Thursday, August 14, 2008
Goldman Says US Dollar Has Bottomed, Euro to Fall
Reuters
NEW YORK--Stabilizing U.S. economic growth, falling oil prices and a deteriorating outlook outside the United States have led Goldman Sachs (GS: 166.59, +1.69, +1.02%) to abandon its ten-year bearish stance on the U.S. dollar.
In a research note Thursday, the largest U.S. investment bank said the dollar's long-term downtrend has ended and its undervaluation could lead to a substantial improvement in the U.S. balance of payments position.
"It is time to say goodbye to our long-held dollar bearish stance. For about 10 years we have been negative on the dollar, occasionally wrong but mostly right," Goldman Sachs wrote in a research note.
"But now the valuation and growth-driven improvements that we have been observing for a while have reached the point where they notably improve the medium to long-term outlook for the dollar."
It added, however, the dollar could still face some challenges in the near term such as market positioning, volatility in oil prices and weaker U.S. consumer spending. But the "powerful improvements in the real trade balance suggest the dollar has bottomed." The bank expects capital inflows to start improving.
Goldman revised its forecasts for several U.S. dollar pairings. It now sees the euro falling to $1.45 in three months, compared with estimates of $1.56. The euro should drop further to $1.40 over the next 12 months.
On Thursday, the euro traded a near-six-month low at $1.4779, according to Reuters data. The dollar has gained more than 5% against the euro so far this month, reaching its highest since February.
On dollar/yen, the bank said it forecasts the pair hitting 110 yen in three months from its original estimate of 106. Over the course of one year, Goldman said the dollar should rise to 114 yen.
A big part of Goldman's change in stance on the dollar was the more widespread weakness in economies outside the United States, which has led to sizable interest rate differentials in the greenback's favor. Interest rate markets have priced in rate cuts for major central banks, including the European Central Bank and the Bank of England, which should diminish their currencies' appeal to global investors.
Aside from rate differentials, Goldman said the U.S. economy is finally adjusting favorably to an undervalued dollar.
"The impact of valuation has become much clearer and more powerful -- increasing our confidence that strong, underlying forces will lead to continued improvement in dollar fundamentals in the next couple of years."
It added that a strong U.S. export performance and signs of growing inflows from mergers and acquisitions should clearly boost the dollar.
About other currencies, Goldman said it has become more upbeat on the outlook for the Brazilian realand Mexican peso .
"Certainly the growth story in Brazil and firm balance of payments surplus should allow the currency to shrug off the broader U.S. dollar strength," said Goldman.
I've produced a couple of charts from data I've downloaded from the Bureau of Economic Analysis, the only modification that I have made to the data is for the annual chart where I have doubled the first half figures for 2008 to provide a full year estimate.the "powerful improvements in the real trade balance suggest the dollar has bottomed."
git wrote:............ I remember people jumping up and down tha America had problems. What they forgot to consider is it was the biggest consumer in the world. They stop buying, it has to effect others. The thought process was the China and Indiia would step up and absorb the losses. They forgot one thing they were also selling to America.......
Dollar Falls Against Yen, Euro Before Housing, Inflation Data
By Gavin Finch and Kosuke Goto
Aug. 18 (Bloomberg) -- The dollar fell from a seven-month high versus the yen before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay raising interest rates.
The currency also retreated from the strongest level in almost six months against the euro, snapping a three-day advance, after crude oil and gold gained, eroding the allure of dollar-denominated assets. The British pound slid against the euro as an industry report showed U.K. home prices dropped the most since at least 2002.
``The dollar is looking somewhat vulnerable at these levels,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort. ``People are being cautious before tomorrow's housing starts report. If we see signs that the U.S. housing slowdown is worsening then that will be bad for the dollar.''
The U.S. currency weakened to 110.26 yen as of 9:14 a.m. in London, from 110.53 yen in New York on Aug. 15, when it reached 110.66, the strongest since Jan. 2. The dollar declined to $1.4730 per euro, from $1.4687 late last week. It earlier traded at $1.4647, the highest since Feb. 20. The euro was at 162.55 yen from 162.30.
The pound dropped to 79.03 pence per euro, from 78.69 pence late last week, after Rightmove Plc said the average asking price for a home in August fell 4.8 percent from a year earlier. It was little changed against the dollar at $1.8668.
Aussie, Kiwi
The Australian dollar rose to 87.40 U.S. cents from 86.62 cents late in New York as the price of gold, the nation's third most-valuable commodity export, climbed for the first time in three days. New Zealand's currency gained 0.5 percent to 71.02 U.S. cents on speculation the South Pacific nation will maintain its interest-rate advantage over the U.S.
Benchmark rates are 2 percent in the U.S., 7.25 percent in Australia and 8 percent in New Zealand.
U.S. housing starts dropped 9.9 percent to an annual rate of 960,000 in July, the fewest in 17 years, according to a Bloomberg News survey ahead of the Commerce Department report tomorrow. The Labor Department will tomorrow report the producer price index climbed 0.5 percent in July after jumping 1.8 percent in June, a separate survey showed.
The Brazilian real is now showing signs of weakening as a decline in commodity prices cuts export receipts and adds to concern that the current-account deficit, the broadest measure of trade, will keep widening.
Surging Deficit
The deficit ballooned to $17.4 billion in the first half of the year, the widest since the central bank began tracking the data in 1947, as imports climbed to a record. The country had a $2.4 billion surplus in the year-earlier period.
The real slid 4.8 percent in the past two weeks to 1.6380 as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials sunk 17 percent from July 2. Commodities account for about one-third of exports in Latin America's biggest economy.
Crude oil for September delivery rose 0.5 percent to $114.37 a barrel, climbing for the first time in three days, as Tropical Storm Fay prompted evacuations from rigs and production platforms in the Gulf of Mexico.
The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.
Fed funds futures on the Chicago Board of Trade show a 14 percent chance the U.S. central bank will increase the 2 percent overnight lending rate between banks by a quarter-percentage point at its September meeting, down from 18 percent a week earlier.
Net Longs
Futures traders are betting for the first time since March 2007 that the dollar will advance against the euro, yen and British pound.
The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on Aug. 15.
JPMorgan Chase & Co., the third-largest U.S. bank, raised its forecasts for the dollar against the euro, the pound and the Australian dollar.
The dollar may trade at $1.47 per euro by year-end, compared with a previous forecast of $1.50, Tohru Sasaki, chief currency strategist at JPMorgan in Tokyo, wrote in a research note today. The currency will trade at $1.84 per pound and 84 cents against the Australian dollar by Dec. 31, versus earlier forecasts of $1.85 and 93 cents, respectively, he wrote.
German Confidence
``This is the unwinding of short-dollar positions,'' Sasaki said, confirming the report. Short positions are bets that a currency will decline.
Gains in the euro may be limited by speculation that investor confidence in Germany remained near a record low, discouraging the European Central Bank from raising rates.
The ZEW Center for European Economic Research's index of investor and analyst expectations, to be published tomorrow in Mannheim, was minus 62 in August, according to a Bloomberg News survey. That's near last month's minus 63.9, which was the weakest since the ZEW began compiling the data in December 1991.
``I expect the euro to decline further based on a deteriorating economic outlook,'' said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan's seventh-largest publicly listed lender. ``It's clear that the focus is shifting to growth from inflation.''
The euro may fall to $1.45 in the next two weeks, he said.
To contact the reporters on this story: Gavin Finch in London at [email protected]; Kosuke Goto in Tokyo at at [email protected]
Last Updated: August 18, 2008 04:23 EDT
Dollar Posts Biggest Monthly Gain Since Euro Debuted in 1999
By Ye Xie
Aug. 30 (Bloomberg) -- The dollar posted its biggest monthly advance against the euro since the European currency's 1999 debut on evidence economic weakness that began in the U.S. spread and as crude oil prices declined.
The greenback increased against all of the other major currencies in August, climbing for a fifth straight month versus the yen. The pound depreciated the most against dollar since 1992, when financier George Soros made $1 billion breaking the Bank of England's defense of the British currency.
``The situation in the rest of the world is deteriorating much faster than the market was expecting,'' said MatthewStrauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets, in an interview on Bloomberg Television. ``The gains in the U.S. dollar were more by default.''
The dollar climbed 6.3 percent to $1.4673 per euro yesterday, from $1.5603 on July 31. It touched $1.4571 on Aug. 26, the strongest level since Feb. 14. The U.S. currency advanced 0.8 percent to 108.80 yen, from 107.91, in the longest stretch of monthly gains since January 2002. The euro fell 5.2 percent to 159.40 yen, from 168.39, the biggest monthly drop since March 2004.
The ICE futures exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, rose 5.3 percent this month. It reached 77.619 on Aug. 26, the highest this year.
Europe's GDP
Europe's gross domestic product shrank 0.2 percent in the second quarter, the first contraction since the 15-nation common currency was introduced in 1999, the European Union's statistics office said this month. Annual inflation eased to 3.8 percent in August, from 4 percent the prior month. The ECB tries to keep inflation just below 2 percent.
``There's clearly a downward trend for growth and inflation,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``That argues for the euro to stay under pressure.''
Traders stepped up bets that the European Central Bank will reduce borrowing costs next year. The implied yield on the September 2009 Euribor futures contract fell to 4.48 percent yesterday from 4.63 percent at the end of July. The yield averaged 18 basis points above the ECB's benchmark from 1999 to August 2007.
The ECB will hold its main refinancing rate at a seven-year high of 4.25 percent at its meeting Sept. 4, according to all but one of the 53 analysts surveyed by Bloomberg News. Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina, forecasts a quarter-point reduction.
Weaker Sterling
Sterling fell 8.2 percent to $1.8209 in August as a Nationwide Building Society report showed this week that the average value of a home in the U.K. fell 10.5 percent in August to 164,654 pounds ($301,500), the biggest drop since the last quarter of 1990. The pound dropped 2.3 percent to 80.52 pence per euro.
All of the 61 analysts surveyed by Bloomberg News forecast that the Bank of England will hold its target lending rate at 5 percent on Sept. 4.
Federal funds futures on the Chicago Board of Trade show a 19 percent chance that the Federal Reserve will increase its 2 percent benchmark by at least a quarter-percentage point by its Dec. 16 meeting. The odds were 73 percent a month ago. Policy makers next meet Sept. 16.
Fed Minutes
Policy makers agreed this month that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision, said minutes of their Aug. 5 meeting released this week.
U.S. payrolls fell by 75,000 in August after a drop of 51,000 in the previous month, according to the median forecast of 61 economists surveyed by Bloomberg News. The unemployment rate is forecast to hold at 5.7 percent. The Labor Department is scheduled to release its report Sept. 5.
Crude oil for October delivery fell 7.6 percent this month to $115.55 a barrel. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations.
To contact the reporter on this story: Ye Xie in New York at [email protected]
Last Updated: August 30, 2008 08:00 EDT
Sept. 2 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has gone from a dollar liability to an asset, sparking a rally that even bears say shows few signs of ending.
While the U.S. Dollar Index fell to a record low in March as the Fed cut interest rates at the fastest pace in two decades, traders now anticipate lower borrowing costs will help America recover from a global economic slowdown before Asia or Europe. Investors bought four times as many dollars in August as the average over the previous 12 months, according to Bank of New York Mellon, a custodian for more than $23 trillion in assets.
Traders who a month ago doubted there was anything Bernanke could do to keep the greenback from depreciating in the face of a widening budget deficit, mounting credit market losses and falling consumer confidence are embracing the currency. The 6.4 percent gain against the euro in August was the best monthly advance since Europe's common currency was introduced in 1999. Futures traders are making the biggest bets on the dollar versus six major trading partners since 2005.
``The dollar is cheap,'' said Roddy MacPherson, an Edinburgh-based fund manager at Scottish Widows Investment Partnership Ltd., which manages about $165 billion. ``The U.S. has been quite preemptive in bringing rates down and that bodes better for the U.S. relative to many other countries.''
MacPherson set up trades to profit from the U.S. currency's appreciation against the Group of 10 countries, which include the U.K., Japan and Australia, after it hit a record-low of $1.6038 to the euro on July 15.
Six-Year Plunge
Last month's rally to $1.4672 per euro followed a six-year, 75 percent decline as the U.S. current account deficit swelled to a record $788 billion, the economy posted its slowest growth since 2001 and the subprime mortgage market collapsed, costing the world's biggest financial companies more than $500 billion in losses and writedowns.
The resurgence caught strategists off guard. New York-based Goldman Sachs Group Inc. on Aug. 14 scrapped its call predicting the dollar would weaken to $1.60 per euro in six months and said the currency had ``bottomed.'' Morgan Stanley, also in New York, flipped its forecast last week, and now expects it to trade at $1.48 by the end of the month and gain to $1.40 by year-end. The firm had estimated $1.60 in September and $1.53 in December.
The dollar advanced against the euro for a fourth straight day today, rising to $1.4495 as of 9:14 a.m. in London, from $1.4617 yesterday and $1.4673 at the start of the week.
Cheaper Goods
``Like many in the market, I was surprised by the magnitude of the dollar move, but it just seems to keep going,'' said Stephen Jen, the London-based head of foreign-exchange research at Morgan Stanley. ``It's not that the U.S. economy is doing better, it's that everyone else is doing worse.''
The dollar's slide made U.S. goods and assets cheaper abroad. The Commerce Department said Aug. 28 that the economy expanded at a 3.3 percent annual rate in the second quarter, compared with 0.9 percent in the first three months. The increase was helped by the narrowest trade deficit in eight years.
Growth in the euro region will slow to 1.5 percent this year and 1.1 percent in 2009 from 2.7 percent in 2007, according to the median forecast in a Bloomberg survey of economists. Japan's expansion will ease to 1.1 percent this year and 1.2 percent in 2009, from 2.08 percent in 2007. The U.S. will grow 1.5 percent in 2008 and maintain that pace in 2009, the survey shows.
Dollar Bears
``All of a sudden, the gamble the Federal Reserve made last year and in the early parts of this year cutting interest rates looks like a very smart move,'' Simon Derrick, chief currency strategist at Bank of New York Mellon in London, said in an interview on Bloomberg Television. ``At 2 percent, it's very well positioned to support growth. The dollar still looks incredibly cheap.''
Bernanke slashed the Fed's target rate for overnight loans between banks seven times from 5.25 percent in September through April as contagion from subprime loans caused credit markets to freeze. The U.S. Dollar Index, which tracks the dollar against major currencies including the euro, yen and pound, fell 8.6 percent in that period.
The European Central Bank, meanwhile, left its benchmark rate at a seven-year high of 4.25 percent last month.
The rally stiffened the resolve of bears such as Maxime Tessier, head of foreign exchange at Caisse de Depot et Placement du Quebec, a Montreal-based pension fund that manages about $258 billion.
The U.S. recession ``will be bigger than most people seem to be anticipating,'' Tessier said. ``That will force the Fed to start cutting interest rates again.''
`A Lot of Hope'
Tessier set up trades last month to profit from a decline against the euro, Scandinavian currencies and the Swiss franc. The dollar has already strengthened beyond the $1.48-per-euro consensus estimate of 36 analysts and strategists in a Bloomberg survey.
``There is a lot of hope that the dollar increases in value but there seems to be no U.S. policy that invokes a strong dollar,'' said Tom Sowanick, who helps manage $22 billion as chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.
While the gains may slow before year-end, the median forecast is for it to finish 2009 at $1.38 per euro.
The rally picked up steam on Aug. 7 after ECB President Jean-Claude Trichet said growth in the euro-zone will be ``particularly weak'' through the third quarter, a sign policy makers are reluctant to raise rates to curb inflation.
Lehman Call
The dollar appreciated against the 16 most-widely traded currencies last month, ranging from a gain of 1.45 percent versus the yen to 8.47 percent compared with the Australian dollar.
Futures traders boosted the value of contracts profiting from a rise in the dollar to $16.6 billion more than those benefiting from a loss as of Aug. 19, the most since November, 2005, according to Bank of America Corp.
``There's a sense the market is voting with its feet and buying U.S. assets,'' Steven Englander, a strategist at Lehman Brothers Holdings Inc. in New York, said in a Bloomberg Television interview. Lehman became bullish on the dollar as early as March this year, according to Jim McCormick, the firm's London-based global head of foreign-exchange strategy. The currency will strengthen to $1.40 per euro by March, Lehman says.
To contact the reporters on this story: Bo Nielsen in Copenhagen at [email protected]; Ye Xie in New York at [email protected]
Last Updated: September 2, 2008 04:29 EDT
Bob, I think you could well be right about this being a deliberate ploy of the UK Government.BobHelm wrote: ........... GBP is certainly on a downward spiral at the moment - by government statements it seems to be a deliberate ploy rather than an accident
Thinking about it, it's probably their only possible option to get re-elected - despite Gordon Bennett being PMT I don't think he has the ability to rig the next election, that sort of thing only happens in some of our old colonies where corruption is endemic.BobHelm wrote:Well, if that is their plan Jimbo then I can only admire their optimism of a recovery...
