Tuesday, December 12, 2006

 

Fed Will "Wait And See"

MarketWatch reports on the FOMC. "The Federal Reserve Bank held overnight interest rates steady at 5.25% for the fourth straight meeting on Tuesday and kept the door open for further rate increases, saying inflation risks remain elevated despite a substantial cooling in the housing market. 'This statement suggests a wait-and-see approach on the part of the Fed as the downturn in housing plays out,' said economists at Lehman Brothers in a research note."

"'The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information,' the Fed statement said. In one of two subtle changes, the committee said growth had slowed, 'partly reflecting a substantial cooling of the housing market.' The word 'substantial' is new to the statement."

"Gold futures extended their losses from Tuesday's regular session into electronic trading, but pared declines after the U.S. Federal Reserve decided to leave overnight interest rates unchanged at 5.25%. 'Gold's reaction was slightly positive as it gives investors a reason to want to hold long positions,' said John Person, president of National Futures Advisory Service."

"'The economy is still at risk to inflation, the Fed did not raise rates and thus it can foster the opportunity to fall behind the inflation fighting campaign, especially if the inventory of homes decreases and if energy prices escalate,' he explained.
'Gold should be a buying opportunity based on today's announcement,' he said."

"Prices of the precious metal continued lower, but off their lows in after-hours trading after the Fed decision. The decision came 45 minutes after the official close of regular-session metals trading in New York."

"The February contract for gold futures last traded at $634.30 an ounce, down 50 cents in electronic trading after reaching a low of $630.90 earlier."

"The dollar spent much of Tuesday trading higher against the yen after the Commerce Department said the U.S. trade deficit narrowed by 8.4% in October to $58.9 billion, its lowest level since Aug. 2005. But by late Tuesday, the dollar traded nearly flat against most of its rivals."

"Other metals ended the regular session lower, with the exception of platinum, which saw its January contract add on $5.80 to close at $1,115 an ounce.
March silver futures closed down 4.5 cents at $13.98 an ounce, March palladium dipped $2.85 to end at $330.90 an ounce."

From Bloomberg. "The dollar approached a two-week high against the yen as a government report showed the U.S. trade deficit narrowed in October by more than economists forecast."

"A reduced shortfall indicates fewer dollars need to be converted to foreign currencies to pay for imports, increasing the value of the dollar. The currency's advance was limited as the Federal Reserve is meeting today to set interest rates."

"The smaller deficit 'is definitely supporting the dollar bulls' argument,' said Boris Schlossberg, senior currency strategist at Forex Capital Markets LLC in New York. 'The U.S. is less vulnerable to foreign capital flows. The market is waiting to see what the Fed is going to say about inflation and the economy.'"

"The U.S. currency traded at 117.15 yen at 12:41 p.m. in New York from 116.99 yesterday. It reached 117.25 yen yesterday, the highest since Nov. 22. The dollar traded at $1.3238 per euro from $1.3237 yesterday."

"'The pessimism on the U.S. dollar is overdone,' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. She expected Bernanke 'to reinforce their focus on inflation and that should give the dollar some support.'"

From Reuters. "The Canadian dollar hit an eight month low against the U.S. currency for the third time in four trading days on Tuesday, with the move accentuated by stop levels being triggered around C$1.1510 level."

"The Canadian dollar had been hurt by the weakness in the oil price and by concerns that a slowdown in U.S. economic growth could dent demand for Canadian goods."

"'The trade surplus has now peaked and is likely to fall back quite rapidly. If that support is now falling away, along with other supports that we've seen like M&A flows, then we do think it's the start of a prolonged uptrend in dollar/CAD,' said Adam Cole, currency strategist at RBC Capital Markets."

Comments:
""'The pessimism on the U.S. dollar is overdone,' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. She expected Bernanke 'to reinforce their focus on inflation and that should give the dollar some support.'""

Show me the money. The market expects rate reductions. What on earth gives Ms. Masters such optimism for a renewed "focus on inflation"?
 
Who are these dollar bulls? I want to meet someone who believes the USD is a good long-term investment. I wouldn't be caught holding USD overnight, let alone long-term.
 
it's the stocks bugs and the people who think the american economy is strong. people like larry kudlow.
 
The US$ has held after that sharp drop. IMO, the currency markets are so large and liquid that manipulation would be difficult.

The S&P warned on asia today. The US economy is slowing quickly. The Fed mentioned housing in the FOMC memo. And yet real interest rates are near zero. Interesting times.
 
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