Monday, December 04, 2006


A "Pause" For The US Dollar

Reuters reports on currencies. "The dollar edged up against most major currencies on Monday as investors took profits following a dollar decline that has shaved some 3 percent off its value in less than two weeks. Coming into the week, the dollar had tumbled to a 20-month low versus the euro and a 14-year trough against sterling as weak data fanned fears U.S. interest rates could soon fall even as euro zone and U.K. rates were headed higher."

"But the dollar's decline was so swift, that analysts started calling the sell-off overdone, sparking a round of profit-taking that began in European trade. 'The market is cutting some of the bleeding on the dollar,' said Brian Taylor, chief currency trader at Manufacturers and Traders Bank. 'We are far from seeing real demand for the buck, but maybe we went too far too fast and now we needed a pause.'"

"By midafternoon in New York, the euro traded down 0.15 percent to $1.3317, off an earlier 20-month low of $1.3367. The euro hit a record high above 154.10 yen before falling back to 153.70. The dollar was steady at 115.42 yen after hitting a four-month low below 115 on Friday."

"The U.S. economic calendar was light on Monday, with only a report showing pending U.S. home sales down 1.7 percent in October, though still above the low hit in July. That left investors looking ahead to interest rate decisions from the European Central Bank and Bank of England on Thursday and the U.S. November jobs report on Friday."

"Matt Kassel, director of foreign exchange at ING Capital Markets, said 'the bulk of the profit-taking' will take place in the coming days ahead of the ECB decision. 'It will have nothing to do with any news or data that's dollar-bullish,' he said, calling it instead position-squaring ahead of an expected ECB rate hike to 3.50 percent."

"The ECB is expected to lift rates to 3.5 percent on Thursday. Some predict the ECB will further tighten monetary policy in early 2007, though the recent surge in the euro has slightly dampened this view."

From Bloomberg. "Gold prices, little changed in New York, may gain as some investors stock up on the precious metal as an alternative investment to the dollar. Investment in the StreetTracks Gold Trust, an exchange-traded fund based on the price of gold, jumped 11 percent last month as some funds purchased the metal to shift out of the dollar."

"'We've seen a big jump in the holding of gold ETF in the past month,' said Daniel Vaught, a commodity analyst at A.G. Edwards and Sons Inc. 'It's indicative of the larger-scale investment buying. Investment demand has been a major factor for the gold rally.'"

"Gold futures for February delivery closed at $650.90 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $653.90."

"'The dollar is under attack because central banks of the world find their positions remain unbalanced in favor of the dollar,' said Dennis Gartman, trader, economist and editor of the Gartman Letter. 'Gold's position as a reservable asset is quietly being taken up by reserve banks around the world.'"

From marketWatch. "Other metals traded mainly lower Monday, with the exception of January platinum, which climbed $5.50 to $1,160 an ounce set to recoup part of Friday's loss of over $22."

"March silver was down 2 cents at $14.17 an ounce after closing out last week with a more than 7% gain. March copper was at $3.1665 a pound, down 0.55 cent following a 1% gain last week and March palladium shed 25 cents to trade at $332.50."

"'Dollar diversification will continue to be the main theme of the market with recent gains in ETF [exchanged-traded fund] holdings showing investors are keen to hold the yellow metal,' said James Moore, an analyst at"

The Globe & Mail. "The Chinese yuan rose to a fresh high against the U.S. dollar Monday as reports cited officials urging diversified investments of the country's $1-trillion in foreign exchange reserves."

"The central bank's official 'parity' rate for the yuan was set at 7.824 per dollar Monday morning, compared with an official rate of 7.8331 on Friday. The yuan has gained about 3.5 per cent against the dollar since the current foreign exchange system was set up in July 2005."

"China tightly controls trading in the yuan, limiting its daily movements to 0.3 per cent above or below the parity rate. But in recent weeks the yuan has gained steadily against the dollar as the U.S. currency has faltered in global foreign exchange markets."

"The yuan's advance comes as China and the U.S. prepare to hold bilateral economic talks Dec. 14-15 in Beijing, where U.S. Treasury Secretary Henry Paulson and other U.S. officials are expected to push for further loosening of controls on the Chinese currency."

"Meanwhile, China's state-controlled media have carried reports noting the potential risks from the dollar's overall decline to the country's $1-trillion foreign exchange reserves, which are thought to be weighted toward U.S.-dollar denominated Treasuries and other investments."

"Those reports have helped fan market speculation that a sell-off of dollar assets by China might drive the dollar's value still lower. Economist, Xia Bin, suggested that the Ministry of Finance issue yuan-denominated bonds to buy foreign reserves and then use the funds to invest overseas."

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