March 11, 2010

(BN) Top Stories: Currencies

Top Stories: Currencies
2010-03-11 08:15:45.721 GMT

     March 11 (Bloomberg) -- The following are the day's top stories on currencies:

Yen, Dollar Strengthen as China Inflation at 16-Month High; Kiwi Weakens
     The yen and dollar rose versus their major counterparts  after Chinese reports on inflation, factories and loans fueled  concern the government will act to damp growth, boosting demand  for the lowest-yielding currencies. Japan's currency  strengthened from a two-week low against the euro after Chinese  inflation reached a 16-month high and on speculation exporters  brought funds home before the fiscal year ends this month. New  Zealand's dollar fell for a second day versus the greenback as  the central bank signaled a slower exit from stimulus measures.
South Korea's won slid on a media report the nation's largest  power company purchased dollars. ``Strong inflation data should  enhance pressure for tightening in China,'' said Minoru  Shioiri, chief manager of foreign-exchange trading in Tokyo at  Mitsubishi UFJ Securities Co., unit of Japan's largest publicly  traded bank by market value. ``The bias is for the yen to  rise.'' The yen rose to 123.26 per euro as of 6:58 a.m. in  London from 123.62 in New York yesterday, when it fell to  124.00, the weakest since Feb. 23. Japan's currency advanced to
90.38 per dollar from 90.52. The dollar climbed to $1.3636 per  euro from $1.3657, and advanced to $1.4961 per pound from  $1.4978.

Dollar to Keep Reserve Role If Markets Stay Sound, Standard & Poor's Says
     The dollar will retain its status as the world's reserve  currency as long as U.S. financial markets are sound and  government spending is sustainable, Standard & Poor's said. The  greenback is ``the world's most accepted currency,'' even after  the global recession that began in the U.S., John Chambers,  chairman of the S&P sovereign ratings committee, wrote in a  report released today. The dollar supports the nation's top AAA  credit ranking, improves the government's access to external  financing and helps lower borrowing costs, he wrote. ``The  dollar's widespread acceptance stems from the U.S. economy's  fundamental strength, which in our view comes from the  economy's size and the flexibility of labor and product  markets,'' New York-based Chambers wrote with David Beers,  global head of sovereign ratings at S&P in London. ``We view  U.S. banking and capital markets to be dynamic and unfettered  relative to their peers.'' Pacific Investment Management Co.,  the world's biggest manager of bond funds, said in its August
2009 Emerging Markets Watch report the dollar's reserve status  was endangered as the government pumped ``massive'' amounts of  money into the economy to stimulate growth.

Trade Deficit in U.S. Probably Widened for Third Month as Imports Climbed
     The U.S. trade deficit probably widened in January for a  third month as imports grew faster than exports, pointing to a  rebound in global economic growth, economists said before a  report today. The gap increased to $41 billion from $40.2  billion the prior month, according to the median forecast of 73  economists surveyed by Bloomberg News. Another report may show  initial claims for jobless benefits fell for a second week.
Imports may keep growing as the world's largest economy  improves and companies replenish depleted inventories. Emerging  countries are leading a worldwide recovery that, together with  a weaker dollar, is helping lift sales at companies including  Cisco Systems Inc., which may prevent the deficit from  deteriorating much more in coming months. ``Global trade is  definitely coming back,'' said David Semmens, an economist at  Standard Chartered Bank in New York. ``The U.S. will benefit  from rising exports. We can expect overseas economies to  improve faster than domestic growth.''

El-Erian Says World Economy May Face Disruptive Sovereign Debt Imbalances
     Mohamed A. El-Erian, whose company runs the world's biggest  mutual fund, said deteriorating public finances may affect the  global economy more than is currently realized. ``The  importance of the shock to public finances in advanced  economies is not yet sufficiently appreciated and understood,''
El-Erian, co-chief investment officer at Pacific Investment  Management Co., wrote in an article on the Financial Times Web  site. The potential damage from increased government borrowings  is ``at present being viewed primarily -- and excessively --  through the narrow prism of Greece.'' Governments may have to  raise taxes and slash spending to cope with swelling deficits  after borrowing unprecedented amounts to stave off the global  financial crisis, said El-Erian, 51, who shares his job title  with Bill Gross. A failure to carry out fiscal measures in time  would raise the possibility of governments seeking to eliminate  excessive debt through inflation or default, he said. Pimco has  said debt strains in Greece, Portugal and Spain underscore its  view that 2010 will be a year of slower-than- average growth,  and predicts there will be a shrinking global role for the U.S.

Emerging-Market Reserves Buildup Risks Return of `Imbalance': Chart of Day
     Developing nations' foreign reserves are approaching levels  reached two years ago, risking a return of the ``imbalances''
that helped spark the global financial crisis, Goldman Sachs  Group Inc. said. The Chart of the Day shows the five largest  foreign reserves holders in emerging markets excluding China  boosted their stockpile by 17 percent in the past year to $1.3  trillion, while the U.S. trade deficit swelled to its widest  level in a year in December. The lower panel shows China, the  world's largest reserves holder, increased its stock to a  record $2.4 trillion in 2009. The trend signals a return to the  last global economic expansion when U.S. consumers relied on  borrowing from abroad to finance their purchases, contributing  to an export boom from Asia. As China and other Asian nations  accumulated dollars from trade surpluses, they bought U.S.
Treasury debt and depressed global yields. Lower borrowing  costs helped fuel the U.S. housing and credit booms that turned  to bust in 2007. ``There's a risk the world could lapse back  into a regime in which emerging markets return to export-led  growth coupled with an accumulation of reserves,'' Goldman  Sachs economists led by London-based Jim O'Neill wrote in a  research note yesterday. ``To the extent that global imbalances  are making a comeback, they need to be taken seriously. The  bottom line is that the accumulation of reserves may have  helped create the problem that they ultimately helped to  solve.''

Senate Negotiations Said to Advance on Consumer Division Powers, Oversight
     Senate negotiators closed in on a deal for strengthening  consumer financial protections, giving bank regulators a role  in rule-making and enforcement, two Democratic Senate aides  briefed on the talks said. The talks have advanced on key  sticking points, including how much control prudential  regulators -- those responsible for insuring banks are  financially sound -- would have over a new consumer division at  the Federal Reserve, said the aides, who declined to be  identified because the talks are private. ``There will be a  mechanism whereby the prudential side has the ability to weigh  in to ensure we don't do anything to destabilize the safety and  soundness of our financial institutions,'' Senator Bob Corker,  a Tennessee Republican working on the legislation, told  reporters yesterday after a panel discussion at a Washington  conference. Corker and Senate Banking Committee Chairman  Christopher Dodd, in meetings over the past week, resolved some  differences over the unit's autonomy, although no final  decisions have been made. Corker said yesterday the legislation  will be introduced ``very soon'' and that the goal is to get  the measure through the banking committee by March 29, when the  Easter recess begins.

Brown Tries to `Perversely' Benefit From U.K. Relapse Risk Before Election
     Gordon Brown is trying to turn the threat of a double-dip  U.K. recession into an advantage. The British prime minister,  whose Labour Party is narrowing the gap in opinion polls with  the opposition Conservatives, is arguing that the economic  recovery is too ``fragile'' to justify cutting the U.K.'s  record budget deficit right away. Brown is seeking a fourth  term for Labour as Britain struggles to recover from its worst  slump in six decades. While jobless claims are at the highest  since the party came to power in 1997, opinion polls show that  Brown has made up so much ground that David Cameron's  Conservatives will fail to gain a majority in the election,  which must happen by June. ``A weak economy might perversely be  good for Labour,'' Jonathan Loynes, an economist at Capital  Economics Ltd. in London, said in a telephone interview. ``To a  degree it would support the government's position that it  shouldn't try to tackle the budget deficit too quickly, and at  the same time undermines the Conservatives' position.''

Swiss Central Bank May Keep Key Rate Unchanged As Economy Gains Strength
     The Swiss central bank may leave its benchmark interest  rate near zero today to bolster a recovery from the worst  recession in more than three decades. The Swiss National Bank,  led by Philipp Hildebrand, will leave the three-month Libor  target rate at 0.25 percent at its quarterly monetary  assessment, according to all 19 economists in a Bloomberg News  survey. The central bank announces the decision at 2 p.m. in  Zurich. The SNB has held its main rate close to zero for a year  and sold Swiss francs to keep a lid on the currency and counter  the threat of deflation. While SNB board member Thomas Jordan  said last month that it's too early to start raising borrowing  costs, the central bank has already softened its tone on  currency interventions as the economy gathers strength. ``They  will continue pointing to the risks to the economy, but the  statement will be on a more positive note,'' said Fabian  Heller, an economist at Credit Suisse Group AG in Zurich, who  sees the SNB rate unchanged until ``at least'' September.
``They will maintain their language on the currency'' though  policy makers may become ``more tolerant'' of a further  appreciation over time, he said.

Shun Spain's Bonds on `Death by 1,000 Cuts,' Invesco, Merrill Lynch Say
     Investors should avoid Spain's bonds as the euro region's  highest levels of joblessness stifle the country's ability to  cut its budget deficit, according to Invesco Ltd. and Bank of  America Corp.'s Merrill Lynch unit. Spanish debt isn't yielding  enough to compensate investors for buying the bonds of a  country with the euro region's third- largest budget deficit,  according to Axel Blase, a fund manager in Frankfurt at  Invesco. Investors receive a 70 basis-point yield premium for  holding Spanish 10-year bonds rather than German bunds,  compared with 310 basis points for Greek debt. ``It's not a  time to increase exposure to Spain,'' said Blase, who helps  oversee the company's $423 billion in assets. ``The country is  in rather serious difficulties and the risk premium on Spanish  bonds isn't that attractive.'' Concern that Europe's most  recession-battered nations aren't doing enough to contain their  deficits sent Greek bond yields to the highest in more than a  decade, and helped push the euro 4.7 percent lower against the  dollar this year. While attention focused initially on Greece,  Spain may take years to recover from the recession, according  to Johan Jooste, a strategist at Merrill Lynch Wealth  Management in London.

Latvia Elections May Hamper Austerity, Weigh On Credit Rating, Fitch Says
     Latvian elections this autumn threaten to hamper government  efforts to push through austerity measures vital to its  international bailout, burdening the country's credit rating,  Fitch Ratings said. A parliamentary election scheduled for  October ``weighs on the rating, the uncertainty that comes with  the election, and I think there might be resistance to removing  the negative outlook because of that risk,'' Eral Yilmaz, a  credit analyst at Fitch, which ranks Latvian debt as junk, said  in an interview. Prime Minister Valdis Dombrovskis, who came to  office a year ago amid the former Soviet state's worst economic  crisis since it abandoned communism two decades ago, has pushed  through the toughest austerity package in the European Union to  comply with the terms of an International Monetary Fund-led  rescue. Fitch, which rates Latvia's debt BB+, wants to see  sustained signs of recovery before considering an upgrade,  Yilmaz said. ``Cuts may become politically more difficult from  now on as the public may want to see the results of the fiscal
belt- tightening in an economic recovery that results in job  creation,'' she said.

Kiwi Slides as Bollard Signals Rate Rises; Aussie Is Near Seven-Week High
     The New Zealand dollar fell against its 16 major  counterparts as the central bank signaled a slower exit from  stimulus measures. Australia's currency traded near a  seven-month high as full-time jobs grew for a sixth month. The  kiwi dropped as Reserve Bank Governor Alan Bollard kept the  benchmark interest rate at a record low and said weak business  spending and higher bank-funding costs may slow the pace of  future rate advances. Australian employers added 11,400  full-time workers in February in the longest stretch of monthly  gains since 2006, raising prospects of a rate increase in  April. ``Market expectations prior to the decision had been for  a 25 basis point hike in June and every meeting thereafter  until the end of the year,'' said Mike Jones, a currency  strategist at Bank of New Zealand Ltd. in Wellington. ``One of  those tightenings may now be priced out of the curve, weighing  on the New Zealand dollar.'' New Zealand's dollar dropped 0.4  percent to 69.93 U.S. cents as of 5:08 p.m. in Sydney from
70.21 cents yesterday in New York. It slid 0.5 percent to 63.19  yen.

     For the complete stories summarized here, and for more of the day's top news, see TOP .

-0- Mar/11/2010  8:15 GMT

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