchange - Currency Outlook

Everybody and his brother is calling for the Chinese to revalue, from the Philippines and Malaysia to the eurozone, US, IMF and World Bank. APEC finance ministers have so far resisted making the same call, but the summit isn’t over yet. The APEC chairman, Singapore FinMin Tharman Shanmugaratnam, said "From today's discussion, none of us were calling for, or thought it advisable, to have any sudden significant re-alignment of exchange rates." Asked about Chinese revaluation, he said "It's not a silver bullet for solving either the question of domestic demand or towards achieving balanced and sustainable growth."

Is everyone counting on Obama to pull the rabbit out of the hat?

Market News reports today that the Chinese say he won’t. The report says "China has no plans to allow the yuan to appreciate in the short term because the economy is still recovering from last year's global financial crisis, a source familiar with discussions among monetary policymakers told Market News International Thursday. The source said that the government expects to receive a message from President Barack Obama about the need for greater exchange rate flexibility during his visit here next week. Obama will be making his first official visit to China November 15 to 18. His visit will include talks with President Hu Jintao and Premier Wen Jiabao. 'China will not see Obama's requirement for more exchange rate flexibility as a key consideration,' the source said."

Well, of course the Chinese would not tip their hand ahead of time if they do plan to deliver Obama a big victory. And if they do deliver such a victory, what is the cost? The Chinese would not be giving it away for free. Another unnamed official told Market News that "China's exports are more important than U.S. deficits. The Chinese government will not ask for any specific U.S. announcement about an exit strategy but will simply mention it." This is the usual ploy of changing the subject to avoid talking about the elephant in the living room. Or maybe the Chinese will re-commit to the US dollar exchange rate and promise to stop talking about SDR's in return for keeping the US dollar peg a little longer.

Nobody knows what the outcome will be, but clearly something is afoot. Uncertainty about the size of the something is US dollar rate -favorable all by itself since it raises the idea of tectonic shift in sentiment and real flows. But we must not allow expectations to get too high. Summits hardly ever result in a big change. One of the few exceptions was the US TreasSec hounding China at G7 on revaluation a few years ago - and it worked, albeit not right away. The next two or three days will require nimble foreign exchange trading trading with close - in stops and a willingness to be open-minded. Adopt the Boy Scout motto and "be prepared."

Pounds to US Dollars = 1.6579
Pounds to Euros = 1.1071
Euro to Pounds = 0.8949
Pounds to Australian Dollars = 1.7968

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

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Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900

Foreign Exchange - Currency Outlook

Yesterday Dallas Fed Pres Fisher said the decline of the dollar exchange rate has been orderly. We are stunned by this statement. For one thing, the Fed hardly ever talks about buying dollars, which is the Treasury’s turf. For another, it implies approval of the any decline as long as it’s not disorderly. Fisher went from an inflation hawk to now seeing more deflationary concerns than inflationary ones, suggesting that a falling dollar is a good anti-deflation tactic. The risk we run by maintining low interest rates is that it fuels the carry trade and eventually the Fed would have to "craft an appropriate remedy." Holy cow, is Fisher wishing for a US dollar exchange rate crisis so that the Fed can step in with anti-speculation measures?

The mind boggles.

Our favorite Fed, San Francisco Fed Pres Yellen, again said the recovery will be L-shaped, if with an upward tolt, with deflation a bigger risk than inflation and unemployment probably staying high for years to come. Atlanta Fed Lockhart is most worried about commerical real estate and worries the banking system ,not yet recovered, will face another blow.

More to the point, World Bank Pres Zoellick came right out and said emerging markets face a greater threat of inflation and asset price bubbles than developed one. Speaking on the sidelines of the APEC summit in Singapore, he said Asian "central banks need to look beyond just raising interest rates to constrain the amount of liquidity that has been injected into financial systems in response to the crisis,"according to Market News. Bubbles could undermine confidence, whereas "In the U.S. and Europe, because things are in relatively weak conditions, I don't see likely inflationary effects at this time. In East Asia if you start to get a strong rebound in growth and a lot of liquidity there is the question of whether one could start to face asset bubbles in particular markets."

Out of all this, the Chinese potentially revaluing against the dollar by adopting a basket should have the biggest effect. Quite apart from the global political implications, it could be a giant boost to European exports, whereupon Europe's trade surplus will appear to be an issue. It already is an issue, but not as much as the US’ deficit. Then the question becomes whether China diversifies further into the basket currencies. On the whole, the news will be interpreted as dollar-favorable, but underneath, it’s only US-favorable. Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900 and below is based more on technical ideas than on economic analysis. New euro exchange rates demand from China is the same thing as a weakness factor for the dollar, and a biggie. Fixing the global imbalance is a good thing for the world, but not necessarily for the US dollar itself.

Pounds to US Dollars = 1.6574
Pounds to Euros = 1.1060
Euro to Pounds = 0.9039
Pounds to Australian Dollars = 1.7813

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
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Pound and Euro exchange rate outlook improves

Foreign Exchange - Currency Outlook

Unless something happens that is now unforeseen, most FX analysts expect a return of the status quo - rising growth nearly everywhere means the Great Recession is ending and it’s safe to seek yield in riskier places and in riskier assets (away from the US and the dollar exchange rate). We never had any right to expect that G20 and the IMF would be effective in pressuring the Chinese to revalue - they are weak organizations with no enforcement or compliance capability, and the Chinese know which side of the bread their butter is on.

It may well be that the US secretly took everyone aside and asked for reticence on China, since the weak US dollar rate really is good for the US economy, even if it’s not good for consumers, but then the US would have been risking a deeper drive out of the dollar as a reserve currency - so if it was some kind of ploy, it was a dangerous one. Does the US have a grand plan for the dollar? Almost certainly it does not, and any talk of US policy being designed to weaken the dollar deliberately is silly. Analysts suspected that was the not-so-secret Bush agenda but we have no evidence this is how the Obama Administration thinks. Still, "allowing" it to weaken (for a greater good like export industries) is another matter.

Clearly Washington is unfazed by the rise in gold (as long as it’s not fuelled by inflation expectations except by a few nutcases). That it is also fuelled by a bigger cohort who fret about budget deficits seems to be only slightly more worrisome. It seems that when it comes to matters pertaining to the dollar exchange rate and related matters like gold, the Administration is going to remain silent. We wonder if Obama even feels much pressure for results from the China trip this week. This is a laissez-faire approach that is not getting the attention and perhaps praise it deserves from those who think Obama is a control freak or a pinko or a big-government collectivist (to revive a Randian term now that two big Rand biographies are being reviewed).

We expect the US dollar Rate to embrace and surpass the 1.5000 mark now that it has kissed the level. Round numbers are nice, and will suffice - next stop, 1.5250.

Pounds to US Dollars = 1.6723
Pounds to Euros = 1.1148
Euro to Pounds = 0.8967
Pounds to Australian Dollars = 1.7997

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

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Contact IMS Foreign Exchange + 44 207 183 2790

Australian Dollar Exchange Rate has everything going for it, from commodities to a higher yield.

Foreign Exchange - Currency Outlook

Among the large amount of data this week, including IFO business sentiment tomorrow, today we get the Case-Shiller home price index for June, forecast at a drop of 16.4% y/y in the Bloomberg survey or the smallest drop in nearly a year. The index was down 17.1% y/y in May but had risen 0.5% m/m for the first rise monthly since July 2006. Also this morning we get the Conference Board consumer confidence index, probably rising in Aug for the first time in 3 months to 47.9 from 46.6. Tomorrow it’s July new home sales, probably a 4th monthly rise.

It may seem that we have decoupling of the US stock market from the Shanghai Composite, with today’s outcome a test case. But foreign exchange traders everywhere have their own reasons to worry about having gotten into equities too far, too fast and making too rosy assumptions about recovery. If you want to feel optimistic, you can find green shoots to justify trying to get in early, whether it’s German industrial orders or possibly bottoming US housing construction (US homebuilder stocks are up 36% as foreclosures continue to rise—go figure).

But if you are looking for reasons to feel fearful, they abound, too. Bernanke said at Jackson Hole that major difficulties remain. Today the EC chairman Barroso said there is "still no firm recovery" in the EU economies. China is talking out of both sides of its mouth, with one official saying the recovery is too fragile to change anything and another one stepping up to say bubbles are forming and must be burst.

Similarly, we have a huge simmering debate just under the surface about whether we are going to get massive inflation or perhaps a bout of deflation comes first. Pundits opine that Bernanke may seize this moment to institute inflation targeting, which would probably be a good thing for public confidence but opens all kinds of doors for money and bond market shenanigans, the one good reason not to do it. The problem with the inflation/deflation argument, and the sideline story about the proper role of a central bank, is that just about everyone has an ideological slant and it’s really, really hard to get an unbiased grip on the true issues.

We say the most important things is not whether the Fed should have a dual mandate or only an inflation mandate, but rather explicit recognition that mostly free capital markets historically have an intrinsictendency to boom and bust, or mania and panic. Once we acknowledge that, it’s not much of a leap to say somebody ought to be in charge of managing institutional behavior in such a way to avoid the worst consequences of both mania and panic. Right now we have a mishmash of regulatory agencies, with more agencies proposed and a wild tangle of responsibilities. We don’t know whether it should be the Fed in charge of manias and panics or some other agency, but the independence of the Fed argues for it taking the job. This opens a can of worms, of course, with the extreme right wanting no regulation on the perfectly sound thesis that government interference always causes nasty unintended consequences, but the extreme left making the equally sound argument that panics harm the non-elite the most and for longer periods of time. See, you can't talk about this stuff without getting political!

But it’s a welcome argument if we can keep the nutcases from dominating the story.

Back to the US dollar exchange rate. There is a small chance that it will get rewarded with a firmer tone as good data comes in, but it’s still the last week of August and with the market thin, we can’t trust any such move. We guess the stock market will continue to rise during the early fall, with everyone’s nerves getting shot to pieces by October 1, with the US dollar slinking lower, but the possibility of a surprise jump can’t be ruled out. This is not very helpful. The one thing we feel the least uncertain about is the ascendancy of the Australian Dollar Exchange Rate - it has everything going for it, from commodities to a higher yield.

Pounds to US Dollars = 1.6358
Pounds to Euros = 1.1414
Euro to Pounds = 0.8758
Pounds to Australian Dollars = 1.9521

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

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US dollar rate is the beneficiary of flight to safety

Foreign Exchange - Currency Outlook

The US dollar rate is the beneficiary of flight to safety as declines in Asian stock markets, especially China, arouse fear of a really big equity market correction that might spill over to the rest of the world. Press accounts all say the Chinese market is expecting and waiting for government intervention to support it.

This is the main event but also undermining the euro is producer prices falling 7.8% when 6.6% was forecast, the most since just after the war. Fear of deflation is spotty at best - most foreign exchange analysts and investors are more fearful of inflation or hyper-inflation at some point down the road.

Pound exchange rate is whipsawing, down dramatically on Monday, recovering all of Monday's loss on Tuesday, and back down on Wednesday. Whew. This time the reason for sterling to drop (from 1.6593 just after the US close last evening to 1.6372 at 5 am today) is release of the minutes of the August BoE policy meeting. These indicate a spirited discussion about raising the amount of quantitative easing and a final vote of 6-3 in favor of the £50 billion increase.

According to Reuters, the market thought there had been consensus and more surprising, "The three dissenters, which included BoE Governor Mervyn King, had wanted an extension of 75 billion pounds."

Pounds to US Dollars = 1.6569

Pounds to Euros = 1.1730

Euro to Pounds = 0.8525

Pounds to Australian Dollars = 2.0100

Bye For Now

Barbara Rockefeller

Foreign Exchange Trading

Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!

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Contact IMS Foreign Exchange + 44 207 183 2790

Oil is down because the dollar exchange rate is up?

Foreign Exchange - Currency Outlook

We had the US stock market rise on a really stupid report that the unemployment rate was not rising (with the global market following). We say "stupid" because obviously the rate was a function of many workers falling out of the job market as the government defines it, so not exactly a rigged number but not an accurate one, either - and everyone knows it. Now we have the Shanghai Composite leading the world’s stock markets, with nary a reference to better-than-expected earnings or P/E ratios or any of the usual chatter about underlying, dare we say fundamental, conditions in the US or elsewhere. We like to joke that stock market traders are a bunch of flibberty-gibbet little girls, alternately hysterical or skipping madly down the street (and failing to look down). But never has such a description been more appropriate. Stocks are down because a butterfly flapped its wings in China, thousands of miles away? Oil is down because the dollar exchange rate is up? How old are these people?

The germ of truth in all this is that China has defied conventional wisdom and managed to make its stimulus package work faster and better than anything in the West (except Cash for Clunkers, which is wildly successful in Europe and the US). Growth will still be huge, 8% if not the 9.5% originally expected, while the rest of us will be lucky to see 1-3%. China still depends to some extent on the US consumer for export business, but has robust two-way trade with Germany and Japan, so maybe the US doesn’t lead the world, after all. But China doesn’t lead it, either. We all know that Chinese banks would be both involvent and bankrupt if they were not state-owned and the borrowers mostly state-owned, too. Property and other asset prices are almost certainly inflated. The Shanghai index is a bubble - again. Any kind of reality-check would have investors fleeing for the hills - and yet China is the best game in town. It offers unknown and unknowable profits as long as the state keeps the music playing and nobody has to run screaming for a seat. The widespread preference for a rigged market is stunning. No wonder the US dollar rate and yen are the beneficiaries when a whiff of control and sanity reaches our nostrils. From a historical point of view, the Shanghai is an accident waiting to happen.

And yet the Chinese are very, very good at managing the process. It may look like warp-speed from medieval conditions to modernity, but in fact the Chinese government acts with a lot of restraint, considering the pressure on it. Who is to say they will fail? We would never bet against them. So that is the tense situation—an awful combination of awful conditions but utter faith in the managers. It would seem the

Chinese government has more credibility today than the Fed. We also pay heed to the need to keep up the fiction that all is well. Pride is important, appearances are important. China manged to overcome one giant bubble burst in the Shanghai index and it can overcome a second one, if that is what we get.

We don’t know if this big-picture perspective is correct, but if it is, any safe-haven effect on the dollar from wobbly situations in China are likely to be short-lived. That in turn implies that the rise of the yen has limits, too.

Pounds to US Dollars = 1.6569
Pounds to Euros = 1.1730
Euro to Pounds = 0.8525
Pounds to Australian Dollars = 2.0100

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

US dollar rate is losing ground against the euro exchange rate

Foreign Exchange - Currency Outlook

The US dollar rate is losing ground against the euro exchange rate and other majors this morning after the Fed statement calmed risk aversion and promoted risk appetite. On the hourly chart of the euro, you can see a spike to 1.4239 and a bigger spike down to 1.4120 in the Fed statement hour, suggesting that not everyone understood the statement immediately. Those who had been buying euros in anticipation of the outcome got their stops hit, and then the euro exchange rate turned into the close and started rising in earnest. From the 8 am New York open at 1.4142, the euro ended the day at 1.4201 - but after the US close, the euro took off higher at 1.4282 so far.

Note that 1.4280 is about the midpoint of the downside 6-hour breakout bar last Friday. The euro rate has to surpass this level to form a convincing uptrend restoration. The announcement that European GDP growth is up has failed so far to get that effect, which is a little surprising. If the dollar exchange rate rose last week on seemingly good economic news (despite the smaller-than-expected drop in payrolls clearly a statistical fluke), why would the US dollar rate not rise on the Fed statement, which is pretty close to a proclamation that the recession is over?

Reuters reports that the dollar vs japanese yen, rising off yesterday’s low at 95.10 to 96.30 so far today, is influenced by “Japanese investors repatriating funds related to $27 billion in coupon payments on U.S. Treasuries due on Aug. 15. In addition, $61 billion in coupon securities mature on the same day.” This is capping the dollar's rise. Where does the dollar/yen fit in the risk appetite profile? The yen is supposedly a bigger beneficiary of risk aversion than the dollar, so dollar/yen is a duel for which currency gets more relief when fear abates. Besides, why would the Japanese will not turn around and re-invest proceeds back into foreign markets, as is their wont? Only if fear were really high, and rising global stock markets are not sending that signal. We have to go through this laborious process in thinking about the yen because some of the recent moves are so hard to understand.

Pounds to US Dollars = 1.6579
Pounds to Euros = 1.1610
Euro to Pounds = 0.86089
Pounds to Australian Dollars = 1.9690

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790