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US Officials Talk Up Greenback

Mon, Jun 9 2008, 22:49 GMT
by Hans Nilsson

CMS Forex

US Officials Talk Up Greenback

• The dollar rose against its rivals except the pound Monday following dollar supportive comments by US government officials and an unexpected 6.3% m/m rise in US April pending home sales. The yen, Swiss franc, Canadian and Australian dollars all fell to important support levels. Sterling rose on the worst producer price inflation in decades. The Bank of Canada is expected to cut its benchmark interest rate from 3.00% to 2.75% at its interest-rate setting decision Tuesday.


• The EUR/USD reversed most of Friday’s gain after US Treasury Secretary Henry Paulson said in an interview with CNBC that he would “never” rule out currency intervention and Federal Reserve of New York President Timothy Geithner said the Fed is paying “close attention” to what happens in the foreign exchange market. The comments show concerns about the weak dollar and an understanding that further dollar depreciation will be counterproductive. Tonight’s speech by Fed Chairman Ben S. Bernanke is likely to give further clues of the government’s willingness to back the dollar. There are resistance in the 1.58-area and support in the 1.54- area. A test of the 1.54-support is likely this week./li>

Financial and Economic News and Comments

US & Canada

• US pending home sales rose 6.3% m/m in April to a level of 88.2, the highest in six months, given a lift by bargain hunters, the National Association of Realtors said. A reading of 100 is equal to the average level of sales activity in 2001. “Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines,” NAR chief economist Lawrence Yun said. Despite the month-onmonth gain, April pending home sales fell 13.1% y/y.


• US Treasury Secretary Henry Paulson said government intervention in the financial market to bolster the dollar’s value remains a possibility. “I would never take intervention off the table or any policy tool off the table. I just can’t speculate about what we will or won’t do,” Paulson said.


• Federal Reserve Bank of New York President Timothy Geithner said the US financial system needs tougher regulations and stronger supervision to protect against future crises. “The most fundamental reform that is necessary is for all institutions that play a central role in money and funding markets including the major globally active banks and investment banks to operate under a unified framework,” Geithner said.

Europe

• UK producer prices rose a more-than-forecast 1.6 m/m in May, the most since records began in 1986, the Office for National Statistics said. Prices rose 8.9% y/y. The rising PPI increases the odds the Bank of England will refrain from cutting interest rates despite a possible UK recession.


• German exports gained a more-than-expected 1.2% m/m in April, led by sales to non-EU nations, after sliding 0.8% m/m in March, the Federal Statistics Office said. Exports rose 14% y/y. Shipments to non-EU countries increased 18% y/y in April. Exports to EU countries rose 12%, while imports gained 11%. The trade surplus widened more than expected to €18.7 billion ($30 billion) in April from €16.6 billion in March.


• Germany rejected Spain’s attempts to exert “political influence” on the European Central Bank and ECB President Jean-Claude Trichet, putting Germany’s government at odds with Spain’s. Spanish Prime Minister Jose Luis Rodriguez Zapatero last weekend advised Trichet to be “more careful in his comments,” saying “we all expect responsibility from the ECB.” Chancellor Angela Merkel’s spokesman, Thomas Steg, said “[t]here is no criticism for us to voice regarding the policies of the ECB or Mr. Trichet.”

Asia-Pacific

• Japan’s economy may be reaching a “turning point,” the Cabinet Office said. The coincident index fell to 101.7 in April from a revised 102.4 in March. The leading index rose to 92.8 from a revised 90.8. The rise in the leading index does not mean conditions will improve because the index has been on a declining trend since it peaked in 2006.

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Published on  Mon, Jun 9 2008, 22:52 GMT