on currencies:
Dollar Falls Against Yen on Concern Obama Bank Plan Will Hurt U.S. Assets
The dollar fell against the euro, snapping six days of
gains, on concern that a U.S. proposal to rein in trading by
financial institutions will discourage investors from buying
assets in the world's largest economy. The currency dropped
from the strongest level since July against the 16-nation euro.
Japan's yen headed for a second weekly gain versus its 16 major
counterparts as stocks slumped across the world, boosting
demand for the currency as a refuge. The pound fell for a
second day against the euro after a report showed U.K. retail
sales in December grew less than forecast. The U.S.
``announcement has been deemed to be dollar negative, and it
has fallen across the board,'' said Stuart Bennett, a
London-based strategist at Calyon, the investment- banking arm
of Credit Agricole SA. ``The kneejerk reaction is that it's
going to hurt the biggest banks' earnings. It has hurt equities
and took the dollar along.'' The dollar depreciated to $1.4111
per euro as of 7 a.m. in New York from $1.4084 yesterday, when
it appreciated to $1.4029, the strongest level since July 30.
It's still up 1.9 percent this week. The dollar was at 90.10
yen, from 90.43 yesterday after declining to 89.79 earlier, the
weakest level since Dec. 18.
Greece Must Stick With Euro to Address Fiscal Problems, Provopoulos Says
Greece should remain in the euro region where its problems
``will be unequivocally easier to solve,'' rather than allowing
a new currency to devalue, pushing up inflation and interest
rates, the central bank governor said. A new currency would not
be like ``waving a magic wand,'' George Provopoulos said in an
article for the Financial Times. A weakened currency could
increase the cost of imports, stoking inflation, and boost the
cost of servicing public debt. Concern that Greece's government
will struggle to tame the European Union's biggest budget
deficit this week pushed the yield premium investors demand to
hold the nation's debt instead of German bunds to the highest
since the euro's debut in 1999. Finance Minister George
Papaconstantinou said yesterday that Greece won't need a rescue
package to reduce its debt. ``It will be immensely less costly
for Greece to eradicate its problems from within the euro
zone,'' Provopoulos wrote. ``Greece will not be tempted by
these short-term options, but will undertake the necessary,
bold adjustments.''
Kan Faces First Test of Weak-Yen Stance as Currency Breaks 90 Per Dollar
Japanese Finance Minister Naoto Kan faces the first test of
his favor for a weaker yen after it rose past the range he said
businesses see as ``appropriate.'' Kan said on his first day as
finance chief on Jan. 7 that he wants the currency to weaken
``a bit more'' after it fell from a 14-year high of 84.83 per
dollar in November. He said manufacturers think a range of 90
to the mid-90s is desirable. ``That was his personal view and
it looks like he spoke rashly,'' said Junko Nishioka, chief
economist at RBS Securities Japan Ltd. in Tokyo. ``The
government is concerned about abrupt movements in the yen
rather than a certain level,'' though it may ``resume its
verbal intervention'' if it returns toward the 14-year high,
she said. Stocks fell the most in two months on concern that a
stronger yen will erode profits of exporters, who led Japan's
recovery from its worst postwar recession. The government is
unlikely to break from its six years of staying out of currency
markets and may instead ask the Bank of Japan to ease monetary
policy, said Kyohei Morita, chief economist at Barclays
Capital.
Obama Bank Restrictions May Fail to Shield U.S. Financial System From Risk
President Barack Obama's proposal to impose limits on
commercial banks may win him support on Main Street and shake
up Wall Street without doing much to make the financial system
safer overall. The plan, which is still lacking in details and
must be approved by Congress, aims to make the banks more
secure by forcing them to minimize the trading they do on their
own account and give up their stakes in hedge funds and private
equity firms. ``It's the right direction,'' said Henry Kaufman,
president of Henry Kaufman & Co. in New York and a former vice
chairman of Salomon Inc. The danger is that such risky
activities could simply migrate to big non-bank financial
institutions, leaving the system as a whole no better off.
Banks also might try to make up for the loss of profits from
proprietary trading by lending more to risky borrowers such as
real estate developers, threatening the federal safety net,
said Martin Baily, a former White House economist now with the
Brookings Institution in Washington. ``Beware of unintended
consequences,'' said Robert Litan, vice president of research
and policy at the Kansas City-based Kauffman Foundation, a
group that promotes entrepreneurship, and a former Clinton
administration budget official. ``This could have perverse
effects on risk-taking.''
Bank Plan's Impact Rests on How U.S. Regulators Define Proprietary Trades
President Obama's plan to curb risk- taking by banks hinges
on how rigidly regulators define proprietary trading at firms
such as Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Goldman Sachs, which generated at least 76 percent of 2009
revenue from trading and principal investments, gets the
``great majority'' of transactions from customers, according to
Chief Financial Officer David Viniar. About ``10-ish percent''
of the New York-based firm's revenue comes from ``walled-off
proprietary business that has nothing to do with clients,'' he
said on a conference call yesterday. The plan to curb
proprietary trading at banks is among proposals that Obama said
yesterday will strengthen the U.S. financial system and help
prevent a repeat of the credit crisis. Other restrictions would
prohibit banks from investing in hedge funds and private
companies and put new limits on banks' borrowings, according to
the White House. JPMorgan, Goldman Sachs, Citigroup Inc. and
Bank of America Corp. tumbled more than 4 percent in New York
trading, leading the S&P 500 Financials Index down 3 percent,
its biggest decline since October. All the banks are based in
New York except for Bank of America, which is in Charlotte,
North Carolina.
Obama Is Seen as Anti-Business by 77% of U.S. Investors, Global Poll Says
U.S. investors overwhelmingly see President Barack Obama as
anti-business and question his ability to manage a financial
crisis, according to a Bloomberg survey. The global quarterly
poll of investors and analysts who are Bloomberg subscribers
finds that 77 percent of U.S. respondents believe Obama is too
anti-business and four-out-of-five are only somewhat confident
or not confident of his ability to handle a financial
emergency. The poll also finds a decline in Obama's overall
favorability rating one year after taking office. He is viewed
favorably by 27 percent of U.S. investors. In an October poll,
32 percent in the U.S. held a positive impression. ``Investors
no longer feel they can trust their instincts to take risks,''
said poll respondent David Young, a managing director for a
broker dealer in New York. Young cited Obama's efforts to trim
bonuses and earnings, make health care his top priority over
jobs and plans to tax ``the rich or advantaged.''
Kokusai, Pimco Shun U.S. Bonds After Forecasting Dollar Losses, Low Rates
Kokusai Global Sovereign Open, the world's second-largest
actively run bond fund, is betting against the dollar in 2010.
Bill Gross, who runs the biggest at Pacific Investment
Management Co., is scooping up debt in Germany and other
developed markets outside the U.S. They're shunning Treasuries
as the Federal Reserve's record low interest rates reduce
demand for the currency and make yields in other nations more
attractive. China, which cut Treasury holdings by the most in
five months in November, may pare purchases further on concern
the dollar will fall, said Liu Yuhui, an economist at a
government-backed research body. ``The U.S., Europe, U.K. and
Japan will all hold rates this year,'' said Masataka Horii, 43,
one of four investors for the $45.7 billion Kokusai fund in
Tokyo. ``The U.S. will keep its policy rate, even though the
market has priced in a rate hike. That will make the U.S.
dollar go lower.''
Brazil's Consumer Prices Rose More-Than-Expected 0.52% Through Mid-January
Brazil's mid-month inflation quickened to the fastest pace
in eight months, prompting traders to raise bets the central
bank will increase interest rates as soon as March. Consumer
prices, as measured by government's benchmark IPCA-15 index,
jumped 0.52 percent. Economists expected a 0.45 percent rise,
according to the median of 27 forecasts in Bloomberg survey.
Yields on interest rate-futures maturing in January 2011, the
most traded on the Sao Paulo BM&F, rose 4 basis points to 10.42
percent at 6:20 a.m. New York time. Traders expect policy
makers to start raising the benchmark interest rate as early as
March to keep inflation in check, according to Bloomberg
estimates based on interest-rate futures.
British Pound Drops Versus Euro After Retail Sales Rise Less Than Forecast
The pound fell against the euro after a report showed U.K.
retail sales grew less than forecast last month and Britain's
main opposition party said it supported a U.S. proposal to rein
in banks' risk-taking. The currency's second straight drop
trimmed its advance against the euro this year to 1.7 percent.
December retail sales rose 0.3 percent from November, the
Office for National Statistics said today, below the 1.1
percent gain forecast by economists. George Osborne, the
Conservative Party's Treasury spokesman, said he wants to see
an international agreement to separate retail banking from
proprietary trading in the wake of President Barack Obama's
plan for U.S. banks. ``The pound's weakness today is down to
retail sales,'' said Simon Derrick, chief currency strategist
in London at BNY Mellon Corp. ``George Osborne's backing of the
Obama bank plan isn't helping either.'' The pound weakened 0.2
percent to 87.1 pence per euro as of 11:11 a.m. in London. It
traded at $1.6234 from $1.6196 yesterday and at 146.56 yen from
146.45 yen.
Euro May Rally 3% Against Dollar as It Finds `Support': Technical Analysis
The euro may rebound more than 3 percent from an almost
six-month low after finding support near $1.40, JPMorgan Chase
& Co. said, citing trading patterns. Europe's single currency
may climb to $1.4550 over the next few weeks after yesterday
falling as low as $1.4029, the least since July 30, the bank
said. The $1.40 level is also near the 38.2 percent Fibonacci
retracement of the euro's rise from its 2008 low of $1.2330 to
last year's high of $1.5144. ``The decline has now entered into
really good support in the $1.40 zone -- the range lows that we
saw back in late July,'' said Niall O'Connor, a technical
analyst in New York at JPMorgan. ``We could be vulnerable to a
bounce in the euro.'' The euro, which has fallen 1.5 percent
against the dollar this year, traded at $1.4095 as of 10:17
a.m. in Tokyo from $1.4084 in New York yesterday.
Ruble Weakens, Headed for First Weekly Drop in 2010, as Oil Trades at $76
The ruble declined for a sixth day against the dollar as
oil, Russia's chief export, traded near $76 a barrel. The
Russian currency retreated as much as 0.4 percent to 29.7650
per dollar, and traded down 0.1 percent at 29.7588 of 10:27
a.m. in Moscow. The ruble dropped to 0.7 percent this week, its
first decline in 2010. Crude traded at $76.32 a barrel, poised
for a second weekly decline. Oil fell 2 percent to $76.08
yesterday after a U.S. government report showed refineries in
the biggest energy consumer cut processing in response to lower
fuel demand. The ruble slid 0.6 percent to 42.0746 against the
euro. The movements against the dollar and the euro left the
ruble at 35.2971 against the central bank's target currency
basket, which is used to manage swings that hurt Russian
exporters.
Aussie Dollar `Extraordinarily Overvalued,' Morgan Stanley's Hull Says
Investors should sell the Australian dollar and buy the
U.K. pound, betting that moves by China to slow its economic
growth will also dent the so-called Aussie, Morgan Stanley
said. ``The Aussie dollar has become extraordinarily
overvalued,'' Stephen Hull, a currency strategist at Morgan
Stanley, said today in London. ``What we've seen in the last
few weeks is China start to tighten.'' The pound is 35 percent
undervalued against the Australian dollar, according to Morgan
Stanley estimates, Hull said. Sterling may strengthen because
the Bank of England will pause its asset-purchase program next
month and investors will become more confident that the country
will be able to reduce its budget deficit after the next
election, he said. ``The pound is cheap because of public
finances,'' Hull said. ``If polls start to improve and we know
the Conservatives are likely to win, we know they are going to
be very aggressive in cutting public expenditure,'' he said.
``The foreign-exchange market will move well ahead of the
election.''
Rand Gains, Pares Weekly Decline, on Bets 7 Percent Rate to Be Maintained
South Africa's rand gained, paring its biggest weekly
decline in nine, on bets the nation's central bank will keep
its benchmark interest rate unchanged when it meets next week,
preserving the currency's yield advantage. The rand advanced
much as 0.4 percent to 7.5400 per dollar and traded 0.3 percent
stronger at 7.5480 by 10:31 a.m. in Johannesburg, from a close
of 7.5725 yesterday. The move pared the currency's slide this
past week to 2.1 percent, the steepest weekly drop since the
five days ended Nov. 20. The South African Reserve Bank is
likely to keep its 7 percent rate unchanged on Jan. 26,
according 14 of 15 estimates from economists polled by
Bloomberg. That compares with main rates of 0.25 percent in the
U.S., 0.1 percent in Japan and 1 percent in the euro region.
``There's still a lot of speculative investment in favor of
high-yield, emerging-market currencies,'' said Brigid Taylor, a
senior currency trader at Rand Merchant Bank in Johannesburg.
``The fact that the market expects the central bank to continue
targeting inflation by keeping rates unchanged is a positive
for the rand.''
Australian, New Zealand Dollars Advance After China Central Bank Comments
The Australian and New Zealand dollars rose, paring their
biggest weekly loss this year, after China's central bank
reaffirmed its moderately loose monetary policy, boosting
demand for higher-yielding assets. The two currencies advanced
for the first time in four days against the greenback as
Chinese central bank Governor Zhou Xiaochuan said policy makers
will focus on flexibility, supporting economic growth and
controlling inflation expectations. Both currencies still
headed for the worst week since November versus the yen on a
U.S. proposal to limit bank risk-taking and concern China will
do more to cool its economy. The Chinese central bank comments
``should alleviate some of the market's concern on China's
policy front,'' said David Forrester, a currency economist at
Barclays Capital in Singapore. ``The Aussie has been oversold
and is a good buy on dips against the dollar and more so
against the yen and Swiss franc where quantitative easing
programs are still in place.'' Australia's currency
strengthened 0.7 percent to 90.61 U.S. cents as of 6:21 p.m. in
Sydney, paring this week's decline to 1.8 percent. It gained
0.6 percent to 81.84 yen, having fallen 2.4 percent this week.
For the complete stories summarized here, and for more of
the day's top news, see TOP <Go>.
-0- Jan/22/2010 12:48 GMT
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