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China's yuan rises as talks begin
Bundles of yuan notes
The US has long urged Beijing to let its currency strengthen
China's yuan is at its strongest level against the dollar since the country scrapped its peg to the US currency in July 2005.
The yuan rose to a high of 6.8918 per dollar - a gain of 20% since it ditched the fixed exchange rate.
The rise comes as US Treasury Secretary Henry Paulson prepares to meet with Chinese officials. China's currency policy has dominated previous meetings.
Analysts say China is letting its currency appreciate to cool inflation.
Many Asian countries are allowing their currencies to strengthen to counter the soaring cost of fuel and food.
Exchange rate reform
Trade and energy are expected to be the main talking points as high-level delegations from the US and China convene for two days of discussions in Maryland.
Mr Paulson instigated the regular talks, known as the Strategic Economic Dialogue, to tackle trade and currency issues when he joined the Bush administration in 2006.
The US has long urged China to move more quickly on yuan appreciation and Mr Paulson has said that exchange rate reform is critical to China's social stability.
The US also believes that Beijing uses regulations to favour domestic companies over foreign rivals and that Beijing does too little to address the theft of copyrights and patents held by Western companies
However, with the US economy still reeling from the sub-prime mortgage meltdown and resulting credit crunch, it is easier for China to reject such criticism.
Chinese officials have promoted their own more assertive style of economic management and regulation and chided the US for allowing the dollar to slide.
Business deals
China's commerce minister Chen Deming, who is taking part in the talks, said US and Chinese companies have signed business deals worth more than $8bn.
The agreements cover 35 deals in sectors ranging from the car industry to telecommunications.
In one deal, US car giant General Motors said it had signed a pact worth a $1bn.
It is not clear whether the next US administration will continue the talks.
Taken from :
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Tuesday, June 17, 2008
Oil ends lower after reaching record level near $140
By Myra P. Saefong & Polya Lesova, MarketWatch
Last update: 4:36 p.m. EDT June 16, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed modestly lower Monday, marking a steep decline from the session's record high near $140 a barrel as traders weighed support from the temporary shutdown of an oil platform in the North Sea and weakness in the U.S. dollar against pressure from reports that Saudi Arabia plans to raise its output next month.
Crude for July delivery hit a record high of $139.89 a barrel in electronic trading on Globex. The July contract, which expires on Friday, closed 25 cents lower at $134.61 a barrel in regular trading on the New York Mercantile Exchange.
Prices continued to fall in electronic trading late Monday afternoon. July crude was trading below $134 on Globex as of 4:30 p.m. Eastern time.
Options on the contract expire on Tuesday, adding to the market volatility. Oil futures earlier Monday hit an intraday low of $132.84 a barrel in electronic trading. Last week, crude futures posted a weekly loss of 2.7%.
Part of the retreat in oil prices was "likely realization" that the StatoilHydro ASA, fire was a "relatively easy-to-repair electrical problem," said James Williams, an economist at WTRG Economics, in emailed comments. "This market always overreacts to the smallest piece of bad news."
Norwegian oil company StatoilHydro said Sunday that it shut down oil production at a North Sea platform after a fire broke out. The company said that the fire was quickly extinguished on the Oseberg A platform and no one was injured during the incident.
Chart of STO
StatoilHydro didn't say specifically what caused the fire, but said it occurred in a high voltage room. The company said that total oil production shut down due to the incident amounted to 150,000 barrels per day.
The company has since said that production on the Brage and Veslefrikk fields have been resumed. Oil from those fields was transported via the Oseberg field center.
Saudi Arabia may raise output: reports
Meanwhile, reports Monday suggested that Saudi Arabia, the world's leading oil exporter, is planning to raise oil output.
The New York Times reported Saturday, citing analysts and oil traders briefed by Saudi officials, that the kingdom plans to increase its production next month by about 500,000 barrels a day. That would bring Saudi output to 10 million barrels a day, which would be its highest ever if it is sustained, the Times reported.
Separately, the United Nations said Sunday that Saudi Arabia will increase its output by 200,000 barrels a day next month, the BBC reported. The news came after a meeting between U.N. Secretary General Ban Ki-Moon and Saudi Oil Minister Ali al-Naimi, the BBC reported.
Reuters reported that Saudi Arabia plans to lift its output to 9.7 million barrels per day in July. The news agency cited Sunday's comments from Ki-Moon, following a meeting with Saudi Oil Minister Ali al-Naimi. His comments were quoted in the Abu Dhabi-based The National newspaper, Reuters said.
"Officially, it seems the Saudis have not made a decision on the final number," said Edward Meir, an analyst at MF Global, in a research note Monday.
Reports of a Saudi output increase of 200,000 barrels per day effective in July is "not enough to move markets," said WTRG's Williams. "This is probably not the final move."
"The Saudis, fearing a price collapse, have taken a gradual approach to the problem," he said. "It is increasingly evident that a dramatic move is necessary."
And there are several moves the Saudis could make at the planned meeting on June 22 between oil producers and consumers, he said.
They could "direct intervention in the futures market shorting large volumes of oil," said Williams. They could also "increase production by another 500,000 barrels per day over the 200,000 barrels per day already announced."
Taking that strategy would likely prove that the Saudis can produce that volume of oil and the oil would show up in the Energy Department's weekly supply data and probably influence prices, he said. Also, the oil shipped could be lower quality heavy sour oil since the Energy Department does not distinguish between grades, he said.
The rally seen earlier in Monday's session was driven by headlines, said Darin Newsom, DTN senior analyst.
"The underlying fundamentals don't support the market ... so once the buying loses momentum, the market has to fall back to try to find commercial support," he said in emailed comments.
Meanwhile, "the weakness of the dollar continues to provide support to commodities in general," he said.
On the currency markets Monday, the dollar traded mostly lower. The euro changed hands at $1.5476 against the dollar, up from around $1.5379 at the end of U.S trading on Friday. The dollar index , which tracks the performance of the greenback against a basket of other major currencies, was at 73.634 after a high of 74.18. See Currencies.
Weakness in the greenback typically boosts dollar-denominated commodities such as crude oil and gold.
Video: How Investors Should Act in This Market
Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, does not expect a recovery in the market soon and advises against making decisions on short-term forecasts. (June 16)
"We also cannot look over the fact that China, for the first time, has become a net importer of gasoline," Zachary Oxman, a senior trader at Wisdom Financial, said in emailed comments. "Add that to a weak dollar and a huge rally again in commodities and you have crude pushing towards $150, which I think we will see inside of one month if this trend continues."
China's May gasoline imports rose to a record 338,572 tons, making the country a net importer for the first time on record, according to media reports.
Gasoline records continue
U.S. retail prices for regular gasoline climbed to another record Monday of $4.08 a gallon, according to AAA's Daily Fuel Gauge Report. It's up 35.6% from a year ago.
But July reformulated gasoline closed down 2.21 cents at $3.4379 a gallon after climbing as high as $3.53 earlier, while July heating oil fell 1.26 cents to end at $3.8274 a gallon.
Natural-gas futures were the lone winner among the energy futures Monday. July natural gas futures gained 30.3 cents to close at $12.933 per million British thermal units.
"Last week's surprisingly low injections -- 80 billion cubic feet against expectations of 94 BCF -- has heightened concern about rebuilding [supply] for winter," said Michael Fitzpatrick, an analyst at MF Global, in a note to clients. "The two major worries that are foremost in participants' minds are a hot summer and storm activity."
Rounding out Monday's trading, energy equities climbed. The Philadelphia Oil Service Index closed up 0.8% at 341.24. See Energy Stocks.
Prices for gold futures rallied to touch a high of $897 an ounce. See Metals Stocks. End of Story
Myra P. Saefong is a reporter for MarketWatch in San Francisco.
Polya Lesova is a MarketWatch reporter based in New York.
taken from :
http://www.marketwatch.com
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Last update: 4:36 p.m. EDT June 16, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed modestly lower Monday, marking a steep decline from the session's record high near $140 a barrel as traders weighed support from the temporary shutdown of an oil platform in the North Sea and weakness in the U.S. dollar against pressure from reports that Saudi Arabia plans to raise its output next month.
Crude for July delivery hit a record high of $139.89 a barrel in electronic trading on Globex. The July contract, which expires on Friday, closed 25 cents lower at $134.61 a barrel in regular trading on the New York Mercantile Exchange.
Prices continued to fall in electronic trading late Monday afternoon. July crude was trading below $134 on Globex as of 4:30 p.m. Eastern time.
Options on the contract expire on Tuesday, adding to the market volatility. Oil futures earlier Monday hit an intraday low of $132.84 a barrel in electronic trading. Last week, crude futures posted a weekly loss of 2.7%.
Part of the retreat in oil prices was "likely realization" that the StatoilHydro ASA, fire was a "relatively easy-to-repair electrical problem," said James Williams, an economist at WTRG Economics, in emailed comments. "This market always overreacts to the smallest piece of bad news."
Norwegian oil company StatoilHydro said Sunday that it shut down oil production at a North Sea platform after a fire broke out. The company said that the fire was quickly extinguished on the Oseberg A platform and no one was injured during the incident.
Chart of STO
StatoilHydro didn't say specifically what caused the fire, but said it occurred in a high voltage room. The company said that total oil production shut down due to the incident amounted to 150,000 barrels per day.
The company has since said that production on the Brage and Veslefrikk fields have been resumed. Oil from those fields was transported via the Oseberg field center.
Saudi Arabia may raise output: reports
Meanwhile, reports Monday suggested that Saudi Arabia, the world's leading oil exporter, is planning to raise oil output.
The New York Times reported Saturday, citing analysts and oil traders briefed by Saudi officials, that the kingdom plans to increase its production next month by about 500,000 barrels a day. That would bring Saudi output to 10 million barrels a day, which would be its highest ever if it is sustained, the Times reported.
Separately, the United Nations said Sunday that Saudi Arabia will increase its output by 200,000 barrels a day next month, the BBC reported. The news came after a meeting between U.N. Secretary General Ban Ki-Moon and Saudi Oil Minister Ali al-Naimi, the BBC reported.
Reuters reported that Saudi Arabia plans to lift its output to 9.7 million barrels per day in July. The news agency cited Sunday's comments from Ki-Moon, following a meeting with Saudi Oil Minister Ali al-Naimi. His comments were quoted in the Abu Dhabi-based The National newspaper, Reuters said.
"Officially, it seems the Saudis have not made a decision on the final number," said Edward Meir, an analyst at MF Global, in a research note Monday.
Reports of a Saudi output increase of 200,000 barrels per day effective in July is "not enough to move markets," said WTRG's Williams. "This is probably not the final move."
"The Saudis, fearing a price collapse, have taken a gradual approach to the problem," he said. "It is increasingly evident that a dramatic move is necessary."
And there are several moves the Saudis could make at the planned meeting on June 22 between oil producers and consumers, he said.
They could "direct intervention in the futures market shorting large volumes of oil," said Williams. They could also "increase production by another 500,000 barrels per day over the 200,000 barrels per day already announced."
Taking that strategy would likely prove that the Saudis can produce that volume of oil and the oil would show up in the Energy Department's weekly supply data and probably influence prices, he said. Also, the oil shipped could be lower quality heavy sour oil since the Energy Department does not distinguish between grades, he said.
The rally seen earlier in Monday's session was driven by headlines, said Darin Newsom, DTN senior analyst.
"The underlying fundamentals don't support the market ... so once the buying loses momentum, the market has to fall back to try to find commercial support," he said in emailed comments.
Meanwhile, "the weakness of the dollar continues to provide support to commodities in general," he said.
On the currency markets Monday, the dollar traded mostly lower. The euro changed hands at $1.5476 against the dollar, up from around $1.5379 at the end of U.S trading on Friday. The dollar index , which tracks the performance of the greenback against a basket of other major currencies, was at 73.634 after a high of 74.18. See Currencies.
Weakness in the greenback typically boosts dollar-denominated commodities such as crude oil and gold.
Video: How Investors Should Act in This Market
Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, does not expect a recovery in the market soon and advises against making decisions on short-term forecasts. (June 16)
"We also cannot look over the fact that China, for the first time, has become a net importer of gasoline," Zachary Oxman, a senior trader at Wisdom Financial, said in emailed comments. "Add that to a weak dollar and a huge rally again in commodities and you have crude pushing towards $150, which I think we will see inside of one month if this trend continues."
China's May gasoline imports rose to a record 338,572 tons, making the country a net importer for the first time on record, according to media reports.
Gasoline records continue
U.S. retail prices for regular gasoline climbed to another record Monday of $4.08 a gallon, according to AAA's Daily Fuel Gauge Report. It's up 35.6% from a year ago.
But July reformulated gasoline closed down 2.21 cents at $3.4379 a gallon after climbing as high as $3.53 earlier, while July heating oil fell 1.26 cents to end at $3.8274 a gallon.
Natural-gas futures were the lone winner among the energy futures Monday. July natural gas futures gained 30.3 cents to close at $12.933 per million British thermal units.
"Last week's surprisingly low injections -- 80 billion cubic feet against expectations of 94 BCF -- has heightened concern about rebuilding [supply] for winter," said Michael Fitzpatrick, an analyst at MF Global, in a note to clients. "The two major worries that are foremost in participants' minds are a hot summer and storm activity."
Rounding out Monday's trading, energy equities climbed. The Philadelphia Oil Service Index closed up 0.8% at 341.24. See Energy Stocks.
Prices for gold futures rallied to touch a high of $897 an ounce. See Metals Stocks. End of Story
Myra P. Saefong is a reporter for MarketWatch in San Francisco.
Polya Lesova is a MarketWatch reporter based in New York.
taken from :
http://www.marketwatch.com
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USD Supported by Rate Hike Expectations
by Korman Tam
The greenback maintained its buoyant tone against the majors at the start of the week, rallying to a fresh 3 ½-month high versus the yen at 108.56 and 1.5348 against the euro. Despite US Treasury Secretary Hank Paulson continuing to talk up the dollar at the meeting, there was no official mention of currencies in the communiqué from the G8 Finance Ministers meeting. Further, there was also no discussion of possible coordinated intervention to prop up the dollar. The primary issue of concern at the meeting was tackling sharp rises in global inflation, particularly rapid increases in the prices for commodities and oil. Nonetheless, the dollar managed to shrug off the lack of mention at the meeting and continues to hold onto its gains.
Economic data released earlier in the session saw the June NY Fed manufacturing survey contract by more than anticipated at minus 8.68, versus expectations for an improvement to minus 2 from minus 3.23 in May. Meanwhile, the April TICS data revealed net capital inflows increasing to $60.6 billion, a sharp reversal from net sales of $48.2 billion in the previous month. The NAHB housing market index fell to 18 in June, down slightly from a reading of 19 in May.
The coming week will see several key economic reports from the US including May PPI, Q1 current account balance, May housing starts, industrial production, capacity utilization, June Philadelphia Fed manufacturing survey, and May leading economic indicators. Inflation is seen creeping higher with PPI expected to edge up to 0.8% in May from .2% a month earlier, while the excluding food and energy PPI is expected to ease to 0.2% from 0.4%. Housing starts are expected to remain weak, at 980k in May and down from 1.03million units from April.
Richmond Fed President Lacker chimed in on the chorus of recent hawkish comments suggesting the next move will be a hike in interest rates. Lacker said the balance of risks has evolved from earlier in the year and the FOMC will need to adjust rates accordingly. He also said that the dollar impact on potential inflation is a prominent risk that the Fed has in mind. Lacker added that while inflation has been unacceptably high, it has not resulted in higher expectations. Nonetheless, he said the Fed must not be complacent on inflation and the central bank must act forcefully if expectations erode. In the near-term, the dollar will continue to be supported by heightened expectations that the Fed may begin tightening policy as early as September of this year.
Taken from:
http://www.forexnews.com
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The greenback maintained its buoyant tone against the majors at the start of the week, rallying to a fresh 3 ½-month high versus the yen at 108.56 and 1.5348 against the euro. Despite US Treasury Secretary Hank Paulson continuing to talk up the dollar at the meeting, there was no official mention of currencies in the communiqué from the G8 Finance Ministers meeting. Further, there was also no discussion of possible coordinated intervention to prop up the dollar. The primary issue of concern at the meeting was tackling sharp rises in global inflation, particularly rapid increases in the prices for commodities and oil. Nonetheless, the dollar managed to shrug off the lack of mention at the meeting and continues to hold onto its gains.
Economic data released earlier in the session saw the June NY Fed manufacturing survey contract by more than anticipated at minus 8.68, versus expectations for an improvement to minus 2 from minus 3.23 in May. Meanwhile, the April TICS data revealed net capital inflows increasing to $60.6 billion, a sharp reversal from net sales of $48.2 billion in the previous month. The NAHB housing market index fell to 18 in June, down slightly from a reading of 19 in May.
The coming week will see several key economic reports from the US including May PPI, Q1 current account balance, May housing starts, industrial production, capacity utilization, June Philadelphia Fed manufacturing survey, and May leading economic indicators. Inflation is seen creeping higher with PPI expected to edge up to 0.8% in May from .2% a month earlier, while the excluding food and energy PPI is expected to ease to 0.2% from 0.4%. Housing starts are expected to remain weak, at 980k in May and down from 1.03million units from April.
Richmond Fed President Lacker chimed in on the chorus of recent hawkish comments suggesting the next move will be a hike in interest rates. Lacker said the balance of risks has evolved from earlier in the year and the FOMC will need to adjust rates accordingly. He also said that the dollar impact on potential inflation is a prominent risk that the Fed has in mind. Lacker added that while inflation has been unacceptably high, it has not resulted in higher expectations. Nonetheless, he said the Fed must not be complacent on inflation and the central bank must act forcefully if expectations erode. In the near-term, the dollar will continue to be supported by heightened expectations that the Fed may begin tightening policy as early as September of this year.
Taken from:
http://www.forexnews.com
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Monday, June 16, 2008
Dollar May Beat Euro as Inflation Focus Trumps Subprime Rout
By Lukanyo Mnyanda and Ye Xie
June 16 (Bloomberg) -- Currency forecasters are betting that the dollar rally is just getting started as the Federal Reserve's shift to fighting inflation makes it likely to raise interest rates more aggressively than the European Central Bank.
The currency will strengthen 2.5 percent to $1.50 per euro by year-end, according to the mean estimate of 39 firms surveyed by Bloomberg. Economists anticipate that the ECB will raise rates a quarter-percentage point by September and then cut borrowing costs by yearend. Fed Chairman Ben S. Bernanke, who said he's ``attentive'' to the U.S. currency, will boost rates three-quarters of a percentage point by the end of the third quarter of 2009, according to data compiled by Bloomberg.
``We've seen a very significant shift in Fed emphasis; they're now clearly focused on inflation and the need to control inflation expectations,'' said Ian Stannard, senior foreign- exchange strategist in London at BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey. ``We're likely to see the currency recover some ground.''
U.S. consumer prices rose 0.6 percent in May, the most since November and faster than forecast, the Labor Department said June 13. The report reinforced expectations the Fed will raise rates to 2.75 percent in the next 15 months from the current 2 percent.
The dollar had its biggest weekly gain in three years against the European and Japanese currencies. It strengthened 3.1 percent versus the yen to 108.19 and 2.5 percent against the euro to $1.5380.
Dollar, Stocks, Bonds
Concern about inflation also sent U.S. two-year notes to their steepest weekly loss in more than six years. The Standard & Poor's 500 Index, the benchmark for U.S. equities, dropped for a second straight week. Not since the week ending Feb. 8 has the dollar gained while Treasuries and the S&P 500 fell.
Options traders reversed bets in favor of the euro. A week ago, demand for options granting the right to buy the euro exceeded those offering the right to sell for the first time this year.
The so-called risk-reversal rate changed as traders speculated Group of Eight officials would signal they favor a stronger dollar and French Finance Minister Christine Lagarde described the U.S. currency's gains as ``very satisfying.''
``Verbal intervention has become more powerful,'' said Daniel Janis, who helps manage the $2 billion John Hancock Strategic Income Fund in Boston. ``You are likely to see a more stable dollar.''
Bear Stearns Rescue
The dollar index, which measures the U.S. currency against six trading partners, tumbled almost 9 percent between Sept. 18 and April 22 as the Fed cut its target rate for overnight bank loans by a total 3 percentage points to stave off a recession caused by tumbling home prices and a seizure in credit markets sparked by losses in subprime-related securities.
It rebounded 4 percent since then after the Fed helped arrange the bailout of Bear Stearns Cos. by JPMorgan Chase & Co. and investors shifted their focus to inflation instead of the credit crunch.
G-8 finance ministers said the credit squeeze has been replaced by surging food and fuel prices as the biggest threat to the world economy.
``The predominant concern is the inflationary effect that oil in particular and also food prices are having,'' U.K. Chancellor of the Exchequer Alistair Darling said June 14 after the talks ended in Osaka, Japan. Deputy German Finance Minister Thomas Mirow said oil's rise to a record means ``an enormous withdrawal of purchasing power.''
Oil reached $139.12 a barrel on June 6 and corn futures for December delivery rose 0.5 cent to $7.40 a bushel on the Chicago Board of Trade.
Price Stability
The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency,'' Bernanke said June 3.
The remarks were a ``change of rhetoric'' that showed the dollar ``has bottomed,'' said Stephen Jen, chief currency economist at Morgan Stanley in London, who used to work at the Fed.
``Central banks are trying to get ahead of the curve by tightening faster than the market has been imagining.'' said Tim Bond, head of global asset allocation at Barclays Capital in London. The Fed will lift its target rate for overnight bank loans a quarter point in September and October, Barclays said in a report June 13. Higher interest rates support a country's currency by making its fixed-income assets more attractive.
Bulls in Minority
Dollar bulls are still in the minority, in part because ECB President Jean-Claude Trichet has also said inflation is a concern and the ECB rate is double the Fed's.
UBS AG, the second-biggest currency trader, last week cut its one- and three-month dollar forecasts against the euro to $1.60 and $1.53, from estimates of $1.50 and $1.47, respectively. Citigroup Global Markets Inc. reversed its bet on dollar gains, expecting the currency to fall to $1.63 within two months.
The dollar will trade at $1.50 to the euro and 105 yen by the end of the year, according to analysts in a Bloomberg survey.
``Actions speak louder than words,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's biggest currency trader, according to Euromoney Institutional Investor Plc. He forecast the euro will trade between $1.50 and $1.60 in the next three months. The Fed's still ``some way away from actually being ready to pull the trigger,'' he said.
Stretched Strength
Technical indictors show the dollar's strength may be stretched. So-called trading envelopes, which measure how far from the mean a price has strayed, showed the dollar gained more than two-standard deviations in the past three weeks. The last time the indicator reached that level on May 8, the dollar lost 3 percent in two weeks.
Institutional investors bought more dollars than they sold this year, according to State Street Corp. and Bank of New York Mellon Corp., the largest money managers for institutions.
The dollar gained in 71 percent of the quarters over the past decade when they were net buyers, according to Boston-based State Street. The biggest investors bought more than they sold in all of the quarters when, like now, benchmark interest rates were below inflation and the current account deficit, the broadest measure of trade, exceeded 3 percent of the economy.
``There's much more scope for interest rates in the U.S. to get a lot higher,'' said Andrew Wilkinson, a senior market analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., which handles a fifth of all options traded in the U.S. ``We've put a floor under the dollar. I'll bet my money on the dollar rally.''
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
Last Updated: June 15, 2008 12:41 EDT
Taken from:
http://www.bloomberg.com
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June 16 (Bloomberg) -- Currency forecasters are betting that the dollar rally is just getting started as the Federal Reserve's shift to fighting inflation makes it likely to raise interest rates more aggressively than the European Central Bank.
The currency will strengthen 2.5 percent to $1.50 per euro by year-end, according to the mean estimate of 39 firms surveyed by Bloomberg. Economists anticipate that the ECB will raise rates a quarter-percentage point by September and then cut borrowing costs by yearend. Fed Chairman Ben S. Bernanke, who said he's ``attentive'' to the U.S. currency, will boost rates three-quarters of a percentage point by the end of the third quarter of 2009, according to data compiled by Bloomberg.
``We've seen a very significant shift in Fed emphasis; they're now clearly focused on inflation and the need to control inflation expectations,'' said Ian Stannard, senior foreign- exchange strategist in London at BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey. ``We're likely to see the currency recover some ground.''
U.S. consumer prices rose 0.6 percent in May, the most since November and faster than forecast, the Labor Department said June 13. The report reinforced expectations the Fed will raise rates to 2.75 percent in the next 15 months from the current 2 percent.
The dollar had its biggest weekly gain in three years against the European and Japanese currencies. It strengthened 3.1 percent versus the yen to 108.19 and 2.5 percent against the euro to $1.5380.
Dollar, Stocks, Bonds
Concern about inflation also sent U.S. two-year notes to their steepest weekly loss in more than six years. The Standard & Poor's 500 Index, the benchmark for U.S. equities, dropped for a second straight week. Not since the week ending Feb. 8 has the dollar gained while Treasuries and the S&P 500 fell.
Options traders reversed bets in favor of the euro. A week ago, demand for options granting the right to buy the euro exceeded those offering the right to sell for the first time this year.
The so-called risk-reversal rate changed as traders speculated Group of Eight officials would signal they favor a stronger dollar and French Finance Minister Christine Lagarde described the U.S. currency's gains as ``very satisfying.''
``Verbal intervention has become more powerful,'' said Daniel Janis, who helps manage the $2 billion John Hancock Strategic Income Fund in Boston. ``You are likely to see a more stable dollar.''
Bear Stearns Rescue
The dollar index, which measures the U.S. currency against six trading partners, tumbled almost 9 percent between Sept. 18 and April 22 as the Fed cut its target rate for overnight bank loans by a total 3 percentage points to stave off a recession caused by tumbling home prices and a seizure in credit markets sparked by losses in subprime-related securities.
It rebounded 4 percent since then after the Fed helped arrange the bailout of Bear Stearns Cos. by JPMorgan Chase & Co. and investors shifted their focus to inflation instead of the credit crunch.
G-8 finance ministers said the credit squeeze has been replaced by surging food and fuel prices as the biggest threat to the world economy.
``The predominant concern is the inflationary effect that oil in particular and also food prices are having,'' U.K. Chancellor of the Exchequer Alistair Darling said June 14 after the talks ended in Osaka, Japan. Deputy German Finance Minister Thomas Mirow said oil's rise to a record means ``an enormous withdrawal of purchasing power.''
Oil reached $139.12 a barrel on June 6 and corn futures for December delivery rose 0.5 cent to $7.40 a bushel on the Chicago Board of Trade.
Price Stability
The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency,'' Bernanke said June 3.
The remarks were a ``change of rhetoric'' that showed the dollar ``has bottomed,'' said Stephen Jen, chief currency economist at Morgan Stanley in London, who used to work at the Fed.
``Central banks are trying to get ahead of the curve by tightening faster than the market has been imagining.'' said Tim Bond, head of global asset allocation at Barclays Capital in London. The Fed will lift its target rate for overnight bank loans a quarter point in September and October, Barclays said in a report June 13. Higher interest rates support a country's currency by making its fixed-income assets more attractive.
Bulls in Minority
Dollar bulls are still in the minority, in part because ECB President Jean-Claude Trichet has also said inflation is a concern and the ECB rate is double the Fed's.
UBS AG, the second-biggest currency trader, last week cut its one- and three-month dollar forecasts against the euro to $1.60 and $1.53, from estimates of $1.50 and $1.47, respectively. Citigroup Global Markets Inc. reversed its bet on dollar gains, expecting the currency to fall to $1.63 within two months.
The dollar will trade at $1.50 to the euro and 105 yen by the end of the year, according to analysts in a Bloomberg survey.
``Actions speak louder than words,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's biggest currency trader, according to Euromoney Institutional Investor Plc. He forecast the euro will trade between $1.50 and $1.60 in the next three months. The Fed's still ``some way away from actually being ready to pull the trigger,'' he said.
Stretched Strength
Technical indictors show the dollar's strength may be stretched. So-called trading envelopes, which measure how far from the mean a price has strayed, showed the dollar gained more than two-standard deviations in the past three weeks. The last time the indicator reached that level on May 8, the dollar lost 3 percent in two weeks.
Institutional investors bought more dollars than they sold this year, according to State Street Corp. and Bank of New York Mellon Corp., the largest money managers for institutions.
The dollar gained in 71 percent of the quarters over the past decade when they were net buyers, according to Boston-based State Street. The biggest investors bought more than they sold in all of the quarters when, like now, benchmark interest rates were below inflation and the current account deficit, the broadest measure of trade, exceeded 3 percent of the economy.
``There's much more scope for interest rates in the U.S. to get a lot higher,'' said Andrew Wilkinson, a senior market analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., which handles a fifth of all options traded in the U.S. ``We've put a floor under the dollar. I'll bet my money on the dollar rally.''
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
Last Updated: June 15, 2008 12:41 EDT
Taken from:
http://www.bloomberg.com
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Saudi oil output to rise in July
 Saudi Oil Minister Ali al-Naimi made the oil pledge to Mr Ban on Sunday |
Saudi Arabia will increase its oil production by 200,000 barrels a day next month in a move to meet growing world demand, the United Nations says.
The news was announced after UN Secretary General Ban Ki-Moon met Saudi Oil Minister Ali al-Naimi in Jeddah for talks on the high oil price.
Last month, the Kingdom increased its production by 300,000 barrels a day.
The country is thought to be the only oil producer with the ability to pump substantially more crude.
It argues that the current high prices are caused by speculators rather than any shortage of crude oil.
Oil prices fell by almost $2 on Friday after reports that Saudi Arabia might boost oil production. US light, sweet crude was trading at $134.86 in New York.
'Speculative factors'
After an earlier meeting with the Kingdom's King Abdullah, Mr Ban said Saudi Arabia, the world's biggest oil producer, viewed current prices as "abnormally high".
 Mr Ban has held talks with King Abdullah about soaring oil prices |
"He [King Abdullah] acknowledged that the current oil prices are abnormally high due to speculative factors and some other national government policies," Mr Ban said.
"He is willing to what he can to [bring] the price of oil to adequate levels."
On Friday, the Saudi oil minister said current elevated oil prices - which hit a record high of more than $139 (£71) a barrel last week - were unjustified.
Oil minister Ali al-Naimi said a meeting of oil exporters and importers to be held in Jeddah later this month would seek a solution to the unprecedented high prices, the Saudi state news agency said.
The Kingdom is hosting an international gathering of oil producers and consumers in a week's time.
Taken from : http://news.bbc.co.uk/2/hi/business/7455570.stm
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Saturday, June 14, 2008
Lagarde, Flaherty Back Dollar as Oil Dominates G-8 (Update1)
By Simon Kennedy and Theophilos Argitis
June 14 (Bloomberg) -- Finance ministers from Europe and Canada signaled a stronger dollar could help combat surging commodity prices as they and counterparts from the world's richest nations gathered for talks in Japan.
``The strengthening of the dollar seems very satisfying to me,'' France's Christine Lagarde said as she arrived in Osaka for a meeting of Group of Eight officials. Canada's Jim Flaherty said in an interview that a strong U.S. currency ``can help on the inflationary side because of the difference it makes with a low U.S. dollar in terms of oil prices.''
The U.S. currency posted its biggest weekly gain since 2005 against the euro on speculation the G-8 officials will signal they favor further increases. Its slide of the past six years has been blamed in part for the jump in the cost of fuel and food, which is topping the agenda at the G-8 talks.
``The oil-currency nexus is so powerful,'' said Stephen Jen, chief currency strategist at Morgan Stanley in London. ``Both are complicating policy making and hurting the global economy.''
The G-8 will warn in its statement that the jump in commodity costs risks weaker growth and faster inflation, according to an official from a G-8 country who spoke on the condition of anonymity. Such an environment complicates policy choices for governments, which will pledge to remain vigilant and take appropriate actions to ensure stability and expansion of the world economy, the official said.
Oil Prices
Oil reached an unprecedented $139.12 a barrel on June 6 and the United Nations estimates food costs soared 51 percent in the past year as rice, other grains and soybeans all set records. Inflation has replaced the credit squeeze as the main economic concern for ministers meeting in Osaka as higher prices erode household budgets, increase production costs, spark protests and spur central banks to raise interest rates.
Most raw materials are priced in the U.S. currency, providing investors with a hedge against its 5 percent fall versus the euro this year. The International Monetary Fund estimates the dollar's 30 percent decline on a trade-weighted basis since 2002 has added $25 to the price of oil.
``You can't discuss the volatility of oil products without discussing the questions linked to exchange rates, even if exchange rates aren't a determined topic of the G-8,'' Lagarde told reporters yesterday.
The G-8 typically omits mention of currencies in its joint statements because central bankers aren't at the meeting. The communique is scheduled to be released about 1 p.m. today.
Fed Language
Investors still speculate that the dollar will be mentioned by ministers at press conferences after U.S. policy makers including Federal Reserve Chairman Ben S. Bernanke this month toughened their language to support it.
The dollar strengthened to $1.5376 per euro, a gain of 2.6 percent this week. It's also set its biggest weekly advance against the yen since December 2004.
``There is a new momentum for supporting the dollar, and comments from the G-8 will be skewed in that direction,'' said Adam Cole, head of global currency strategy at Royal Bank of Canada in London.
Having previously signaled indifference toward the dollar's drop as it encouraged exports, U.S. officials this month sought to prop it up on concern a weaker currency risks fanning inflation by making imports more expensive.
Bernanke `Attentive'
Bernanke said on June 2 that the central bank is ``attentive'' to the currency's value, a day after Treasury Secretary Henry Paulson said he ``very strongly'' favors a ``strong dollar.''
Deputy German Finance Minister Thomas Mirow said in an interview yesterday that European governments are also keen to ensure that the dollar's depreciation isn't ``carried by the euro alone.'' Europeans fear the euro's rise will sap their exports.
Policy makers' worry about the dollar may fail to buoy it. There is little sign governments are willing to intervene to buy dollars for the first time since 1995. European Central Bank officials say they may raise their key interest rate a quarter point to 4.25 percent in July. That would make it more profitable to hold euros than dollars even as the Fed is forecast to leave its main rate at 2 percent this month after cutting it seven times since September.
Limited Influence
The G-8 may fail to temper rising oil prices. Excluding Russia, the group produces less than 20 percent of the world's crude, forcing its governments to lobby the Organization of the Petroleum Exporting Countries to bolster output and press consuming nations to use energy more efficiently. That has proved an unsuccessful approach since it was adopted four years ago, when oil was about $40 a barrel.
``The position that more development, more investment and an increase in supply are needed is becoming universal and is something we support,'' Russian Finance Minister Alexei Kudrin said in Osaka yesterday. ``The question is why does OPEC think current supply is enough?''
Saudi Arabia, the world's top oil exporter, will seek measures to damp crude prices at a meeting it will host for oil producers, consumers and companies this month, Oil Minister Ali al-Naimi said.
To contact the reporter on this story: Simon Kennedy in Osaka, Japan, at skennedy4@bloomberg.net. Theophilos Argitis in Osaka, Japan, at targitis@bloomberg.net.
Read more...
June 14 (Bloomberg) -- Finance ministers from Europe and Canada signaled a stronger dollar could help combat surging commodity prices as they and counterparts from the world's richest nations gathered for talks in Japan.
``The strengthening of the dollar seems very satisfying to me,'' France's Christine Lagarde said as she arrived in Osaka for a meeting of Group of Eight officials. Canada's Jim Flaherty said in an interview that a strong U.S. currency ``can help on the inflationary side because of the difference it makes with a low U.S. dollar in terms of oil prices.''
The U.S. currency posted its biggest weekly gain since 2005 against the euro on speculation the G-8 officials will signal they favor further increases. Its slide of the past six years has been blamed in part for the jump in the cost of fuel and food, which is topping the agenda at the G-8 talks.
``The oil-currency nexus is so powerful,'' said Stephen Jen, chief currency strategist at Morgan Stanley in London. ``Both are complicating policy making and hurting the global economy.''
The G-8 will warn in its statement that the jump in commodity costs risks weaker growth and faster inflation, according to an official from a G-8 country who spoke on the condition of anonymity. Such an environment complicates policy choices for governments, which will pledge to remain vigilant and take appropriate actions to ensure stability and expansion of the world economy, the official said.
Oil Prices
Oil reached an unprecedented $139.12 a barrel on June 6 and the United Nations estimates food costs soared 51 percent in the past year as rice, other grains and soybeans all set records. Inflation has replaced the credit squeeze as the main economic concern for ministers meeting in Osaka as higher prices erode household budgets, increase production costs, spark protests and spur central banks to raise interest rates.
Most raw materials are priced in the U.S. currency, providing investors with a hedge against its 5 percent fall versus the euro this year. The International Monetary Fund estimates the dollar's 30 percent decline on a trade-weighted basis since 2002 has added $25 to the price of oil.
``You can't discuss the volatility of oil products without discussing the questions linked to exchange rates, even if exchange rates aren't a determined topic of the G-8,'' Lagarde told reporters yesterday.
The G-8 typically omits mention of currencies in its joint statements because central bankers aren't at the meeting. The communique is scheduled to be released about 1 p.m. today.
Fed Language
Investors still speculate that the dollar will be mentioned by ministers at press conferences after U.S. policy makers including Federal Reserve Chairman Ben S. Bernanke this month toughened their language to support it.
The dollar strengthened to $1.5376 per euro, a gain of 2.6 percent this week. It's also set its biggest weekly advance against the yen since December 2004.
``There is a new momentum for supporting the dollar, and comments from the G-8 will be skewed in that direction,'' said Adam Cole, head of global currency strategy at Royal Bank of Canada in London.
Having previously signaled indifference toward the dollar's drop as it encouraged exports, U.S. officials this month sought to prop it up on concern a weaker currency risks fanning inflation by making imports more expensive.
Bernanke `Attentive'
Bernanke said on June 2 that the central bank is ``attentive'' to the currency's value, a day after Treasury Secretary Henry Paulson said he ``very strongly'' favors a ``strong dollar.''
Deputy German Finance Minister Thomas Mirow said in an interview yesterday that European governments are also keen to ensure that the dollar's depreciation isn't ``carried by the euro alone.'' Europeans fear the euro's rise will sap their exports.
Policy makers' worry about the dollar may fail to buoy it. There is little sign governments are willing to intervene to buy dollars for the first time since 1995. European Central Bank officials say they may raise their key interest rate a quarter point to 4.25 percent in July. That would make it more profitable to hold euros than dollars even as the Fed is forecast to leave its main rate at 2 percent this month after cutting it seven times since September.
Limited Influence
The G-8 may fail to temper rising oil prices. Excluding Russia, the group produces less than 20 percent of the world's crude, forcing its governments to lobby the Organization of the Petroleum Exporting Countries to bolster output and press consuming nations to use energy more efficiently. That has proved an unsuccessful approach since it was adopted four years ago, when oil was about $40 a barrel.
``The position that more development, more investment and an increase in supply are needed is becoming universal and is something we support,'' Russian Finance Minister Alexei Kudrin said in Osaka yesterday. ``The question is why does OPEC think current supply is enough?''
Saudi Arabia, the world's top oil exporter, will seek measures to damp crude prices at a meeting it will host for oil producers, consumers and companies this month, Oil Minister Ali al-Naimi said.
To contact the reporter on this story: Simon Kennedy in Osaka, Japan, at skennedy4@bloomberg.net. Theophilos Argitis in Osaka, Japan, at targitis@bloomberg.net.
Read more...
Gold, Silver Rebound on Investor Demand for Inflation Hedge
By Pham-Duy Nguyen
June 13 (Bloomberg) -- Gold rose, erasing earlier losses, on speculation that higher food and energy costs will spur inflation and boost demand for precious metals as a hedge against inflation. Silver also climbed.
A government report showed U.S. consumer prices last month rose 0.6 percent, the most since November. Corn touched a record for a seventh straight session today. Soybeans, wheat and rice prices have climbed to all-time highs this year, and crude oil more than doubled in the past year as gold gained 34 percent.
``Real interest rates remain negative,'' said James Turk, the founder of GoldMoney.com, which held $352 million in gold and silver in storage for investors at the end of May. ``Inflation is greater than the interest income you can earn on your dollars, so after adjusting for inflation, you are losing purchasing power.''
Gold futures for August delivery rose $1.10, or 0.1 percent, to $873.10 an ounce on the Comex division of the New York Mercantile Exchange. Gold touched a record $1,033.90 on March 17. This week, the price has dropped 2.9 percent, the second decline in three weeks.
Silver futures for July delivery gained 7.5 cents, or 0.5 percent, to $16.56 an ounce on the Comex. The price advanced 11 percent this year, while gold climbed 4.2 percent.
Consumer prices rose 4.2 percent in the 12 months ending May 31, the Labor Department said today. Gold rallied 31 percent last year as consumer costs accelerated 4.1 percent, the most in 17 years.
Dollar, Oil
Still, gold traded lower most of the session as the dollar headed for the biggest weekly gain in three years against the euro. Crude-oil prices dropped 2.5 percent this week after climbing 8.8 percent last week.
The U.S. currency climbed on speculation the Federal Reserve will raise interest rates to contain inflation.
Gold rallied 39 percent from Sept. 17 to March 17 as the Fed slashed borrowing costs, after a housing slump and a credit squeeze threatened to push the U.S. economy into a recession.
The benchmark federal-funds rate is at 2 percent, down from 5.25 percent in mid-September after seven reductions. Interest- rate futures show a 50 percent chance the Fed may raise the rate to 2.25 percent by Aug. 5, compared with no chance a month ago.
``The specter of higher interest rates is negative'' for gold, said William O'Neill, a partner at Logic Advisors in Upper Saddler River, New Jersey. ``The dollar is the key to the recent slide, with oil taking on a secondary role. I see gold falling below $850 next week.''
Crude oil dropped as low as $133.46 a barrel today. The record high is $139.12.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Read more...
June 13 (Bloomberg) -- Gold rose, erasing earlier losses, on speculation that higher food and energy costs will spur inflation and boost demand for precious metals as a hedge against inflation. Silver also climbed.
A government report showed U.S. consumer prices last month rose 0.6 percent, the most since November. Corn touched a record for a seventh straight session today. Soybeans, wheat and rice prices have climbed to all-time highs this year, and crude oil more than doubled in the past year as gold gained 34 percent.
``Real interest rates remain negative,'' said James Turk, the founder of GoldMoney.com, which held $352 million in gold and silver in storage for investors at the end of May. ``Inflation is greater than the interest income you can earn on your dollars, so after adjusting for inflation, you are losing purchasing power.''
Gold futures for August delivery rose $1.10, or 0.1 percent, to $873.10 an ounce on the Comex division of the New York Mercantile Exchange. Gold touched a record $1,033.90 on March 17. This week, the price has dropped 2.9 percent, the second decline in three weeks.
Silver futures for July delivery gained 7.5 cents, or 0.5 percent, to $16.56 an ounce on the Comex. The price advanced 11 percent this year, while gold climbed 4.2 percent.
Consumer prices rose 4.2 percent in the 12 months ending May 31, the Labor Department said today. Gold rallied 31 percent last year as consumer costs accelerated 4.1 percent, the most in 17 years.
Dollar, Oil
Still, gold traded lower most of the session as the dollar headed for the biggest weekly gain in three years against the euro. Crude-oil prices dropped 2.5 percent this week after climbing 8.8 percent last week.
The U.S. currency climbed on speculation the Federal Reserve will raise interest rates to contain inflation.
Gold rallied 39 percent from Sept. 17 to March 17 as the Fed slashed borrowing costs, after a housing slump and a credit squeeze threatened to push the U.S. economy into a recession.
The benchmark federal-funds rate is at 2 percent, down from 5.25 percent in mid-September after seven reductions. Interest- rate futures show a 50 percent chance the Fed may raise the rate to 2.25 percent by Aug. 5, compared with no chance a month ago.
``The specter of higher interest rates is negative'' for gold, said William O'Neill, a partner at Logic Advisors in Upper Saddler River, New Jersey. ``The dollar is the key to the recent slide, with oil taking on a secondary role. I see gold falling below $850 next week.''
Crude oil dropped as low as $133.46 a barrel today. The record high is $139.12.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Read more...
Yuan Has Second Winning Week as China Seeks to Tackle Inflation
By Judy Chen and Belinda Cao
June 13 (Bloomberg) -- The yuan completed a second week of gains on speculation policy makers are seeking a stronger currency to slow inflation.
The yuan has appreciated 1.6 percent versus the dollar this quarter, the best performance among the 10 most-traded currencies in Asia outside Japan. A government report showed yesterday that China's money supply grew in May at the fastest pace in four months, adding pressure on the central bank to rein in inflation.
``China still needs a stronger yuan to curb imported inflation,'' said Tang Liang, a foreign-exchange trader at the Beijing branch of Industrial & Commercial Bank of China Ltd., the nation's largest bank. ``The market is not optimistic about slowing inflation for the rest of this year as non-food inflationary pressure is increasing.''
The currency climbed 0.31 percent to 6.9018 a dollar as of 5:30 p.m. in Shanghai, from 6.9230 last week, according to the China Foreign Exchange Trade System. The yuan is allowed to trade by up to 0.5 percent against the dollar on either side of a reference rate fixed by the central bank each day. The rate was set at 6.9018 today.
M2, the broadest measure of money supply, rose 18.1 percent in May from a year earlier to 43.6 trillion yuan ($6.3 trillion), the People's Bank of China said yesterday. The gauge increased 16.9 percent in April. Economists in a Bloomberg survey had predicted a 17 percent expansion.
`Not Smart'
Inflation slowed to 7.7 percent in May, from 8.5 percent in April, still exceeding the government's annual target of 4.8 percent, according to the statistics bureau yesterday.
China, which invests up to a third of its $1.68 trillion in foreign exchange reserves in Treasuries, is ``not smart'' to invest in U.S. debt and should seek higher returns, said Cheng Siwei, former vice chairman of the National People's Congress, the country's top legislature.
``I don't think it's a smart move to invest in U.S. government bonds,'' said Cheng at a conference in Beijing today. ``We need smart capitalists to invest ourselves.'' The comment was his personal opinion, not government policy, Cheng said.
Government bonds were little changed after rebounding yesterday from a loss earlier this week following a central bank order to raise bank's deposit reserves.
Tightening Policy
Local debt securities lost almost 1 percent on June 10 and 11 after a Chinese holiday, according to an Asian local-currency debt index compiled by HSBC Holdings Plc. The central bank ordered lenders on June 7 to set aside 1 percentage point more of their deposits as reserves, to be paid June 15 and 25.
The securities started to rebound yesterday, with the yields declining 1.2 basis point on average, according to a data posted on Chinabond.com, a Web site run by the government's biggest debt clearing house.
``Bonds moved little in trading as people's worries about funding abated,'' said Xie Xin, a bond trader with Industrial Bank Co. Ltd. in Shanghai. ``Funding costs between banks slid again today.''
The seven-day repo fixing rate, a measure for lending costs in the money market, declined for a third day to 3.34 percent, matching that before the central bank's notice, according to the National Interbank Funding Center.
The Agricultural Development Bank of China sold 10 billion yuan ($1.45 billion) in five-year floating-rate notes today at a spread of 65 basis points more than the benchmark one-year deposit rate of 4.14 percent. The auction drew bids 2.3 times the planned size. A basis point is 0.01 percentage point.
``Investors seemed to have more demand for floating-rate debt when there isn't favorable news for the market,'' said He Xiuhong, a fixed-income analyst at GF Securities Co. in Guangzhou, the nation's third-largest brokerage by revenue.
The yield on the 4.41 percent treasury bond due December 2017 held at 4.25 percent, according to the China Interbank Bond Market. The price of the security was 101.22 per 100 yuan face amount.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.
Read more...
June 13 (Bloomberg) -- The yuan completed a second week of gains on speculation policy makers are seeking a stronger currency to slow inflation.
The yuan has appreciated 1.6 percent versus the dollar this quarter, the best performance among the 10 most-traded currencies in Asia outside Japan. A government report showed yesterday that China's money supply grew in May at the fastest pace in four months, adding pressure on the central bank to rein in inflation.
``China still needs a stronger yuan to curb imported inflation,'' said Tang Liang, a foreign-exchange trader at the Beijing branch of Industrial & Commercial Bank of China Ltd., the nation's largest bank. ``The market is not optimistic about slowing inflation for the rest of this year as non-food inflationary pressure is increasing.''
The currency climbed 0.31 percent to 6.9018 a dollar as of 5:30 p.m. in Shanghai, from 6.9230 last week, according to the China Foreign Exchange Trade System. The yuan is allowed to trade by up to 0.5 percent against the dollar on either side of a reference rate fixed by the central bank each day. The rate was set at 6.9018 today.
M2, the broadest measure of money supply, rose 18.1 percent in May from a year earlier to 43.6 trillion yuan ($6.3 trillion), the People's Bank of China said yesterday. The gauge increased 16.9 percent in April. Economists in a Bloomberg survey had predicted a 17 percent expansion.
`Not Smart'
Inflation slowed to 7.7 percent in May, from 8.5 percent in April, still exceeding the government's annual target of 4.8 percent, according to the statistics bureau yesterday.
China, which invests up to a third of its $1.68 trillion in foreign exchange reserves in Treasuries, is ``not smart'' to invest in U.S. debt and should seek higher returns, said Cheng Siwei, former vice chairman of the National People's Congress, the country's top legislature.
``I don't think it's a smart move to invest in U.S. government bonds,'' said Cheng at a conference in Beijing today. ``We need smart capitalists to invest ourselves.'' The comment was his personal opinion, not government policy, Cheng said.
Government bonds were little changed after rebounding yesterday from a loss earlier this week following a central bank order to raise bank's deposit reserves.
Tightening Policy
Local debt securities lost almost 1 percent on June 10 and 11 after a Chinese holiday, according to an Asian local-currency debt index compiled by HSBC Holdings Plc. The central bank ordered lenders on June 7 to set aside 1 percentage point more of their deposits as reserves, to be paid June 15 and 25.
The securities started to rebound yesterday, with the yields declining 1.2 basis point on average, according to a data posted on Chinabond.com, a Web site run by the government's biggest debt clearing house.
``Bonds moved little in trading as people's worries about funding abated,'' said Xie Xin, a bond trader with Industrial Bank Co. Ltd. in Shanghai. ``Funding costs between banks slid again today.''
The seven-day repo fixing rate, a measure for lending costs in the money market, declined for a third day to 3.34 percent, matching that before the central bank's notice, according to the National Interbank Funding Center.
The Agricultural Development Bank of China sold 10 billion yuan ($1.45 billion) in five-year floating-rate notes today at a spread of 65 basis points more than the benchmark one-year deposit rate of 4.14 percent. The auction drew bids 2.3 times the planned size. A basis point is 0.01 percentage point.
``Investors seemed to have more demand for floating-rate debt when there isn't favorable news for the market,'' said He Xiuhong, a fixed-income analyst at GF Securities Co. in Guangzhou, the nation's third-largest brokerage by revenue.
The yield on the 4.41 percent treasury bond due December 2017 held at 4.25 percent, according to the China Interbank Bond Market. The price of the security was 101.22 per 100 yuan face amount.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.
Read more...
Dollar Rises Most Since 2005 as Bernanke Cites Reduced Risk
By Bo Nielsen
June 14 (Bloomberg) -- The dollar rose the most against the euro since 2005 as Federal Reserve Chairman Ben S. Bernanke said economic risks have faded, raising speculation policy makers will increase borrowing costs this year to contain inflation.
The greenback rose to a one-month high this week as Treasury Secretary Henry Paulson declined to rule out intervention to support the dollar and U.S. retail sales increased in May twice as much as economists forecast. Group of Eight finance ministers meeting this weekend in Japan may signal that they favor a stronger U.S. currency.
``Risks to U.S. growth have been reduced, and the market is now thinking the Fed will hike in August,'' said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York. ``That's a big shift, and the effect on the dollar was positive.''
The dollar increased 2.5 percent to $1.5380 per euro, from $1.5778 on June 6. It touched $1.5303, the strongest level since May 8. The U.S. currency rose 3 percent to 108.19 against the yen, from 104.93, and touched 108.38, the highest since Feb. 14. It was the biggest gain since December 2004. Japan's currency fell for a fifth consecutive week against the euro, decreasing 0.6 percent to 166.35, from 165.64. It's the longest stretch of gains since October.
``We've seen a very sharp reversal of sentiment about the dollar,'' said Nick Bennenbroek, head of currency research at Wells Fargo & Co. in New York. ``The U.S. economy seems reasonably resilient, and the Fed is beginning to look hawkish.''
Chinese Yuan
The Chinese yuan rose for a second consecutive week versus the dollar, increasing 0.3 percent to 6.9022, on speculation policy makers are seeking a stronger currency to control inflation. The U.S. wants China to keep allowing its currency to rise against the dollar and will discuss that stance in talks next week in Maryland, said Alan Holmer, the U.S. Treasury's top China negotiator, in a briefing in Washington yesterday.
The Australian dollar fell 2.6 percent this week against its U.S. counterpart, the biggest decline in almost three months, and the New Zealand currency declined 2.4 percent, for its third consecutive weekly decrease. Traders speculated an increase in U.S. interest rates will narrow the yield advantage of Australian and New Zealand debt.
Fed funds futures on the Chicago Board of Trade show a 60 percent chance the U.S. central bank will increase the 2 percent target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago. There are 21 percent odds policy makers will lift the rate to 3 percent by December.
Yield Spread
The yield advantage of a two-year German bund over a comparable Treasury note fell to 1.58 percentage points, making dollar-denominated assets more attractive. The difference was 2.26 percentage points on June 6, the widest since 1993.
``People are getting ahead of themselves'' betting on Fed rate increases, said David Powell, a currency strategist at Bank of America Corp. in New York. ``The dollar is a bit overshot at this stage.'' He predicted the Fed will raise borrowing costs to 2.25 percent this year.
U.S. retail sales increased 1 percent in May, following a revised 0.4 percent advance the prior month, the Commerce Department reported on June 12. Consumer prices rose 0.6 percent last month after a 0.2 percent increase in April, the Labor Department reported yesterday in Washington.
``The risk that the economy has entered a substantial downturn appears to have diminished,'' Bernanke said in a speech at a Boston Fed conference on June 9. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''
Bernanke on Currency
Bernanke said on June 3 that he's aware of the impact a falling currency can have on price expectations. Paulson said in an interview with CNBC on June 9 that he would ``never'' rule out currency intervention.
The 15-nation euro weakened yesterday as Irish voters turned down the European Union's new governing treaty, a setback for the bloc's plans to strengthen its global voice.
French Finance Minister Christine Lagarde, before meeting with her G-8 counterparts in Osaka, Japan, told reporters that the U.S. dollar's increase versus the euro is ``very satisfying.'' The group comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada and Russia.
``If the G-8 this weekend doesn't come out with a stronger statement, the gains we have seen in the dollar this week will disappear very soon,'' said Michael Metcalfe, London-based head of macro strategy at State Street Global Markets, in an interview on Bloomberg Television.
Currency Intervention
The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
The yen weakened this week after Bank of Japan Governor Masaaki Shirakawa and his six colleagues left the overnight lending rate at 0.5 percent, the lowest among major economies, in a unanimous vote in Tokyo.
To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net
Last Updated: June 13, 2008 19:07 EDT
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June 14 (Bloomberg) -- The dollar rose the most against the euro since 2005 as Federal Reserve Chairman Ben S. Bernanke said economic risks have faded, raising speculation policy makers will increase borrowing costs this year to contain inflation.
The greenback rose to a one-month high this week as Treasury Secretary Henry Paulson declined to rule out intervention to support the dollar and U.S. retail sales increased in May twice as much as economists forecast. Group of Eight finance ministers meeting this weekend in Japan may signal that they favor a stronger U.S. currency.
``Risks to U.S. growth have been reduced, and the market is now thinking the Fed will hike in August,'' said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York. ``That's a big shift, and the effect on the dollar was positive.''
The dollar increased 2.5 percent to $1.5380 per euro, from $1.5778 on June 6. It touched $1.5303, the strongest level since May 8. The U.S. currency rose 3 percent to 108.19 against the yen, from 104.93, and touched 108.38, the highest since Feb. 14. It was the biggest gain since December 2004. Japan's currency fell for a fifth consecutive week against the euro, decreasing 0.6 percent to 166.35, from 165.64. It's the longest stretch of gains since October.
``We've seen a very sharp reversal of sentiment about the dollar,'' said Nick Bennenbroek, head of currency research at Wells Fargo & Co. in New York. ``The U.S. economy seems reasonably resilient, and the Fed is beginning to look hawkish.''
Chinese Yuan
The Chinese yuan rose for a second consecutive week versus the dollar, increasing 0.3 percent to 6.9022, on speculation policy makers are seeking a stronger currency to control inflation. The U.S. wants China to keep allowing its currency to rise against the dollar and will discuss that stance in talks next week in Maryland, said Alan Holmer, the U.S. Treasury's top China negotiator, in a briefing in Washington yesterday.
The Australian dollar fell 2.6 percent this week against its U.S. counterpart, the biggest decline in almost three months, and the New Zealand currency declined 2.4 percent, for its third consecutive weekly decrease. Traders speculated an increase in U.S. interest rates will narrow the yield advantage of Australian and New Zealand debt.
Fed funds futures on the Chicago Board of Trade show a 60 percent chance the U.S. central bank will increase the 2 percent target lending rate by at least a quarter-percentage point at its August meeting, compared with 9 percent odds a week ago. There are 21 percent odds policy makers will lift the rate to 3 percent by December.
Yield Spread
The yield advantage of a two-year German bund over a comparable Treasury note fell to 1.58 percentage points, making dollar-denominated assets more attractive. The difference was 2.26 percentage points on June 6, the widest since 1993.
``People are getting ahead of themselves'' betting on Fed rate increases, said David Powell, a currency strategist at Bank of America Corp. in New York. ``The dollar is a bit overshot at this stage.'' He predicted the Fed will raise borrowing costs to 2.25 percent this year.
U.S. retail sales increased 1 percent in May, following a revised 0.4 percent advance the prior month, the Commerce Department reported on June 12. Consumer prices rose 0.6 percent last month after a 0.2 percent increase in April, the Labor Department reported yesterday in Washington.
``The risk that the economy has entered a substantial downturn appears to have diminished,'' Bernanke said in a speech at a Boston Fed conference on June 9. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''
Bernanke on Currency
Bernanke said on June 3 that he's aware of the impact a falling currency can have on price expectations. Paulson said in an interview with CNBC on June 9 that he would ``never'' rule out currency intervention.
The 15-nation euro weakened yesterday as Irish voters turned down the European Union's new governing treaty, a setback for the bloc's plans to strengthen its global voice.
French Finance Minister Christine Lagarde, before meeting with her G-8 counterparts in Osaka, Japan, told reporters that the U.S. dollar's increase versus the euro is ``very satisfying.'' The group comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada and Russia.
``If the G-8 this weekend doesn't come out with a stronger statement, the gains we have seen in the dollar this week will disappear very soon,'' said Michael Metcalfe, London-based head of macro strategy at State Street Global Markets, in an interview on Bloomberg Television.
Currency Intervention
The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
The yen weakened this week after Bank of Japan Governor Masaaki Shirakawa and his six colleagues left the overnight lending rate at 0.5 percent, the lowest among major economies, in a unanimous vote in Tokyo.
To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net
Last Updated: June 13, 2008 19:07 EDT
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