Dollar Tumble Wrecks Forecasts; Deutsche Bank Predicts Losses

Dollar bulls are in retreat after the currency's biggest quarterly drop against the euro since 2004 and the largest slump in almost a decade versus the yen.

The dollar will likely gain 1.6 percent to $1.55 per euro and remain little changed near 100 yen by the end of June, according to the median estimate of 40 analysts and economists surveyed by Bloomberg. At the start of 2008, they expected the dollar to strengthen to $1.48 per euro and 110 yen.

Deutsche Bank AG, the world's largest foreign-exchange trader, and Royal Bank of Scotland Group Plc cut their estimates last month as global credit market losses climbed above $200 billion and reports signaled the U.S. economy may be shrinking. Private foreign investors sold a net $38.2 billion in U.S. securities in January, the most since September, Treasury Department said March 17.

We now view the U.S. economy as having slipped into recession while the rest of the world slows more modestly, said John Horner, a currency strategist in Sydney for Frankfurt- based Deutsche Bank. That scenario argues for further dollar weakness, he said.

U.S. growth likely expanded 0.2 percent last quarter, compared with 0.6 percent in the final three months of 2007, according to the median forecast of 85 economists and strategists surveyed by Bloomberg.

Relative Rates

The greenback tumbled 7.6 percent against the euro last quarter to $1.5788. It plummeted 10.8 percent to 99.69 yen, the steepest drop since falling the same amount in the third quarter of 1999, as a decline in stock markets from the U.S. to Tokyo and credit market losses led investors to sell high-yielding assets funded with low-interest loans in the currency.

The Bank of Japan's benchmark rate is 0.5 percent, compared with 2.25 percent in the U.S. and 4 percent for the European Central Bank. The rate in Switzerland, another source of funds for the so-called carry trades, is 2.75 percent.

We hold a bearish dollar outlook, said Thanos Papasavvas, the London-based head of currency management at Investec Asset Management in Johannesburg. It's impossible to forecast where the bottom is going to be.

Investec, which manages the equivalent of $65 billion, decided on March 28 to keep betting against the dollar, Papasavvas said.

The dollar fell against the 16 most actively-traded currencies except the Canadian dollar, South Korean won and South African rand. It declined the most against the Swiss franc, depreciating 12.4 percent, and gained 2.7 percent versus Canada's currency, 5.9 percent against the won, 17.9 percent to the rand and was little changed per pound.

`Great Concerns'

Deutsche Bank expects the dollar will weaken this quarter to $1.60 per euro, surpassing the $1.5903 reached March 17, the lowest since the single European currency began trading in 1999. A Bloomberg survey in January showed the bank predicted the dollar would rise to $1.43 by yesterday from $1.4589.

Royal Bank of Scotland in Edinburgh, the fourth-biggest foreign-exchange trader, forecasts the dollar will trade at $1.57 per euro by June 30, after the currency exceeded its previous estimate of $1.52 by March 31.

There are great concerns about additional unrealized losses on subprime loans, the size of which we can't reasonably forecast, said Hiroaki Hoshi, who oversees the equivalent of about $5.7 billion as a senior fund manager at Daiwa Asset Management Co. in Tokyo. Once these are realized, the dollar will fall, he said.

Slowdown Spreads

Banks, brokers and hedge funds may report $460 billion in credit losses, New York-based Goldman Sachs Group Inc. predicted last month. Government and private reports this week may show the U.S. lost jobs for a third month in March and manufacturing contracted at the fastest pace in five years, according to the median estimates of economists surveyed by Bloomberg.

The U.S. currency may strengthen as a slowdown in the world's largest economy spreads to other regions, weakening their currencies, according to London-based Barclays Capital, the fifth-biggest currency trader.

Global growth is recoupling to U.S. growth and other central banks will have to start to play catch-up in terms of rate cuts, said David Forrester, a Singapore-based currency economist at Barclays, which forecasts $1.50 against the euro in three months.

The dollar rallied against the pound, gaining 2.2 percent, as the Bank of England cut rates by a half-percentage point since Dec. 6 to revive growth. The pound will weaken 0.2 percent to $1.98 by June 30, according to the survey of strategists. It closed yesterday at $1.9837.

Japan's yen, which gained 3.6 percent versus the euro in the first quarter, will likely appreciate 2.8 percent to 153 per euro by June 30, the survey showed.

There will still be most likely bad news that will come out on the global economy, said Stephen Jen, global head of currency research at Morgan Stanley in London. There's definitely a downside risk if the crisis morphs into something more extreme.

The second-largest U.S. securities firm forecasts the dollar will appreciate to $1.55 per euro and weaken to 97 yen.

Dollar Falls to Lowest Since '95 Versus Yen Before Retail Sales

The dollar fell to the lowest since 1995 against the yen on speculation U.S. retail sales growth slowed, adding to evidence the economy is entering a recession.

The currency also slid to a record low against the euro as brokerages including ABN Amro Holdings NV and Westpac Banking Corp. said Arab nations in the Middle East may consider ending their fixed exchange rates and selling U.S. assets. The dollar traded near an all-time low versus the Swiss franc as U.S. President George W. Bush said the dollar is adjusting and its decline isn't good tidings.

We are in a clear bear trend for the dollar, said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Mizuho Financial Group Inc., Japan's second-largest publicly traded lender. Signs that retail sales are falling off will expose the dollar to further declines.

The U.S. currency fell to 101.68 yen at 9:37 a.m. in Tokyo after reaching 101.10, the lowest since December 1995, from 101.79 in late New York yesterday. The dollar traded at $1.5527 per euro from $1.5551. It touched $1.5573 per euro, the weakest level since the European currency's 1999 debut. The euro fell to 157.82 yen from 158.30.

The dollar bought 1.0158 Swiss francs, just above a record low of 1.0128 reached yesterday. The British pound was little changed at $2.0268. The Australian dollar rose to 93.57 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month. The Singapore dollar rose to a record of S$1.3826 against the U.S. currency.

`Real Trouble'

U.S. retail sales rose 0.2 percent in February after a 0.3 percent rise in the previous month, according to a Bloomberg survey. The Commerce Department will release the data later today in Washington. Crude oil in New York touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.20 yesterday and was last at 72.30.

The dollar looks in real trouble and there is no obvious resistance level against the euro, said Greg Gibbs, a currency strategist at ABN Amro in Sydney. I don't think you can pick a level for where it will stop.

Middle East, China

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. Sharaf would not provide a break down of the bank's reserves, totaling around $7 billion. The Jordanian dinar has been pegged to the dollar since October 1995 at an average price of 0.709 fils.

A Qatar central bank official denied an Emirates Business 24/7 report that Gulf-region policy makers will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

We're probably going to remain in the situation where long-term money moves away from the dollar, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East dropping their dollar pegs. They're looking for an alternative store of wealth.

The U.S. currency may weaken below 100 yen, he said.

`Adjusting'

U.S. President George W. Bush said the dollar is adjusting. and its decline isn't good tidings for proponents of a strong dollar. Bush also reiterated his commitment to a strong dollar, in an interview with the U.S. Public Broadcasting Service to be aired later today.

Bush's comments were about as lukewarm as you can get, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are not a panacea, more like an aspirin for the dollar, analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets.

The dollar may decline to $1.57 per euro this month, according to a Merrill Lynch forecast released March 6.

Dollar Falls Against Yen on Bets Fed Will Lower Rate 0.75-Point

The dollar fell for a sixth straight day against the yen and traded near a record low versus the euro as traders increased bets that the Federal Reserve will lower interest rates by 0.75 percentage point this month.

The U.S. Dollar Index, which compares the currency with those of six trading partners, dropped as futures showed a 74 percent likelihood the Fed will reduce rates to 2.25 percent. Last week, traders saw no chance of a cut that steep. Canada's currency fell after the Bank of Canada cut rates today to help offset a slump in exports to the U.S.

The dollar will remain under pressure, said Omer Esiner, an analyst at currency-trading company Ruesch International Inc. in Washington. The U.S. economy is looking weak.

The dollar fell to 103.08 yen at 9:10 a.m. in New York, from 103.49 yen yesterday, when it fell to 102.62 yen, the lowest since Jan. 28, 2005. The U.S. currency traded at $1.5202 per euro, from $1.5204 yesterday, when it touched $1.5275, the weakest level since the European currency's 1999 debut.

Don't fight the dollar weakness, a team of strategists at Zurich-based UBS AG, led by Mansoor Mohi-uddin, wrote in a research report published today. This week's U.S. data will likely increasingly suggest a recession, they wrote.

The U.S. Dollar Index traded on ICE Futures in New York was at 73.584 after declining to a record low of 73.354 yesterday. The slump in the U.S. currency helped push the price of oil to a record of $103.95 yesterday and gold to an all-time high of $989.54 an ounce.

`Grossly Misaligned'

The yen advanced to 156.71 per euro from 157.35.

UBS Wealth Management Research, a unit of UBS, wrote in a separate report that the world's foreign-exchange markets are grossly misaligned and Asian currencies may appreciate sharply.

The Singapore dollar reached S$1.3897 against the U.S. currency, a decade-high, before trading at S$1.3904, from S$1.3910 yesterday. The Taiwan dollar advanced 0.6 percent to NT$30.922 per dollar.

The Australian dollar, also known as the Aussie, fell as the central bank governor said there is evidence consumer spending is moderating. The central bank raised the main rate to 7.25 percent today, the highest in 12 years. The Aussie was at 93.29 U.S. cents, from 93.96 cents yesterday and 94.98 on Feb. 28, the highest since March 1984.

The Australian dollar is likely to be sold hard in the near-term, Hans-Guenter Redeker, head of currency strategy in London at BNP Paribas SA, one of the world's 10 biggest currency traders, wrote in a note to clients. A support level at 92.75 cents per dollar looks set to be broken, he said.

`Anxious to Sell'

The dollar may fall below 100 yen in one or two months as Japanese investors lose confidence in dollar-denominated assets, Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. in Tokyo, wrote in a research note.

Futures on the Chicago Board of Trade show investors have raised wagers on deeper rate reductions since Fed Chairman Ben S. Bernanke suggested last week the central bank was ready to lower borrowing costs further to bolster the economy.

A lot of traders are anxious to sell the dollar, said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank. The U.S. economy looks weak.

The U.S. currency may fall to 102 yen this week, he said.

The euro gained 15 percent against the dollar in the past year, eroding the competitiveness of European exports. The synthetic euro, which estimates the European currency's value before its inception in 1999, yesterday rose to the strongest level since at least January 1989, when Bloomberg's data on the measure began.

Dollar Poised for Weekly Decline Against Yen on Slowing Economy

The dollar headed for a weekly loss against the yen before a private report that economists say will show U.S. consumer confidence fell to the lowest in more than two years.

The U.S. currency may decline for a fourth week against the Swiss franc after Federal Reserve Chairman Ben S. Bernanke said yesterday the bank is ready to take substantive additional action to help the economy, fueling speculation he will cut the benchmark interest rate at least a half percentage point this month. The yen has gained versus the 16 most-active currencies this week as a slump in global stocks caused investors to pull back from higher-yielding assets.

Dollar-yen is falling in the weak U.S. dollar environment and rising risk aversion, said Besa Deda, senior markets economist at St. George Bank Ltd. in Sydney. Bernanke's comments reinforce that the Fed is likely to cut by 50 basis points. There's a good chance of a U.S. recession.

The dollar traded at 106.81 yen at 10:38 a.m. in Tokyo, compared with 106.54 yesterday in late New York and 108.84 yen on Jan. 11. It touched 105.92 yen two days ago, the lowest since May 2005. The dollar was at $1.4626 per euro from $1.4642 yesterday and $1.4776 last week. It was at 1.1016 versus the franc from 1.1010 yesterday and 1.1014 last week.

The euro touched 155.70 yen, a four-month low, before trading at 156.16 yen from 155.99 yesterday and 160.79 on Jan. 11.

The dollar may decline to 106 yen today, Deda said.

Yen Gains

Japan's currency gained the most against the South African rand this week as concern that the U.S. economic slowdown will spill over to the rest of the world prompted investors to exit so-called carry trades financed with borrowed yen. The rand, which has been a destination for carry trades, was at 15.06 yen from 14.99 yesterday and 16.1 a week ago. It touched 14.95 yesterday, the weakest since Aug. 17.

Japan's 0.5 percent target rate is the lowest among the developed nations. South Africa's benchmark is 11 percent. The Standard & Poor's 500 Index lost 2.9 percent. With a 9.2 percent drop since Dec. 31, the index is off to its worst start to a year ever.

Carry trades are completely out of favor, said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney, in an interview with Bloomberg Television. `At the moment we're seeing a rise in risk aversion. The yen is benefiting.

The Reuters/University of Michigan preliminary index of consumer sentiment probably dropped to 74.5 in January from 75.5 in December, which was the lowest since October 2005, according to the median estimate of economists surveyed by Bloomberg News.

Outlook has Worsened

Bernanke reiterated that the outlook for growth in 2008 has worsened and the downside risks to growth have become more pronounced. In his testimony to the House Budget Committee in Washington, he also said a temporary fiscal stimulus of as much as $150 billion would help revive economic growth.

U.S. President George W. Bush will today lay out the general principles he favors for a short-term stimulus, Deputy Press Secretary Tony Fratto said yesterday.

Interest-rate futures on the Chicago Board of Trade showed a 100 percent likelihood the Fed will lower the target for the overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent this month was 44 percent.

The yen may pare its 3 percent gain versus the euro this week as technical charts which traders often use to judge price movements show the Japanese currency's advance to be excessive.

The euro's 14-day stochastic oscillator chart reached 6.3 today, according to data compiled by Bloomberg. A level below 20 suggests the euro has fallen too fast against the yen.

The yen has been overbought, said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. The market is pretty long the yen. There's a bit of yen-selling.

Stochastic oscillator charts measure the closing price of a security relative to its highs and lows during a particular period to try to predict a rise or fall.

Gold tops $900 an ounce

Gold prices break new record as weak dollar, fears of recession fuel demand for safe-haven investments.

Gold futures rose above $900 an ounce for the first time Friday, as high oil prices, a weak dollar and fears of a U.S. recession led uneasy investors to keep buying the precious metal.

An ounce of gold for February delivery on the New York Mercantile Exchange jumped $6.50 to $900.1 in morning trading, an all-time high and a psychologically important milestone. Gold later slipped to $898.70 an ounce but remained in record territory.

It's a reflection of market sentiment: Gold is a hedge against uncertainty and right now it's the best bet, said Carlos Sanchez, a precious metals analyst at CPM Group in New York. None of the other investment options look that great and gold does.

Still, when adjusted for inflation, gold remains well below its all-time high. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.

Gold has seen a meteoric rise the past year -- rising 32 percent in 2007 -- boosted by rising prices for oil and other commodities and also by the falling U.S. dollar. Those trends have increased the metal's appeal as a haven; gold is also seen as a safe investment in times of political and economic uncertainty around the world.

Dollar Posts Biggest Drop Versus Yen in Almost 2 Months on Jobs

The dollar posted its biggest decline against the yen in almost two months as a slowdown in hiring raised concern that U.S. economic weakness will spread globally.

The U.S. currency fell this week against the euro and Swiss franc as traders priced in for the first time a more than 50 percent chance the Federal Reserve will cut borrowing costs by a half-percentage point on Jan. 30. Import prices were unchanged last month, easing concern inflation is accelerating, the government is forecast by economists to report next week.

The dollar is going to remain on the defensive, said Robert Sinche, head of global currency strategy in New York at Bank of America Corp. He says the U.S. currency may approach the all-time low of $1.4967 per euro reached Nov. 23.

The dollar weakened 3.3 percent this week to 108.60 yen, the biggest drop since November. It decreased to $1.4743 per euro from $1.4723, extending a 2.4 percent plunge the previous week that was the biggest since April 2006, and fell 1.6 percent to 1.1083 Swiss francs.

The yen rose against all of the 16 most actively traded currencies this week as the slowdown in U.S. hiring encouraged investors to cut back on holdings of higher-yielding assets funded in Japan. The Standard & Poor's 500 Index fell 4.5 percent this week, its biggest drop since July.

Japan's currency jumped 3.2 percent to 160.09 per euro, the biggest increase since the week ended Aug. 17, the day the U.S. central bank cut the discount rate to mitigate a global rout in credit markets.

Yen's Advance

The yen increased 3.9 percent against the Australian dollar and 4.4 percent against the South African rand, two favorites of the carry trade.

If the U.S. is going to fall into recession, the world economy will slow down significantly, said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. Investors will shun risky assets and carry trades.

Japan's benchmark lending rate of 0.5 percent, the lowest among major economies, compares with 11 percent in South Africa, 6.75 percent in Australia and 4 percent in the 15 countries that use the euro. In the carry trade, investors borrow in countries with lower lending rates and use the cash to buy assets where higher returns are offered. The risk is that currency fluctuation can erase profits.

U.S. employers added 18,000 positions to their payrolls last month, capping the worst year for job creation since 2003, the Labor Department said yesterday. The median forecast of 74 economists surveyed by Bloomberg News was for 70,000 new jobs. The unemployment rate rose to 5 percent, a two-year high.

`Risk Appetite'

Clearly the labor market is weakening, said Jay Bryson, global economist in Charlotte, North Carolina, at Wachovia Corp. This is not good for global risk appetite.

The U.S. Dollar Index traded on ICE Futures in New York declined 0.6 percent this week to 75.793. The index, valuing the currency's performance against those of six of the biggest U.S. trading partners, has had the worst start of a year since the turn of the millennium.

The chance the Fed will reduce the benchmark lending rate of 4.25 percent by a half-percentage point on Jan. 30 rose to 66 percent from 34 percent two days ago and no chance a week ago, interest rate futures contracts on the Chicago Board of Trade showed. The odds of a quarter-point cut were 34 percent.

Prices of goods imported into the U.S. were unchanged in December after a 2.7 percent increase the previous month, according to the median forecast of 35 economists surveyed by Bloomberg News. The Labor Department report is due Jan. 11.

China's yuan advanced against the dollar for a fourth week, rising 0.4 percent to 7.274 per dollar, as a local newspaper reported that the central bank signaled it will allow faster gains in the currency to help curb inflation.

Source - Bloomberg

Bet your bottom dollar

The Fed's last two rate cuts helped send the greenback drastically lower. But experts say the worst may be over for the dollar even if the Fed cuts again.

Wall Street is betting that the Federal Reserve will deliver another rate cut at its policy meeting Tuesday, but that may not necessarily spell more doom for the dollar.

Currency experts argue that the greenback's steep decline this year has come too far, too fast and that investors have factored in one, if not more, rates cut by the Fed in the coming months.

"At these levels quite a bit of interest rate reduction is already priced into the dollar," said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc.

The dollar has managed a modest recovery in recent weeks, but is still sharply lower for the year against a number of currencies, most notably the euro and the British pound.

The U.S. Dollar Index, which measures the currency's performance against six of its biggest trading partners, is down more than 8 percent so far this year, after hitting a record low late last month.

Much of the dollar's recent decline can be blamed on the Fed's recent policy actions. In October, the central bank cut the key federal funds rate, which affects the rate at which consumers borrow on a variety of loans, by a quarter of a percentage point. That followed a half-point cut in September.

A rate cut puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors.

Although a weak dollar also typically drives domestic and overseas demand for U.S. goods, it also poses an inflationary risk to the economy by limiting consumers' buying power overseas and pushing up the price of commodities such as oil and gold.

Traders are split as to whether the Fed will lower the federal funds rate by a quarter-point or a half-point on Tuesday.

But Tom Fitzpatrick, global head of currency strategy at Citigroup in New York, said that if the Fed cuts by a half-point, he thinks there would be "quite a sharp reaction in terms of dollar selling."

With a rate cut all but certain though, Fitzpatrick and other currency experts said investors are likely to pay close attention to what the Fed says in its statement.

At its October meeting, policymakers said that the risks of inflation and economic growth were roughly in balance. If they stick to that same script, that could bode well for the dollar, said Nick Bennenbroek, head currency strategist at Wells Fargo Bank in New York.

"The key question is whether they feel comfortable or bold enough to repeat that assertion," said Bennenbroek. "If that statement is there, then we might see the dollar stabilize or even move higher."

Whatever action the Fed takes on Tuesday, there have been encouraging signs for the U.S. economy - a bullish indicator for the greenback.

Last Friday, the Labor Department reported that the economy added 94,000 jobs in November, while the unemployment rate held steady, suggesting that the U.S. economy was unlikely to enter a recession in 2008.

Source - CNN Money

Dollar Heads for a Weekly Advance Against the Euro

The dollar headed for the biggest weekly gain in two months against the euro on concern the reluctance of banks to lend is worsening in Europe.

The U.S. currency was near the highest in a week versus the British pound as the cost of borrowing in euros for one month rose by a record amount as banks sought funds to cover their commitments through to the start of next year. A U.S. government report today is forecast to show personal spending increased 0.3 percent last month.

The U.S. dollar is looking relatively cheap and I would be looking to sell the euro and pound, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest lender. Credit concerns are spreading like a disease from one continent to the next. There are signs of slowing in the European economy.

The U.S. currency, which has fallen 11 percent on a trade- weighted basis this year, was at $1.4771 per euro at 9:25 a.m. in Tokyo from $1.4744 late in New York yesterday. It touched $1.4712 on Nov. 27, the strongest since Nov. 20. The dollar was at $2.0638 per pound from $2.0612 yesterday. It was at 109.79 yen and the euro bought 162.14 yen.

The yield on the March Euribor interest-rate futures contract was unchanged yesterday at 4.4 percent. It has declined 33 basis points since reaching 4.73 percent on July 6. The yield on the 90-day sterling interest-rate futures contract for June fell 8 basis points to 5.33 percent. It was 6.4 percent on July 17. A basis point is 0.01 percentage point.

The London interbank offered rate that banks charge each other for euro loans that only come due after the end of 2007 climbed 64 basis points to 4.81 percent yesterday, the British Bankers' Association said. The rate charged for dollars rose 40 basis points to 5.23 percent.

The dollar will gain to $1.44 per euro and 112 against the yen by the end of June, according to the median forecast of 39 analysts and brokerages surveyed by Bloomberg.

Bernanke

The dollar pared its weekly advance after Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has affected the economy's prospects and policy makers must decide whether the risks between growth and inflation have now shifted.

The outlook has also been importantly affected over the past month by renewed turbulence in financial markets, Bernanke said in a speech in Charlotte, North Carolina late yesterday. The committee will have to judge whether the outlook for the economy or the balance of risks has shifted materially.

He also led a group of analysts in a report forecasting a gradual relaxation of credit concerns in the financial sector over the coming months.

Japan's Inflation

The yen remained higher against the dollar after a Japanese government report showed consumer prices unexpectedly rose for the first time since last December, boosting the central bank's case for interest-rate increases.

Japan's prices are on an uptrend, said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo, a unit of Japan's second-largest brokerage. This raises expectations of the Bank of Japan's next rate increase and should be yen positive.

Japan's currency may rise to 109 per dollar and 160 a euro by year-end, Kameoka forecast.

Housing Slump

The dollar has declined against 15 of the 16 major currencies this year amid the worst housing market slump since 1991 and a credit squeeze that sent three-month interbank borrowing costs to the highest since 2001. Fed policy makers reduced the benchmark rate twice to 4.5 percent to keep the economy out of recession.

The key borrowing rate in the U.K. is 5.75 percent after five increases since 2006, and 4 percent in the euro region after eight increases since 2005.

Futures contracts on the Chicago Board of Trade showed yesterday traders saw a 100 percent chance the Fed will lower its target for overnight loans between banks at least a quarter- percentage point to 4.25 percent on Dec. 11. The chance of a cut to 4 percent is 30 percent.

A separate report today may show the Federal Reserve's preferred gauge of inflation was 1.8 percent in the 12 months through October, according to the median forecast of 29 economists surveyed by Bloomberg News. Fed officials have said they would be comfortable with the reading between 1 percent and 2 percent.

Source - Bloomberg

Dollar again hits all-time low vs. euro

Greenback keeps losing ground amid growing unease about U.S. economy.

The dollar hit a new record low against the 13-nation euro on Thursday in thin holiday trading.

The euro spiked to $1.4873 before falling back slightly to $1.4844 in early European trading.

Its previous high of $1.4856 was hit Wednesday, before it settled at $1.4848 in late New York trading.

The dollar was unchanged against the yen, buying ¥108.68 - the same as in late New York trading. The British pound, meanwhile, rose slightly to $2.0652 from $2.0644 the night before.

The Thanksgiving holiday kept many players on the sidelines, while Japanese financial markets will be closed Friday for the Labor Thanksgiving Day holiday.

While the thin holiday trade could invite sudden, sharp moves, traders expected the market to be largely subdued for the rest of the day.

The euro, the pound and other currencies have been climbing steadily against the dollar since August amid fears for the health of the U.S. economy, stoked by the subprime credit crisis.

The dollar has been further weakened by U.S. interest-rate cuts - which can be used to jump-start an economy, but can also weaken a currency as investors transfer funds to countries where they can earn higher returns. The Federal Reserve has already cut rates twice.

Source - CNN Money

Yen Rises as Subprime Losses Spur Higher-Yielding Asset Sales

The yen rose against 16 of the most- actively traded currencies as losses related to U.S. subprime mortgages widened, prompting investors to sell higher-yielding assets funded by loans made in Japan.

The currency gained the most versus the Australian and New Zealand dollars as Freddie Mac, the second-biggest U.S. mortgage- finance company, reported a record loss and the Federal Reserve reduced its 2008 economic growth forecast. Crude oil rose above $99 a barrel, which may slow consumer spending and put pressure on the central bank to cut interest rates.

Subprime problems are far from done, said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo, Japan's fifth-largest lender by assets. The yen is being buoyed by it.

The yen climbed to 162.58 per euro as of 12:30 p.m. in Tokyo from 163.21 in New York yesterday. It was at 109.64 against the dollar from 109.97. The dollar traded at $1.4828 per euro, after reaching $1.4852 yesterday, the lowest since the single European currency's debut in 1999.

Japan's currency may rise to 107 per dollar this year, Matsumoto said.

Australia's dollar slipped to 97.27 against the yen from 98.13, New Zealand's dollar weakened to 83.46 from 84.15, and South Korea's won declined to 11.847 from 11.945.

Default Swaps

The risk of owning debt of financial firms from Citigroup Inc. to Bear Stearns Cos. rose on concern that credit-market losses will increase, according to credit-default swaps, which are used to speculate on the ability of companies to repay their debt. Countrywide Financial Corp., the biggest U.S. mortgage lender, denied it will file for bankruptcy linked to speculation of a cash shortage.

The yen will remain strong on the back of risk reduction, said Hiroshi Sudo, senior manager in the department of solution and sales at Central Tanshi Online Trading Co., Ltd., a Tokyo-based foreign-exchange margin trader that handles 45 billion yen ($409 million) in customers' money.

Japan's currency may rise to 105 per dollar in January, Sudo forecast.

The yen gained 5.7 percent against the Korean won this quarter, 4.8 percent versus the Australian dollar and 4.2 percent against New Zealand's, as the countries' interest-rate premiums made them attractive for so-called carry trades.

Dollar Losses

The dollar may extend losses as traders bet the Fed will cut interest rates a third time to keep the economy from slipping into recession. The U.S. consumes one quarter of the world's oil, the price of which has risen 62 percent this year to a record.

Reports today may show the Commerce Department's index of for the U.S. economic outlook fell in October and the Reuters/University of Michigan's final consumer confidence gauge stayed at a two-year low this month.

The U.S. Dollar Index traded on ICE Futures U.S. in New York, which measures the currency against six major counterparts including the euro, yen and British pound, reached a record low of 74.978 on Nov. 9, the weakest since the index started in 1973. It last stood at 75.155. The U.S. currency was also near an all- time low versus the Swiss franc.

The most likely path for the dollar into the year-end remains down, said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world's largest currency trader. The Fed will probably respond to weaker growth with a further lowering of rates.

The dollar dropped to a record low of 1.1055 versus the Swiss franc before trading at 1.1060 from 1.1058 yesterday. The U.S. currency will decline to $1.50 versus the euro by the end of the year, Horner forecast.

Source - Bloomberg

Yen Near 1 1/2-Year High Versus Dollar on Credit-Market Risks

The yen traded near a 1 1/2-year high versus the dollar as concern increased that credit-market losses will slow global economic growth, pushing investors to sell higher-yielding assets funded by loans in Japan.

Japan's currency rose against the Australian and New Zealand dollars, favorites of the carry trade, after stocks fell in the U.S. and futures showed equities in Tokyo are likely to decline today. Japan has the lowest benchmark interest rate among industrialized nations. Demand for the dollar may weaken on expectations a government report today will show U.S. housing starts dropped to a 14-year low in October.

This will be a good day for the yen, said Paul Milton, chief dealer at Societe Generale SA in Sydney. Asian stocks are likely to catch up with U.S. equities.

The yen traded at 109.74 per dollar at 7:57 a.m. in Tokyo from 109.76 late in New York yesterday. The yen rose to 109.13 per dollar on Nov. 12, the highest level since May 2006, and may advance to 109.30 today, Milton said. Japan's currency was little changed at 160.96 per euro from 160.95 yesterday. The dollar traded at $1.4664 per euro from $1.4665.

The yen climbed against all 16 of the world's most-active currencies yesterday as Goldman Sachs Group Inc. said in a report that Citigroup Inc., the largest U.S. bank by assets, may write down $15 billion in collateralized debt obligations over the next two quarters.

The Standard & Poor's 500 Index fell 1.8 percent yesterday. Nikkei 225 Stock Average futures due in December traded at 14,765 in Chicago, compared with the index's close yesterday in Tokyo of 15,042.56. The two-year Treasury note's yield fell to the lowest since 2005 as investors sought safety in U.S. government debt.

Yen Strength

The market is very nervous, said Jonas Thulin, a senior currency strategist at Calyon Securities Inc. in New York. People are holding a sober view that we haven't seen the worst from the subprime and credit issue yet. It pushed people to buy the yen and sell risky assets.

The yen has strengthened against all 16 most-traded currencies this month, gaining 12 percent versus Australia's dollar and 8.3 percent against New Zealand's.

In carry trades, investors borrow money in low-yielding economies such as Japan and lend the funds in high-yielding countries to profit from the spread. The risk is that currency moves wipe out earnings. When the trade weakens, traders sell higher-yielding assets and buy yen to repay borrowings.

The benchmark rate in Australia is 6.75 percent while New Zealand's is 8.25 percent. Japan's borrowing cost is 0.5 percent.

Jitters in the market contributed to the strengthening in the yen, said Stephen Malyon, a currency strategist at Scotia Capital Inc. in Toronto.

U.S. Housing Starts

The U.S. currency weakened to an all-time low of $1.4752 per euro on Nov. 9. The dollar has lost 10 percent against the euro and 7.8 percent versus the yen this year as two rate cuts by the Federal Reserve dimmed the allure of U.S. assets.

Today's Commerce Department report will show housing starts fell to an annualized rate of 1.17 million in October, from 1.19 million during September, according to a Bloomberg survey. The data is scheduled for release at 8:30 a.m. Washington time.

The Fed is scheduled to release the minutes from its Oct. 31 meeting at 2 p.m. in Washington. The central bank cut the target rate for overnight loans between banks to 4.5 percent last month, after a 50-basis-point reduction in September. The central bank is also expected to release quarterly forecasts for the economy and inflation.

Futures traded on the Chicago Board of Trade show the odds of the Fed cutting interest rates a quarter-percentage point to 4.25 percent on Dec. 11 are 96 percent, compared with 72 percent a month ago.

Spread Narrows

The National Association of Home Builders/Wells Fargo index of builder confidence held at 19 for a second month in November, the lowest since records began in 1985, the Washington-based association said yesterday.

The yield advantage of U.S. two-year Treasuries over comparable-maturity Japanese government debt shrank to 2.41 percentage points, the narrowest since October 2004, making U.S. assets less attractive to international investors.

Source - Bloomberg

G-20 Draft Highlights Inflation, Growth Risks

The Group of 20 nations will say oil and food prices threaten to spur global inflation even as higher credit costs damp the outlook for economic growth, according to an official from a G-20 country.

Rising energy and food prices will remain an important source of price pressures, a draft of the G-20 communiqué says, according to the official, who asked not to be identified. The G- 20 will release its statement around 1:30 p.m. in Kleinmond, near Cape Town, today. While the official said currencies were not mentioned in the draft, Canada's central bank governor David Dodge told reporters yesterday there was a frank sharing of views on the matter.

Central bankers around the world are trying to curb inflation just as fallout from the biggest U.S. housing slump in 16 years spreads through financial markets and a weaker dollar threatens to hurt growth. While the U.S. Federal Reserve has cut interest rates twice since September to shore up U.S. expansion, policy makers in India, China and the 13 euro nations say they are worried about accelerating inflation.

The price of oil has surged 58 percent in the past year and wheat prices have increased 60 percent in the same period. European inflation accelerated to the fastest pace in two years last month and Chinese inflation matched the quickest pace in a decade.

Monetary authorities in the G-20 will need to assess the effects on the inflation outlook, the official quoted the draft statement as saying.

U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and Chinese central bank Governor Zhou Xiaochuan are among the G-20 finance ministers and central bankers meeting this weekend in South Africa.

The credit collapse that began in August is likely to force banks, brokerages and hedge funds to cut lending by $2 trillion, risking a substantial recession in the U.S., Goldman Sachs Group Inc. economist Jan Hatzius wrote in a report dated Nov. 15.

Dodge told reporters yesterday that the impact of market turbulence is likely to be more prolonged than forecast at last month's meeting of the G-7 nations.

Downside risks to the near-term outlook have increased as a consequence of recent financial-market disturbances, the G-20 draft says, according to the official. While the likely slowdown in global economic outlook is expected to be modest, its extent and duration remain to be seen, the statement says.

Slower Growth

Slower U.S. growth has dulled the allure of dollar investments, prompting some investors to shift capital into other currencies. With China still controlling the yuan's exchange rate more than two years after abandoning a peg to the dollar, money has flooded into Europe and Canada.

The U.S. currency has dropped about 11 percent so far this year, based on the Federal Reserve's U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, the lowest against Canada's dollar since it was floated in 1950 and to a 26- year low versus the pound.

There was a genuine concern on the part of a lot of countries on the turbulence in the currency markets, Dodge told reporters yesterday. Bank of England Governor Mervyn King said Nov. 14 he's concerned that China's foreign exchange policies are stoking great currency tensions.

OPEC countries meeting this weekend in Riyadh, Saudi Arabia, have been debating the dollar's decline, which is making it harder for them to manage inflation and keep their pegs to the currency at the same time. Gulf states including Saudi Arabia and the United Arab Emirates may revalue their currencies in as soon as in a month's time, a person familiar with Saudi monetary policy said yesterday.

The G-20 comprises Argentina, Japan, Australia, Korea, Brazil, Mexico, Canada, Russia, China, Saudi Arabia, France, South Africa, Germany, Turkey, India, United Kingdom, Indonesia, United States, Italy, European Union.

Source - Bloomberg

French, Canadian Officials Call for China Yuan Shift

France and Canada said China must allow the yuan to appreciate faster after a meeting of policy makers from the Group of 20 nations.

The yuan, where it is, is causing tensions, French Finance Minister Christine Lagarde said in an interview at the G- 20 meeting in Kleinmond, near Cape Town, today. Canadian Finance Minister Jim Flaherty told reporters yesterday that China and a number of other Asian countries need to do more.

G-7 officials have strengthened their rhetoric on China in the past month as concern mounts it isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters. The European and Canadian currencies have soared to records against the dollar, threatening to hurt economic growth. By comparison, China has allowed the yuan to rise about 5 percent against the dollar this year and it has fallen against the euro.

While Lagarde said the G-20 didn't point out any specific currencies and wants to operate by consensus, she added that erratic movements of currencies are not welcome.

The French and Canadian officials are meeting counterparts such as U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and Chinese central bank governor Zhou Xiaochuan at this weekend's meeting in South Africa.

There was a genuine concern on the part of a lot of countries on the turbulence in the currency markets, Canada's central bank governor David Dodge said yesterday.

Correct Direction

International Monetary Fund Managing Director Dominique Strauss-Kahn echoed some of the concerns expressed by Canadian and French officials. He told reporters today the euro, the Canadian dollar and Brazil's real have on their shoulders a much larger part of the adjustment than they should, even though the U.S. currency has moved in the correct direction.

Paulson has signaled to U.S. trading partners that the dollar will rebound, predicting it will reflect long-term strength in the American economy.

The U.S. currency has dropped about 11 percent so far this year, based on the Federal Reserve's U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, to a 26-year low versus the pound and the lowest against Canada's dollar since it was floated in 1950.

OPEC countries meeting this weekend in Riyadh, Saudi Arabia, have been debating the dollar's decline, which is making it harder for them to manage inflation and keep their pegs to the currency at the same time. Gulf states including Saudi Arabia and the United Arab Emirates may revalue their currencies in as soon as a month's time, a person familiar with Saudi monetary policy said yesterday.

Source - Bloomberg

Gulf States May Revalue Currencies

Gulf states, including Saudi Arabia and the United Arab Emirates, may revalue their currencies while maintaining their pegs to the U.S. dollar, a person familiar with Saudi monetary policy said.

The states may revalue by an unspecified amount in as soon as a month's time, said the person, who declined to be identified because the matter is confidential. No decision has been made on whether to revalue, he said. Evidence has been gathered and will be presented to policy makers, he said, without giving details.

Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham's peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.

Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting.

The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.

Currency Moves

The dollar slid to a record low of $1.4752 against the euro on Nov. 9 and has fallen versus 15 of the 16 most actively traded currencies tracked by Bloomberg in the past 10 1/2 months.

The Saudi riyal rose to a 20-year high after the Fed cut rates on Sept. 18 and the Saudi Arabian Monetary Authority chose not to follow. The riyal and the dirham rose this week after al-Suwaidi questioned the U.A.E.'s currency peg.

The riyal was trading at 3.725 to the dollar at 10.09 p.m. in Riyadh, 0.7 percent higher than the peg price of 3.75. Contracts to buy U.A.E. dirhams in 12 months time rose the most in at least 10 years on Nov. 15 after al-Suwaidi's comments, and were trading at a 2.5 percent premium to the spot price today.

Source - Bloomberg

Yen Heads for Second Weekly Gain on Stock Losses, Credit Risks

The yen headed for a second weekly gain versus the euro and dollar as concern over credit-market losses and falling stocks prompted investors to pare high- yielding assets funded by loans in Japan.

The yen has strengthened against the 16 most-actively traded currencies this week as traders pared so-called carry trades. Barclays Plc, the U.K.s third-largest bank, yesterday said it wrote down $2.7 billion of credit-related securities, and Wells Fargo & Co. said home-equity losses will remain elevated through 2008. U.S. Treasuries rallied, sending the yield on two-year notes to the lowest level since February 2005.

The yen has been strengthening a fair bit on that safe- haven play, said Jim Vrondas, manager of corporate business at online foreign-exchange dealer OzForex Ltd. in Sydney. The markets focus is on credit risk and weve seen scattered behavior during the week with big sharp drops in equity markets. Thats likely to continue in the short term.

The yen gained to 161.49 per euro at 8:45 a.m. in Tokyo from 162.48 late in New York on Nov. 9. The Japanese currency rose to 110.49 against the dollar from 110.69 last week. The euro bought $1.4619 from $1.4678.

Wells Fargos Chief Executive Officer John Stumpf yesterday said the current housing market is the worst since the Great Depression. Wells Fargo, based in San Francisco, is the second- largest U.S. mortgage lender.

The U.S. Dollar Index traded on ICE Futures U.S. in New York yesterday rose to 76.069, from 75.814 on Nov. 14. It has rebounded from 74.978 on Nov. 9, the weakest since the index began in 1973.

A Strong Dollar

U.S. Treasury Secretary Henry Paulson yesterday said the U.S. economy is going to continue to grow and its fundamental long-term strength is going to be reflected in our currency. A strong dollar is very much in our nations interest. He spoke to reporters traveling with him to Cape Town, South Africa, for the U.S.s Corporate Council on Africa conference.

Paulson, 61, is on a six-day trip to Africa that features a gathering of finance ministers and central bankers from the Group of 20 near Cape Town. The G-20 groups the largest developed countries, including the U.S. and Germany, with emerging markets such as China and India.

The Standard & Poors 500 Index fell 1.3 percent yesterday.

The yield on the two-year note fell 0.16 percentage point, and touched 3.33 percent, the lowest since February 2005.

The Swiss franc rose 0.4 percent this week to 1.6406 per euro.

Yen and Franc

The yen and the franc are used by investors to finance investments in markets with higher returns because interest rates in those countries are among the lowest in the industrialized world. Japans benchmark rate is 0.5 percent and Switzerlands is 2.75 percent. When risk aversion returned, investors bought the low-yielding yen and franc to pay back their loans, boosting demand for the currencies.

The pain from the credit market continues, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, the worlds largest custodial bank with more than $20 trillion in assets. We are continuing to see the highly anticipated aftershocks of the earthquake from the financial crisis, which forced people to cut risky assets and return to the yen and the dollar.

TIC Data

Gains in the dollar may be limited by speculation a report today will show foreign purchases of U.S. securities were less than the amount needed to finance the trade deficit, raising concern there is a lack of demand for the U.S. currency.

A Treasury Department report will show foreigners purchased $71.5 billion of U.S. assets in September from net sales of a record $69.3 billion in August, according to a Bloomberg News survey. A report on Nov. 9 showed the U.S. trade deficit was $56.5 billion in September.

Even though figures show a net inflow of foreign purchases of U.S. assets, that could be yet another dollar- selling catalyst, said Tohru Sasaki, chief strategist at JPMorgan in Tokyo and a former chief currency trader at the Bank of Japan. Unless figures rise above $56.5 billion, this could raise concern over the U.S. current-account deficit.

The U.S. currency may fall to as low as 109.50 yen today, Sasaki said.

International investors sold a record amount of U.S. securities in August as soaring credit costs sparked an exodus from the stock market, the Treasury Department said in Washington on Oct. 16, when the dollar fell 0.4 percent against the yen. None of the dozen economists surveyed by Bloomberg News predicted the decline, the first since Russia defaulted in 1998.

Source - Bloomberg

Commodities Tumble, Led by Metals, on Risk Concerns

Commodities tumbled, led by metals and energy, as investors sought to unwind high-risk bets on raw materials after prices climbed to records this year.

The UBS Bloomberg Constant Maturity Commodity Index fell as much as 2 percent after climbing to the highest ever on Nov. 7. Hedge-fund managers and other large speculators increased net- long positions, or wagers prices will rise, to a record last week in gold futures, Commodity Futures Trading Commission data showed. Speculative long positions in oil approached a record.

Investors are concerned global economies wont accelerate at the pace earlier this year and in 2006 amid turmoil in credit markets linked to the U.S. housing recession. The yen gained against 16 of the most-traded currencies as traders cut holdings of riskier assets bought with loans in Japan.

Were seeing a general shift against risk, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. Gold, silver, and platinum are being hit because people are unwinding the yen trade.

Gold plunged the most in 13 months, and crude oil dropped as much as 2.9 percent. Copper and most agricultural commodities also declined.

Gold futures for December delivery fell $27, or 3.2 percent, to $807.70 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest since Oct. 3, 2006.

Before today, gold rallied in 11 of the past 12 weeks, reaching a 27-year high of $848 on Nov. 7. The metal still has climbed 27 percent this year.

Risk Aversion

Risk aversion has returned to haunt the metals market, John Reade, an analyst at UBS AG in London, said in a report. Yen strength has coincided with metal-price weakness, signs that the foreign-exchange carry and long-metals positions are both seeing deleveraging.

Crude-oil futures for December delivery declined $1.70, or 1.8 percent, to $94.62 a barrel on the Nymex. The price reached a record $98.62 on Nov. 7.

Oil earlier touched $93.54 a barrel, and gold dropped as low as $798.80. The UBS Bloomberg CMCI dropped 19.90, or 1.6 percent, to $1,251.46 at 3:32 p.m. New York time.

Signs of slowing growth in the U.S. economy dented investor confidence that oil prices will reach $100 a barrel. Rising fuel costs may have slowed retail spending growth in the U.S., the worlds largest oil user, to a four-month low in October, according to a Bloomberg survey.

Wringing Out Inflation

Technically, we never got to $100, and the dollar strengthened significantly, said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. Youre seeing the market wringing out some of the inflation thats built up.

Rising fuel prices that businesses and consumers took in stride earlier this year may push the weakened U.S. economy into recession.

We are in a danger zone, says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock.

Copper tumbled to the lowest price in seven months after imports fell in China, the worlds largest user of the metal.

Chinas imports of copper and copper products fell to 204,242 metric tons in October, down 5.7 percent from 216,643 tons in September, the Beijing-based customs office said today. Before today, copper had fallen 15 percent since Oct. 1 on concern a slowing U.S. economy would reduce metals consumption.

Economy Is Biggest Worry

When Chinas copper imports come in lower, its bound to have a negative affect on the price, said Patrick Chidley, an analyst at Barnard Jacobs Mellet LLC in Stamford, Connecticut. The biggest worry now is the state of the economy and what that will mean for demand.

Copper futures for December delivery dropped 3.65 cents, or 1.2 percent, to $3.109 a pound on the Comex. Earlier, the metal touched $3.035, the lowest since March 29.

Falling prices for copper, which generally moves in line with economic expansion, are an indication that growth will slow and curb demand for commodities including oil, said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

Good Indicator

Copper is a good economic indicator, and with copper slumping at the moment, I just cant see that oil should be at these levels, Barratt said. Coppers actually led the way, and oil will follow down the track.

Silver futures for December delivery fell 78.3 cents, or 5 percent, to $14.762 an ounce on the Comex. The metal still is up 14 percent this year.

Platinum futures for January delivery tumbled $35.20, or 2.5 percent, to $1,390.80 on the Nymex. The price reached a record $1,498.80 on Nov. 7.

In carry trades, investors sell currencies of countries with lower borrowing costs and buy assets with higher interest rates or the prospect of greater yields. Japan has the lowest borrowing costs among industrialized nations at 0.5 percent.

Speculative long positions in gold futures outnumbered short positions by 202,125 contracts on the Comex in the week ended Nov. 6, CFTC data showed on Nov. 9. Net-long positions rose by 3,519 contracts, or 1.8 percent, from a week earlier.

Speculative long positions in oil futures on the Nymex outnumbered short positions by 105,816 contracts. Net-long positions rose by 22,696 contracts, or 27 percent, from a week earlier. Net-long positions reached a record 127,491 on July 31.

Source - Bloomberg

Dollar Rises Most Since July 2006 as Investors Reduce Risks

The dollar rose the most against the euro since July 2006 as credit-market losses pushed investors to reduce holdings of assets in higher-yielding currencies.

The currencies of Australia, South Africa, New Zealand and Brazil led the decline. Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said. The dollar touched a record low last week against its major trading partners.

The dollar is trading on a firm footing against the majors, said Matthew Perrier, a strategist with BMO Capital Markets in Toronto. The recent bout of risk aversion led the hedge fund community to take profits where they could be found to pay back losses in other areas. That has strengthened the dollar.

The dollar rose 0.9 percent against the euro to $1.4548, from $1.4678 last week. It fell to an all-time low of $1.4752 on Nov. 9. The U.S. currency has weakened 9.3 percent against the euro this year, extending its loss over the past five years to 30.4 percent.

Yen Rally

Risk aversion also pushed up the yen against all 16 most- actively traded currencies. The yen rose 0.8 percent to 109.86 per dollar and touched 109.13, the highest since May 2006. The Japanese currency also gained 1.6 percent to 159.83 per euro.

The Japanese currency rose as much as 5.1 percent versus the Australian dollar, 2.3 percent against the euro and 4.2 percent versus the South African rand as speculators retreated from carry trades.

Source - Bloomberg

Sinking dollar, rising portfolio

Stocks have soared even as the greenback drops like a brick. That may not last. But if history is any guide, the dollar's woes will eventually weigh down U.S. stocks.

When you're traveling abroad, it's easy, if unpleasant, to grasp the impact of a sinking dollar. Now that the euro is at an all-time high against the greenback, dinner for two at a modest Paris café will set you back $200.

Simply put, when the dollar is strong against other currencies, it signifies that our economy is good and the world's faith in the U.S. is high. Conversely, a weak dollar is a sign that something's wrong, says Gordon Fowler, chief investment officer for Glenmede Investment Management.

The dollar has had declines of 25 percent or more twice in the recent past; the current fall is 36 percent since 2002 against a basket of foreign currencies. In the early 1970s, the peculiar combination of rising inflation and low demand known as stagflation was weighing the buck down. In the mid-'80s, the dollar fell amid fears the U.S. was about to be overtaken by Japan Inc. as the world's economic superpower.

This time around, the reasons for the decline are more subtle. The U.S. economy has been expanding, but that growth has not been spread evenly; now the meltdown in the housing market poses a recession threat.

Moreover, we're running a large federal deficit and a trade gap of nearly $60 billion a month. All of that puts downward pressure on the dollar.

So far that pressure has been beneficial: It's made U.S. goods sold overseas more affordable, helping to cut the trade deficit. And it is boosting the bottom lines of U.S. exporters because their foreign sales are in currencies that are appreciating.

This is a healthy, corrective development for our economy, says Eaton Vance chief economist Robert MacIntosh. Certainly the stock market seems comfortable with the trend. The S&P 500 has risen 35 percent in the five-plus years that the dollar has been on the decline.

Dollar up, stocks down?

But the flip side of our stuff being cheaper overseas is that imports are more expensive here. And we do like to import. Eventually that means rising inflation. In both the early '70s and mid-'80s, inflation related to a falling dollar led the Federal Reserve to raise interest rates. That stabilized the buck - and sank the stock market. (See the graphic to the right.)

Whenever the dollar turns, it will probably mark the beginning of the next bear market, says Christopher Orndorff, head of equities for Payden & Rygel, an asset management firm in Los Angeles.

There are scenarios that Orndorff foresees that could allow the market to evade this fate. First, Fed chairman Ben Bernanke could prove more artful than his predecessors at fighting inflation without killing stocks. Or the dollar could strengthen without the Fed's intervention, not necessarily because of good news for the U.S. but because economies in Europe or Asia run into trouble.

There is, however, a longer-term bearish outlook for the dollar too. In this scenario, which Warren Buffett worries about, overseas investors financing our fiscal and trade deficits by buying Treasuries grow impatient with the sinking buck - which, after all, is worth less in their home currencies.

So they sell, and then buy investments in other currencies, further weakening the dollar and forcing up interest rates here. That, in turn, chokes off the U.S. economy, so the overseas investors sell even more, weakening the dollar again. The cycle then repeats. If that's what unfolds, economic superpower really will end up no longer being used near the words United States.

Source - CNN Money

Bernanke warns on economic growth

Fed chairman says he remains concerned about credit crunch and oil prices - and traders now think another rate cut is near certain.

Federal Reserve Chairman Ben Bernanke, warning that higher inflation and weaker economic growth could be in store, told Congress Thursday that the central bank is keeping a close eye on the subprime mortgage crisis and recent spike in oil prices.

Bernanke, testifying before Congress Joint Economic Committee, said the Fed expected growth to slow noticeably in the fourth quarter. But he also downplayed fears of a recession, saying the central bank expects the economy to grow next year, albeit at a more moderate pace than in recent quarters.

Federal Reserve chairman Ben Bernanke told Congress Thursday that the central bank is worried about both the mortgage meltdown and inflation as oil prices approach $100.

Since the Fed cut interest rates on Oct. 31, financial market volatility and strains have persisted, Bernanke said.

Incoming information on the performance of mortgage-related assets has intensified investors concerns about credit market developments and the implications of the downturn in the housing market for economic growth, Bernanke said in his prepared remarks.

He also expressed concern that the rise in energy prices - oil is now trading at about $96 a barrel - could lead to both higher inflation and weaker levels of economic growth.

In addition, further sharp increases in crude oil prices have put renewed upward pressure on inflation, and may impose further restraint on economic activity.

Wall Street interpreted Bernankes comments as a sign that the Fed may now be more likely to cut a key short-term interest rate at its next meeting on Dec. 11.

The Fed lowered the federal funds rate, an overnight bank lending rate that impacts how much consumers pay for credit card debt, home equity lines of credit and auto loans, by a quarter of a percentage point on Oct. 31. That move followed a half-point rate cut on Sept. 18.

According to futures listed on the Chicago Board of Trade, investors as of late Thursday were pricing in an 88 percent chance that the Fed will lower the federal funds rate by a quarter of a point to 4.25 percent in December. Earlier this morning, traders were pricing in a 70 percent chance of a rate cut.

The Fed may be forced into further easing, said Ashraf Laidi, chief currency analyst with CMC Markets U.S, a currency brokerage firm. The Fed may cut rates even it doesnt want to.

Nonetheless, stocks fell Thursday and one market expert said investors might now be worrying about the possibility of stagflation: sluggish economic growth combined with inflation.

The Fed is in a tight spot. Its hard to combat deflation in housing and inflation in commodities spurred by a falling dollar at the same time, said Mike Larson, an analyst with Weiss Research, an investment research firm based in Jupiter, Fla.

However, Bernanke also said that recent economic data releases suggest the overall economy remained resilient in recent months.

But in opening remarks before Bernankes testimony, Sen. Charles Schumer (D-N.Y.), the chairman of the joint economic committee, said that he has begun to worry about the threat of a recession.

I think we are at a moment of economic crisis stemming from four key areas: falling housing prices, lack of confidence in creditworthiness, the weak dollar and high oil prices, Schumer said. Each of these problems alone would be enough of a threat to our economic well-being. But taken together, they are essentially the four horsemen of economic crisis.

For his part, Bernanke said during a question-and-answer portion of the hearing that the spillover to the economy from housing still appears to be limited and that it was the Feds hope that the housing market would find a bottom by next spring.

Bernanke declined to specifically answer a question from Schumer about what, on a scale of 1 to 10, he thought the chances of a recession were.

A recession has historically been defined as two consecutive quarters of declines in gross domestic product. But the National Bureau of Economic Research now officially defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months.

On Thursday, Bernanke warned that delinquencies for subprime mortgage borrowers are likely to rise further but that the Fed will continue to work with community groups to help borrowers avoid foreclosure.

When the Fed cut rates on Oct. 31, it cited an intensification in the housing markets weakness.

But the central bank also hinted in its statement that it may not cut rates again at its next meeting since it felt that strains in financial markets have eased somewhat.

That was before a slew of negative developments from financial institutions that have caused investors to worry about problems stemming from the subprime mortgage meltdown.

Bernanke said Thursday that estimates about financial institutions eventually losing $150 billion as a result of the subprime debacle were in the ballpark.

Speculation that China, a big holder of U.S. dollars, may reduce its exposure to the greenback in light of the dollars weakness also has contributed to market volatility as of late.

But in the question-and-answer session, Bernanke said he was not concerned about any change in the currency investments of China or other countries for that matter.

In his testimony, Bernanke said that the Fed would act as needed in order to make sure that it can keep inflation under control as well as maintain sustainable economic growth.

The Fed has to decide what is the lesser of two evils: helping the housing market or being tougher on inflation, Larson said. The reality is dawning on investors that the Fed cant fix every problem facing the market.

Source - CNN Money

Asian Stocks Slump as Dollar Tumbles, Subprime Losses Widen

Asian stocks fell to a two-week low on concern a weaker dollar will erode the value of sales to the region's biggest export market and after U.S. financial companies announced more subprime mortgage-related losses.

Sony Corp., which got 29 percent of its 2006 sales from the U.S., led declines by exporters. Australia's Westpac Banking Corp. paced a drop among lenders.

We'll start to see the U.S. slow down from here on out, said Taku Yamamoto, who helps oversee about $107 billion at the Pension Fund Association in Tokyo. People have been betting on emerging markets as a way of insulating their investments from the U.S. fallout, but don't forget that these markets are dependent on the U.S. as well, so they too will be affected.

The Morgan Stanley Capital International Asia-Pacific Index slumped 1.9 percent to 164.09 as of 10:20 a.m. in Tokyo, headed for the lowest close since Oct. 22. The Nikkei 225 Stock Average lost 2.1 percent in Japan, where the government today reported a bigger-than-expected drop in machinery orders. All markets open for trading declined.

The Standard & Poor's 500 Index fell 2.9 percent in the U.S. yesterday, the most since Aug. 9. American International Group Inc., the largest U.S. insurer, said third-quarter profit decreased and General Motors Corp., the world's biggest automaker, announced a record $39 billion quarterly loss. Morgan Stanley, the second-biggest U.S. securities firm, said its subprime-related assets have lost $3.7 billion of their value.

Separately, the dollar slid against currencies in Japan, South Korea and Australia. It was recently trading at 112.38 yen, the lowest since Aug. 17. A weaker dollar reduces the value of Asian exporters' dollar-denominated sales in local-currency terms.

Japan's Sony fell 2.9 percent to 5,360 yen. Samsung Electronics Co., South Korea's largest exporter, lost 3.7 percent to 549,000 won. Toyota Motor Corp., the world's largest automaker by value, slid 3.4 percent to 6,220 yen.

Westpac, Australia's third-largest lender, slumped 3.4 percent to A$28.85. Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, slid 3.4 percent to 964 yen. Mizuho Financial Group Inc., the country's second largest, declined 3.1 percent to 565,000 yen.

The weakening U.S. currency is sparking concern investors will flee dollar assets, and that is bad news for stocks here as well, said Juichi Wako, a strategist at Nomura Securities Co. in Tokyo. The U.S. has to deal with the competing problems of the weak dollar and subprime loans.

Nasdaq 100 futures slid 1.2 percent in after-hours trading in Chicago after Cisco Systems Inc., the world's biggest maker of network equipment, reported profit that disappointed some investors, sending the company's shares down 9.3 percent in extended trading.

Source - Bloomberg