US Treasury secretary Tim Geithner denied that the US was trying to devalue the dollar to boost its economy, the FT reports, as he attempted to ease tension in foreign exchange markets. However the WSJ reports that Mr Geithner also described China’s currency as “significantly undervalued.” Meanwhile, Brazil has raised inflow taxes in an attempt to control gains in the real, Bloomberg reports. Tax on foreigners’ investments in fixed-income securities was raised to 6 per cent, up from 4 per cent, while the levy on money brought in for the futures market was increased to 6 per cent, up from 0.38 per cent.
Asian shares were on the rise with sentiment brightening after Japanese machinery orders increased more than expected and chipmakers gaining ground on Intel’s stronger-than-expected sales, reports the FT’s rolling global market overview. The FTSE Asia-Pacific Index was up 0.3 per cent as investors also responded to hints of additional quantitative easing to come from the US in the minutes of the latest Federal Reserve meeting. Commodity prices pared losses to remain near near two-year highs. Treasury bond yields were also higher, with 10-year bond yields rising 4 basis points off two-year lows, after the Fed also said it could tie its easing measures to growth, rather than to inflation. While inflation measures had ticked lower and lower, growth was more variable. The dollar was again on the back foot as the prospects for a further liquidity injection by the Fed harmed the currency. The US dollar index, which tracks the buck against a basket of its peers, was down 0.2 per cent to 77.13, just above 9-month lows. The yen was hovering above 15-year highs relative to the greenback, currently flat at Y81.80. The euro was up 0.3 per cent to $1.3957. Industrial resources have resumed their ascent as the dollar showed renewed weakness. Copper was up 0.4 per cent to $8,370, just shy of a two-year high. Oil was up 0.6 per cent to $82.14 a barrel. Gold was up 0.5 per cent to $1,356 an ounce, with more QE chatter adding to the metal’s attraction for paper currency doomsters. The S&P 500 in New York rose 0.4 per cent to a five month high as traders welcomed the Fed’s minutes and news of another M&A deal – this time Pfizer’s purchase of King Pharma for $3.6bn.
An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness, reports the FT. Mantega’s comments on Monday follow recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to curb their currencies. China has continued to suppress the value of the renminbi, despite US pressure to allow it to rise, while countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies. Calculated Risk concludes that Brazil “may be intervening soon”.
Some further thoughts on the topic du jour — competitive currency devaluation and the race to the bottom.
In the wake of Tuesday’s FOMC statement, RBS FX analyst Gregg Gibbs reckons the chance of a major meltdown on the currency markets is increasing as investors seek the relative safety of higher growth regions — or ones that are not dropping notes from helicopters: Read more
A big H/T to Alea for this story, plus the title.
Late on Monday, the US Commodity Futures Trading Commission released its final foreign exchange market rule. The centrepiece is the limit on leverage for firms dealing in retail forex — the decision itself, following months of weighty deliberation. Read more
The Japanese finance minister has warned the government will take ‘appropriate action’ on the strength of the yen, while watching foreign-exchange markets, reports the WSJ. While the yen stabilised on Thursday, Yoshihiko Noda’s comments come a day after the dollar fell to a fifteen-year low against the yen, setting off fears over Japan’s export-led recovery even as US investors take fright at America’s trade gap. There’s been no intervention in Japan’s currency markets since 2004, Bloomberg notes, but Noda’s remarks come close to verbal intervention.
Having warned about increasingly negative sentiment towards the euro, Bank of New York Mellon’s Simon Derrick takes a stab at commodity currencies on Wednesday. In a nutshell, they are behaving oddly, reports FT Alphaville. More specifically, he says, they’re behaving very much like they did ahead of the 2008 mega sell-off. Read more
June’s ECB Monthly Bulletin, released on Thursday, is turning out to be a treasure trove of enlightenment when it comes to what transpired inside the financial system in May.
We’ve already noted the critical dysfunctions the Bank observed in the money markets — which it said were comparable to the stresses experienced over the course of the Lehman collapse. Read more
China’s foreign exchange reserves rose by $47.9bn to $2,447bn by the end of the first quarter, compared with a $126.5bn rise in the fourth quarter of 2009, the Chinese central bank reported on Monday. The FT said the fact that China’s foreign exchange reserves were growing more slowly would provide Beijing with fresh ammunition in its debate with Washington over whether it intentionally undervalues the renminbi.
Why does Google need a government bond trader, or an analyst of agency mortgage backed securities? Why are corporates increasingly opting to manage their own treasury affairs? Does this suggest a loss of faith in banks’ ability to service and look after their needs, or is an indicators that corporates are just getting more experimental when it comes to outsmarting the competition outside their core competencies? FT Alphaville weighs in. Read more
We cautioned a few weeks ago that a little perspective was probably needed when discussing the “everyone is shorting the euro” story.
The CFTC data on which the stories were based, we argued, only reflected of a small sliver of the OTC forex market. Read more
We posted a dollar rise *alert* at the beginning of November based on some contrarian thinking in the market at the time.
And the contrarians did not do a bad job of calling the bottom in the dollar rout: Read more
Harpal Sandhu, chief executive officer of a systems firm called Integral Development, is trying to change the way forex markets function.
Specifically, he wants technology to even-out the jagged playing field, where conflicts of interest abound and where rules apply to some market players but not to others. Read more
Another country touting the possibility of capital controls in a bid to protect itself from an appreciating currency? Read more
So stop calling the current vogue for betting against the greenback a “crowded short”, says boutique brokerage Aviate Global.
And their logic is hard to fault. As the world’s de facto currency the world is, naturally, massively net long dollars. Hence: Read more
We wrote last week about the extent to which retail investor money was contributing to growth in international foreign exchange trading, and to what extent Mrs Jones — the personification of the average yield-seeking western investor — was gaining ground on her Japanese equivalent Mrs Watanabe.
We also warned about the array of technological algorithms being marketed to Mrs Jones via the internet and other methods, in a bid to guide her inexperienced hand while promising in some cases far-fetched returns of more than 20 per cent a month in forex trading. Read more