Monday, July 02, 2007


The US$ Bear Re-emerges

Bloomberg reports on currencies. "The dollar dropped to a 26-year low versus the British pound and approached the weakest level against the euro on speculation the Federal Reserve will keep borrowing costs unchanged while other central banks extend their increases. Investors sold the U.S. currency amid concern losses in the subprime mortgage sector may weaken the housing market and spill over into the broader economy, dimming the allure of U.S. assets."

"'The dollar bearish mode in the market is back,' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. 'It's the story about better growth and rising interest rates elsewhere. We saw the dollar bear re-emerge.'"

"The dollar fell 0.41 percent to $2.0171 per British pound at 4:24 p.m. in New York and reached $2.0184, the weakest since June 1981. The U.S. currency also dropped 0.6 percent to $1.3622 per euro, after earlier touching $1.3638, the lowest since May 1. The U.S. currency touched an all-time low of $1.3681 on April 27."

"The dollar also dropped 0.6 percent, the most since April 17, to 122.42 yen. It touched 122.10 yen, the weakest since June 13."

"The U.S. dollar touched as low as 78.37 U.S. cents against the New Zealand dollar, the weakest since the nation's currency was allowed by the central bank to trade freely in March 1985. The U.S. currency also dropped to as low as 85.99 U.S. cents, the weakest since February 1989, versus the Australian dollar."

"The decline in the dollar 'reflects the market's uncertainty about where the U.S. economy goes in the second half of the year and where Fed policy goes,' said Robert Sinche, head of currency strategy at Bank of America Corp. in New York. It is 'probably related to the renewed uncertainty about the housing market, particularly the impact of subprime activities as we go to the second half of the year.'"

"'Geopolitical risk causes some jitters and people are cutting back risks,' said Naomi Fink, chief North American currency strategist at BNP Paribas Securities SA in New York. 'But carry trade is not dead yet. There is still a lack of conviction for an unwinding of the carry trade as shown' in the yen's decline versus the Australian and New Zealand currencies."

From MarketWatch. "Gold futures rose more than $8 an ounce Monday to close near their highest level in almost two weeks as terrorism concerns and a weaker U.S. dollar helped boost the metal's appeal as an investment hedge."

"'All the ingredients for a rally were there but nothing happened until today,' said Julian Phillips, an analyst at"

"'The dollar is falling fast now, the oil price is sitting on $70 and looks like staying there or rising. Gold had to run up, despite any efforts to hold it down,' he said. 'What is clear now is that there is force to this rise,' he said. 'If more consolidation occurs, it will simply power up this rise.'"

"Gold's benchmark August contract gained 1.3%, or $8.30, to finish at $659.20 an ounce on the New York Mercantile Exchange, its strongest closing level since June 20. Gold futures gained 50 cents an ounce on Friday but finished last month with a loss of 2.4%."

"Other metals prices finished higher along with gold Monday. Silver for September delivery rose 26.7 cents to close at $12.74 an ounce. October platinum also edged up by $8.60 to end at $1,295.10 an ounce, while September palladium closed at $371.40 an ounce, up $2.90."

"'Although we have the euro moving back towards record levels against the greenback, the U.S. dollar itself is nearing some terrific technical support so it is hard to say the move will continue from here,' Spina said. 'Gold and silver are also nearing technical resistances so one must watch those levels quite carefully, too,' so 'until the markets show me they are ready to move through these key levels, I remain vigilant, and most importantly, patient with gold and silver,' he said."

From Reuters. "Asian countries were warned on Monday against complacency that another Asian financial crisis could not hit the region. 'It is important that we make sure that we do not become overconfident that a crisis can never happen,' said Thailand's finance minister, Chalongphob Sussangkarn."

"He was speaking at a forum in Manila to mark the 10th anniversary of the Asian financial crisis, which was triggered by a large outflow of capital toppling an overvalued Thai baht."

"The president of the Asian Development Bank said there was potential market volatility from large inflows of capital. 'We have the potential for more bouts of financial market volatility,' Haruhiko Kuroda said."

"'Capital flows have rammed up significantly over the past several years as increased global liquidity, Asia's economic resurgence and dynamism, along with the search for yields has drawn in and out large amounts of investment capital.' Asian economies have accumulated huge foreign reserves to cushion the impact of sudden withdrawal of massive capital."

"The devaluation of the Thai baht on July 2, 1997 triggered a sharp fall in asset prices and currencies across the region. Millions of people fell below the poverty line and the crisis also led to upheaval in some countries, such as Indonesia and Thailand."

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