By Margot Habiby
Sept. 30 (Bloomberg) -- Crude oil futures plunged 28 percent in the third quarter, their biggest decline since 1991, amid concern that slowing economic growth will curtail global demand and as the dollar advanced.
Oil traded within a $56 range in the quarter, reaching a record $147.27 a barrel on July 11 and retreating to as low as $90.51 a barrel on Sept. 16, as long-term supply concerns gave way to forecasts a recession would cause fuel use to drop. The dollar is having its best quarterly gain against the euro.
``It's been one of the wildest quarters I've ever seen,'' said Peter Beutel, president of Cameron Hanover Inc. in Stamford, Connecticut, who has been watching the oil market for 25 years.
Crude oil for November delivery fell $39.36 in the three months ended today to settle at $100.64 a barrel at 2:51 p.m. in New York Mercantile Exchange trading. It was the first decline in seven quarters. Futures moved 5 percent or more on a quarter of the trading days. Oil rose $4.27, or 4.4 percent, today.
Crude posted the biggest single-day gain ever on Sept. 22, as traders rushed to unwind positions on the October contract's last day of trading. Prices rose as much as $25.45 a barrel before closing up $16.37, or 16 percent, to $120.92 a barrel.
``It's certainly been a tremendously volatile quarter, and you can throw the way the October contract expiration occurred in as a part of that,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York. ``Volatility has just bloomed here and hasn't settled down.''
Volatility Index
The Chicago Board Options Exchange Crude Oil Volatility Index, or OVX, rose to a record 64.21 yesterday, then retreated to 59.84 at 3:07 p.m. New York time today, which would be the second-highest closing level. The gauge, introduced by the largest U.S. options exchange on July 15, extends back to May 2007 and measures expected price swings for the United States Oil Fund, an exchange-traded fund tracking crude futures.
The dollar's advance in the quarter reduced oil's appeal among investors who purchased energy and metals as a hedge against the currency's drop earlier in the year. The euro declined the most versus the dollar today since its introduction in 1999.
The International Energy Agency, adviser to 27 nations, on Sept. 10 lowered its 2008 demand forecast as high prices and slowing economic growth trimmed demand for diesel, gasoline and jet fuel. The agency cut its 2008 forecast by 100,000 barrels to 86.8 million barrels a day and the 2009 forecast by 140,000 barrels to 87.6 million barrels a day.
OPEC Oil
The Organization of Petroleum Exporting Countries, which supplies more than 40 percent of the world's oil, cut its forecast for 2009 oil demand on Sept. 16. The 13-member group said oil consumption will average 87.66 million barrels a day next year, compared with 87.80 million barrels a day in its previous outlook. It also cut its 2008 forecast by 120,000 barrels a day.
U.S. stocks plunged yesterday after U.S. lawmakers rejected a $700 billion plan to rescue the financial system. The move caused the Standard & Poor's 500 Index to tumble the most since the 1987 crash and the Dow Jones Industrial Average to post its biggest point drop ever. The indexes rallied today on speculation Congress will salvage the package.
``Our most pressing concern is to what extent the U.S. virus spreads globally and specifically to China,'' Adam Sieminski, a Deutsche Bank AG analyst in Washington, said in a report yesterday. ``We believe recessions are under way in both Europe and Japan, and that U.S. growth over the next few quarters looks to be very flat at best.''
Forecast for 2009
Deutsche Bank yesterday slashed its 2009 New York oil price forecast by 23 percent to $92.50 a barrel because of the economic crisis.
U.S. petroleum demand is about 4 percent below year-ago levels, amid rising U.S. economic growth, according to Citi's Evans.
``That's a pretty clear indication that consumers were making efforts to become more efficient in their petroleum use as a response to all-time high prices,'' he said, adding that ``the economic pressures that high prices for crude oil brought'' have a lot to do with the quarterly slide in prices.
Oil averaged $118.22 a barrel in the quarter, down 4.5 percent from a second-quarter average of $123.80, a record. It was the first time the average price dropped in six quarters.
No Impact
Futures couldn't sustain a rally even when faced with factors which under other conditions would have driven the market higher, Beutel said. They include Hurricanes Ike and Gustav, which shut in all of U.S. Gulf of Mexico production and much of the region's refining capacity, the Russian incursion into Georgia, an OPEC production cut, pipeline fires and Nigerian unrest.
``Had you told me July 11 that we've got two hurricanes coming, one that will hit Louisiana and one that will hit Texas, we've got an OPEC cut coming, we've got Russia going into Georgia and a number of attacks into Nigeria, I would have said without a second's hesitation that we would have been over $200, no question,'' he said.
U.S. gasoline stockpiles fell to an 18-year low in the week ended Sept. 12 after the hurricanes struck Texas and Louisiana, according to the U.S. Energy Department. U.S. refiners operated at 66.7 percent of capacity in the week ended Sept. 19, the lowest since at least 1989, because of storm damage.
Gasoline prices have dropped the most since the third quarter of 2006. Futures for October delivery fell $1.0168, or 29 percent, in the three months ended today to settle at $2.4847 a gallon. Today, gasoline added 8.77 cents, or 3.7 percent.
Regular gasoline, averaged nationwide, dropped 11 percent in the quarter to $3.633 a gallon, according to AAA, the nation's largest motorist organization. It was the first quarterly decline in a year. The price peaked at $4.114 a gallon on July 16.
Tuesday, September 30, 2008
Euro Falls Most Since 2001 Against Dollar as Bailouts Spread
By Daniel Kruger and Ye Xie
Sept. 30 (Bloomberg) -- The euro fell the most against the dollar since 2001 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.
The cost of borrowing in dollars and euros reached record highs today as banks' reluctance to lend at the end of the third quarter exacerbated the freeze in global credit markets. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.
``The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose.''
The euro tumbled 2.4 percent to $1.4092 at 5 p.m. in New York, from $1.4434 yesterday, the most since a 2.5 percent slide in January 2001. The currency dropped as much as 3 percent, the biggest intraday decline since its 1999 debut. The euro slid to 149.56 yen from 150.38. The yen weakened to 106.11 per dollar from 104.18, after reaching 103.54, the most since Sept. 16.
Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. The dollar had its biggest drop ever against the euro Sept. 22, falling 2.1 percent.
The euro also fell against the British pound after Belgium and France said they would lend Dexia, the world's biggest lender to local governments, $9.2 billion to shore up capital.
Bank Borrowing
The capital infusion for Dexia comes two days after Belgium, the Netherlands and Luxembourg rescued Fortis, the largest Belgian financial-services company, Britain took control of Bradford & Bingley Plc, the country's biggest lender to landlords, and Germany bailed out Hypo Real Estate Holding AG.
Banks are being squeezed amid a surge in borrowing costs as lenders hoard cash on concern more financial institutions will fail. The euro interbank offered rate, or Euribor, for one-month loans jumped to a record 5.05 percent, the European Banking Federation said. The London interbank offered rate, or Libor, that banks charge each other for overnight loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said.
`Fundamentals Are Irrelevant'
``There's a dollar shortage globally,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Demand for liquidity trumps the fundamentals. Fundamentally, the U.S. is awful, and Europe is awful. Fundamentals are irrelevant today.''
Foreign banks are paying the highest premiums in at least a decade to borrow in dollars in the swaps market even after the Federal Reserve more than doubled the amount of funds available to other central banks yesterday by expanding swap lines.
The Fed's actions included increasing existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
The price on one-year cross-currency basis swaps between yen and dollars reached minus 70 basis points, the biggest effective premium for dollar funding since Bloomberg began tracking the data in 1997. The highest reached in 1998, during the Asian banking crisis was minus 38.5 basis points in October 1998, according to Bloomberg data.
`Mad Scramble'
``There is a mad scramble for U.S. dollar funding demand from a global U.S. dollar-based financial system,'' said Claudio Piron, Singapore-based head of Asian currency research at JPMorgan Chase & Co, the second-biggest U.S. bank by market value. ``Central banks have been extending swap lines as lenders of the last resort. The banks access this liquidity, but they hoard it for themselves as they believe it too risky to lend to anyone else.''
The U.S. Senate will try to revive a $700 billion financial-rescue package after yesterday's defeat in the House of Representatives. The bill would have allowed the government to buy troubled assets from banks. Institutions posted $590 billion of losses and writedowns since the start of last year following the collapse of the U.S. subprime-mortgage market.
``The U.S. problem has been public for a while, we're dealing with it,'' said Russell LaScala, the New York-based head of foreign exchange trading at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``Traders are very confident something's going to be passed in the next seven days. That's definitely a sentiment that's being priced in the market.''
Rising Yen
Higher-yielding currencies recouped losses against the Japanese yen as Europe's benchmark Dow Jones Stoxx 600 Index gained 1 percent. The New Zealand dollar gained 1.5 percent to 71.07 yen after dropping 3.7 percent yesterday. The Australian dollar was little changed at 84.08 yen, after rising as much as 1.6 percent to 85.18 yen after falling 4.9 percent yesterday.
``I would be very cautious in betting on further near-term dollar-yen losses,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``Any positive news on the political front would have quite an impact.''
The yen typically declines when demand for high-yielding currencies rises, as traders put on so-called carry trades. In such transactions, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand.
Quarter End
The yen rose the most of all 16 most-actively traded currencies yesterday after the Standard & Poor's 500 Index plunged the most since the 1987 crash.
The Japanese currency rose 12 percent against the euro this quarter. The dollar fell 0.9 percent against the yen, paring a 7 percent gain in the previous three months. The euro is down 11 percent against the dollar.
``It is the last day of the quarter,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France's Credit Agricole SA. ``You can get more unusual volatility, and I think we will get back to a more real market toward the end of the week and we can reassess what is happening then.''
Sept. 30 (Bloomberg) -- The euro fell the most against the dollar since 2001 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.
The cost of borrowing in dollars and euros reached record highs today as banks' reluctance to lend at the end of the third quarter exacerbated the freeze in global credit markets. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.
``The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose.''
The euro tumbled 2.4 percent to $1.4092 at 5 p.m. in New York, from $1.4434 yesterday, the most since a 2.5 percent slide in January 2001. The currency dropped as much as 3 percent, the biggest intraday decline since its 1999 debut. The euro slid to 149.56 yen from 150.38. The yen weakened to 106.11 per dollar from 104.18, after reaching 103.54, the most since Sept. 16.
Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. The dollar had its biggest drop ever against the euro Sept. 22, falling 2.1 percent.
The euro also fell against the British pound after Belgium and France said they would lend Dexia, the world's biggest lender to local governments, $9.2 billion to shore up capital.
Bank Borrowing
The capital infusion for Dexia comes two days after Belgium, the Netherlands and Luxembourg rescued Fortis, the largest Belgian financial-services company, Britain took control of Bradford & Bingley Plc, the country's biggest lender to landlords, and Germany bailed out Hypo Real Estate Holding AG.
Banks are being squeezed amid a surge in borrowing costs as lenders hoard cash on concern more financial institutions will fail. The euro interbank offered rate, or Euribor, for one-month loans jumped to a record 5.05 percent, the European Banking Federation said. The London interbank offered rate, or Libor, that banks charge each other for overnight loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said.
`Fundamentals Are Irrelevant'
``There's a dollar shortage globally,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Demand for liquidity trumps the fundamentals. Fundamentally, the U.S. is awful, and Europe is awful. Fundamentals are irrelevant today.''
Foreign banks are paying the highest premiums in at least a decade to borrow in dollars in the swaps market even after the Federal Reserve more than doubled the amount of funds available to other central banks yesterday by expanding swap lines.
The Fed's actions included increasing existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
The price on one-year cross-currency basis swaps between yen and dollars reached minus 70 basis points, the biggest effective premium for dollar funding since Bloomberg began tracking the data in 1997. The highest reached in 1998, during the Asian banking crisis was minus 38.5 basis points in October 1998, according to Bloomberg data.
`Mad Scramble'
``There is a mad scramble for U.S. dollar funding demand from a global U.S. dollar-based financial system,'' said Claudio Piron, Singapore-based head of Asian currency research at JPMorgan Chase & Co, the second-biggest U.S. bank by market value. ``Central banks have been extending swap lines as lenders of the last resort. The banks access this liquidity, but they hoard it for themselves as they believe it too risky to lend to anyone else.''
The U.S. Senate will try to revive a $700 billion financial-rescue package after yesterday's defeat in the House of Representatives. The bill would have allowed the government to buy troubled assets from banks. Institutions posted $590 billion of losses and writedowns since the start of last year following the collapse of the U.S. subprime-mortgage market.
``The U.S. problem has been public for a while, we're dealing with it,'' said Russell LaScala, the New York-based head of foreign exchange trading at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``Traders are very confident something's going to be passed in the next seven days. That's definitely a sentiment that's being priced in the market.''
Rising Yen
Higher-yielding currencies recouped losses against the Japanese yen as Europe's benchmark Dow Jones Stoxx 600 Index gained 1 percent. The New Zealand dollar gained 1.5 percent to 71.07 yen after dropping 3.7 percent yesterday. The Australian dollar was little changed at 84.08 yen, after rising as much as 1.6 percent to 85.18 yen after falling 4.9 percent yesterday.
``I would be very cautious in betting on further near-term dollar-yen losses,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``Any positive news on the political front would have quite an impact.''
The yen typically declines when demand for high-yielding currencies rises, as traders put on so-called carry trades. In such transactions, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand.
Quarter End
The yen rose the most of all 16 most-actively traded currencies yesterday after the Standard & Poor's 500 Index plunged the most since the 1987 crash.
The Japanese currency rose 12 percent against the euro this quarter. The dollar fell 0.9 percent against the yen, paring a 7 percent gain in the previous three months. The euro is down 11 percent against the dollar.
``It is the last day of the quarter,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France's Credit Agricole SA. ``You can get more unusual volatility, and I think we will get back to a more real market toward the end of the week and we can reassess what is happening then.''
Monday, September 29, 2008
Fed Would Gain More Power Over Short-Term Rates in Rescue Bill
By Craig Torres and Scott Lanman
Sept. 29 (Bloomberg) -- The Federal Reserve would gain more power over short-term interest rates as part of Congress's $700 billion legislation to revive credit markets, making it easier for the Fed to pump funds into the banking system.
The draft bill, released yesterday, gives the Fed authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would encourage banks to deposit excess funds with the Fed rather than dumping them into the money markets and distorting its overnight federal funds rate.
The flood of liquidity pumped into the financial system by the Fed to encourage interbank lending over the past year has made it harder for the central bank to gauge market conditions and keep fed funds at its 2 percent target. The rate has traded between zero and 7 percent since Sept. 15.
``It's probably a good thing,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed who is now professor of economics at Carnegie Mellon University in Pittsburgh. Allowing payment of interest on reserves will ``enable the Fed to have credit policy that's independent of its monetary policy,'' he said.
While containing the interest provision sought by Fed Chairman Ben S. Bernanke since May, the draft legislation increases congressional scrutiny of the Fed's emergency loans in connection with the collapses of Bear Stearns Cos. and American International Group Inc.
Report to Congress
The bill requires the central bank to submit reports to Congress on loans to nonbanks since March 1 as well as updates at least every two months while the loans are outstanding.
The Federal Open Market Committee sets a target for the federal funds rate, which the New York Fed is obligated to achieve on a daily basis through temporary and permanent purchases or sales of bonds in the open market. Banks are required to hold a proportion of their customers' deposits in an account at the central bank.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month. New Zealand's central bank has adopted such an approach.
The Fed had already received authority in 2006 to start paying interest on reserves in October 2011. Bernanke asked House Speaker Nancy Pelosi in May to expedite the authority. U.S. lawmakers are reviewing the $700 billion plan to buy troubled assets from financial institutions, and the House and Senate may vote tomorrow.
New Date
The draft legislation doesn't mention the Fed in the three- line section that would provide the interest-payment authority. The bill says that the part of the 2006 law giving the Fed the power ``is amended by striking `October 1, 2011' and inserting `October 1, 2008'.''
In 2006, the Congressional Budget Office estimated that Fed interest payments would cost the government $1.4 billion in the first five years.
``I expect them to use it to manage the funds rate more efficiently,'' said Lou Crandall, chief economist at Wrightson ICAP LLC, in Jersey City, New Jersey.
A measure of availability of cash among banks, known as the Libor-OIS spread, widened to 2.08 percentage points, the most on record, on Sept. 26. In the year before the credit crisis started in August last year, the spread averaged 8 basis points.
Commercial banks borrowed $39.4 billion from the Fed's discount window for the week ending Sept. 24, almost double the previous period, as the financial crisis deepened and funding from other banks dried up.
Counterparty fears also increased in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing on Sept. 15.
Sept. 29 (Bloomberg) -- The Federal Reserve would gain more power over short-term interest rates as part of Congress's $700 billion legislation to revive credit markets, making it easier for the Fed to pump funds into the banking system.
The draft bill, released yesterday, gives the Fed authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would encourage banks to deposit excess funds with the Fed rather than dumping them into the money markets and distorting its overnight federal funds rate.
The flood of liquidity pumped into the financial system by the Fed to encourage interbank lending over the past year has made it harder for the central bank to gauge market conditions and keep fed funds at its 2 percent target. The rate has traded between zero and 7 percent since Sept. 15.
``It's probably a good thing,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed who is now professor of economics at Carnegie Mellon University in Pittsburgh. Allowing payment of interest on reserves will ``enable the Fed to have credit policy that's independent of its monetary policy,'' he said.
While containing the interest provision sought by Fed Chairman Ben S. Bernanke since May, the draft legislation increases congressional scrutiny of the Fed's emergency loans in connection with the collapses of Bear Stearns Cos. and American International Group Inc.
Report to Congress
The bill requires the central bank to submit reports to Congress on loans to nonbanks since March 1 as well as updates at least every two months while the loans are outstanding.
The Federal Open Market Committee sets a target for the federal funds rate, which the New York Fed is obligated to achieve on a daily basis through temporary and permanent purchases or sales of bonds in the open market. Banks are required to hold a proportion of their customers' deposits in an account at the central bank.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month. New Zealand's central bank has adopted such an approach.
The Fed had already received authority in 2006 to start paying interest on reserves in October 2011. Bernanke asked House Speaker Nancy Pelosi in May to expedite the authority. U.S. lawmakers are reviewing the $700 billion plan to buy troubled assets from financial institutions, and the House and Senate may vote tomorrow.
New Date
The draft legislation doesn't mention the Fed in the three- line section that would provide the interest-payment authority. The bill says that the part of the 2006 law giving the Fed the power ``is amended by striking `October 1, 2011' and inserting `October 1, 2008'.''
In 2006, the Congressional Budget Office estimated that Fed interest payments would cost the government $1.4 billion in the first five years.
``I expect them to use it to manage the funds rate more efficiently,'' said Lou Crandall, chief economist at Wrightson ICAP LLC, in Jersey City, New Jersey.
A measure of availability of cash among banks, known as the Libor-OIS spread, widened to 2.08 percentage points, the most on record, on Sept. 26. In the year before the credit crisis started in August last year, the spread averaged 8 basis points.
Commercial banks borrowed $39.4 billion from the Fed's discount window for the week ending Sept. 24, almost double the previous period, as the financial crisis deepened and funding from other banks dried up.
Counterparty fears also increased in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing on Sept. 15.
Dollar Intervention Risk `Meaningful' on Volatility (Update3)
By Ye Xie
Sept. 29 (Bloomberg) -- A growing number of currency traders and strategists are starting to speculate that finance ministers from the world's biggest economies will join to support the dollar.
Volatility in currencies is the highest since 2000, when the so-called Group of Seven nations last intervened in the foreign-exchange market. The dollar weakened 2.5 percent on a trade-weighted basis in the past two weeks as the turmoil on Wall Street intensified. It had the biggest one-day drop against the euro since 2001 a week ago.
While the dollar strengthened 9 percent from its record low against the euro on July 15, wider price swings threaten to undermine confidence in the U.S. currency just as government borrowing rises and U.S. lawmakers prepare to vote on Treasury Secretary Henry Paulson's plan to bail out the nation's banks. The greenback is still down 23 percent since 2005.
``We're getting closer to the right conditions for authorities to step in and prop up the dollar,'' said Maxime Tessier, who manages $151 billion as head of foreign exchange in Montreal at Caisse de Depot et Placement. ``The nightmare scenario will be a wholesale loss of confidence in the dollar.''
The dollar rose to $1.4337 per euro at 8:26 a.m. in London from $1.4614 on Sept. 26 after weakening 2.7 percent in the previous two weeks. The broader U.S. Dollar Index was at 78.202.
Even a hint that finance ministers might influence exchange rates may be enough to set a floor under the currency after efforts by the Federal Reserve, European Central Bank and Bank of Japan failed to revive investor confidence by injecting more than $1 trillion into the world financial system.
`Extraordinary Interventions'
``The central banks of the world have embarked on all sorts of extraordinary interventions,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``Currency joint intervention would be the least surprising. And it would probably be the cheapest.''
Morgan Stanley's intervention watch index suggests an 18 percent chance that policy makers will step into the market to influence exchange rates. Any reading above 10 percent suggests the risk is ``meaningful,'' or elevated, according to the New York-based firm.
The index, based on interest rates, trading patterns and investor positions, is accurate 78 percent of the time. The index is at the same level as when the G-7 intervened in 2000.
Finance ministers from the G-7 are more concerned about rapid swings in exchange rates than the absolute level of currencies because volatility complicates the assessment of economies, interferes with monetary policy and gives companies little time to adjust by cutting costs.
`Sharp Fluctuations'
Sadia SA, Brazil's second-biggest food company, posted a 760 million-real ($410 million) loss last week related to foreign-exchange hedges after the nation's currency tumbled 26 percent from a nine-year high on Aug. 1.
The G-7, which includes the U.S., Japan, Germany, Britain, France, Italy and Canada, warned in April against the implications of ``sharp fluctuations in major currencies,'' the first time since 2004 that the group used such language. Shoichi Nakagawa, Japan's new finance minister, reiterated that view on Sept. 26, saying ``sharp fluctuations in the foreign exchange market aren't good.''
Implied volatility on one-month euro-dollar options rose to an eight-year high of 15.55 percent on Sept. 18, the same level that triggered the G-7 to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. Volatility gained to 14.93 percent from 14.51 percent last week, up from this year's low of 8.02 percent on Aug. 1.
U.S. Growth
Weakness in the dollar hasn't become so disruptive to suggest imminent intervention, said Ken Jakubzak, who manages the KML Currency Program in Chicago for KMJ Capital LLC, which has $100 million under management.
The currency is 3 percent stronger than its record low in March on a trade-weighted basis. Some investors say the currency may rally as the economies outside the U.S. slow.
Growth in the euro-zone will decelerate to 1.35 percent this year from 2.63 percent in 2007, according the median estimate of economists surveyed by Bloomberg. Japan's economy may expand 1 percent, compared with 2.08 percent, while the U.S. economy will likely grow 1.7 percent, the surveys showed.
The dollar will rally to $1.43 by year-end and to $1.40 by the end of the first quarter, according to the median estimate of more than 40 economists and strategists surveyed by Bloomberg.
``Should the bailout plan succeed in stabilizing the markets, the sentiment will shift to be more constructive for the dollar,'' said Jakubzak, who expects the dollar to rise to $1.30 by year-end. ``What happens in the U.S. will also happen in the other places in the world.''
Paulson Plan
U.S. lawmakers are reviewing a tentative agreement to revive credit markets by authorizing a $700 billion plan to buy troubled assets from financial institutions. ``The deal is done,'' said Senator Judd Gregg, a New Hampshire Republican, a ranking member of the Budget Committee. The House and Senate may vote Sept. 29 on it, he said.
Dollar bears say the U.S. budget and trade deficits and negative real interest rates make a sustained dollar rally unlikely. Paulson's plan to buy devalued securities from banks would drive U.S. government debt above 70 percent of gross domestic product, the most since 1954, based on economist estimates and details of the bailout.
Barclays, TD
If the Treasury spends the entire amount next year, it would drive next year's budget deficit to $1 trillion or more from about $500 billion now. Michael Feroli, an economist at JPMorgan Chase & Co. in New York, estimated the combination of the Paulson plan, additional government expenditures, and a slower economy, may swell the deficit to $1.5 trillion, or 10 percent of GDP.
The currency will drop to $1.57 per euro by year-end, according to London-based Barclays Plc, the world's third- largest foreign exchange trader. Toronto-based TD Securities, a unit of Canada's second-biggest bank by assets, said it will weaken below $1.60 in the next few months.
``Authorities don't want excessive dollar weakness to feed the sell-America mentality,'' said Chris Turner, head of foreign exchange strategies in London at ING Groep NV, the largest Dutch financial-services company. ``We are not there yet, but the risk is there. People I speak to are worried about a budget explosion.''
The government depends on foreign money to finance the budget deficit because investors outside the U.S. own 56 percent of the $4.8 trillion in marketable Treasuries outstanding, up from 42 percent five years ago, according to data compiled by the government.
`Been Crushed'
While the G-7 decided against intervening in April when the dollar fell below $1.60 per euro for the first time, tolerance for a weaker currency may be limited because of the turmoil sweeping the financial system. The next meeting is scheduled for Oct. 10 in Washington.
In the past month, the government took over Washington- based Fannie Mae and McLean, Virginia-based Freddie Mac, the two biggest mortgage finance companies, as well as New York-based American International Group Inc., the largest U.S. insurer. New York-based Lehman Brothers Holdings Inc. went bankrupt and Washington Mutual Inc. of Seattle was seized by regulators in the biggest bank failure in U.S. history.
``At the end of the day, the financial sector is our flagship,'' Kenneth Rogoff, a professor of economics at Harvard University, and a former chief economist at the International Monetary Fund, said in an interview on Bloomberg Radio Sept. 19. ``It has been crushed, and that's going to have a big impact on international capital flows. That's going to affect the positions of the dollar in the global financial system.''
Sept. 29 (Bloomberg) -- A growing number of currency traders and strategists are starting to speculate that finance ministers from the world's biggest economies will join to support the dollar.
Volatility in currencies is the highest since 2000, when the so-called Group of Seven nations last intervened in the foreign-exchange market. The dollar weakened 2.5 percent on a trade-weighted basis in the past two weeks as the turmoil on Wall Street intensified. It had the biggest one-day drop against the euro since 2001 a week ago.
While the dollar strengthened 9 percent from its record low against the euro on July 15, wider price swings threaten to undermine confidence in the U.S. currency just as government borrowing rises and U.S. lawmakers prepare to vote on Treasury Secretary Henry Paulson's plan to bail out the nation's banks. The greenback is still down 23 percent since 2005.
``We're getting closer to the right conditions for authorities to step in and prop up the dollar,'' said Maxime Tessier, who manages $151 billion as head of foreign exchange in Montreal at Caisse de Depot et Placement. ``The nightmare scenario will be a wholesale loss of confidence in the dollar.''
The dollar rose to $1.4337 per euro at 8:26 a.m. in London from $1.4614 on Sept. 26 after weakening 2.7 percent in the previous two weeks. The broader U.S. Dollar Index was at 78.202.
Even a hint that finance ministers might influence exchange rates may be enough to set a floor under the currency after efforts by the Federal Reserve, European Central Bank and Bank of Japan failed to revive investor confidence by injecting more than $1 trillion into the world financial system.
`Extraordinary Interventions'
``The central banks of the world have embarked on all sorts of extraordinary interventions,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``Currency joint intervention would be the least surprising. And it would probably be the cheapest.''
Morgan Stanley's intervention watch index suggests an 18 percent chance that policy makers will step into the market to influence exchange rates. Any reading above 10 percent suggests the risk is ``meaningful,'' or elevated, according to the New York-based firm.
The index, based on interest rates, trading patterns and investor positions, is accurate 78 percent of the time. The index is at the same level as when the G-7 intervened in 2000.
Finance ministers from the G-7 are more concerned about rapid swings in exchange rates than the absolute level of currencies because volatility complicates the assessment of economies, interferes with monetary policy and gives companies little time to adjust by cutting costs.
`Sharp Fluctuations'
Sadia SA, Brazil's second-biggest food company, posted a 760 million-real ($410 million) loss last week related to foreign-exchange hedges after the nation's currency tumbled 26 percent from a nine-year high on Aug. 1.
The G-7, which includes the U.S., Japan, Germany, Britain, France, Italy and Canada, warned in April against the implications of ``sharp fluctuations in major currencies,'' the first time since 2004 that the group used such language. Shoichi Nakagawa, Japan's new finance minister, reiterated that view on Sept. 26, saying ``sharp fluctuations in the foreign exchange market aren't good.''
Implied volatility on one-month euro-dollar options rose to an eight-year high of 15.55 percent on Sept. 18, the same level that triggered the G-7 to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. Volatility gained to 14.93 percent from 14.51 percent last week, up from this year's low of 8.02 percent on Aug. 1.
U.S. Growth
Weakness in the dollar hasn't become so disruptive to suggest imminent intervention, said Ken Jakubzak, who manages the KML Currency Program in Chicago for KMJ Capital LLC, which has $100 million under management.
The currency is 3 percent stronger than its record low in March on a trade-weighted basis. Some investors say the currency may rally as the economies outside the U.S. slow.
Growth in the euro-zone will decelerate to 1.35 percent this year from 2.63 percent in 2007, according the median estimate of economists surveyed by Bloomberg. Japan's economy may expand 1 percent, compared with 2.08 percent, while the U.S. economy will likely grow 1.7 percent, the surveys showed.
The dollar will rally to $1.43 by year-end and to $1.40 by the end of the first quarter, according to the median estimate of more than 40 economists and strategists surveyed by Bloomberg.
``Should the bailout plan succeed in stabilizing the markets, the sentiment will shift to be more constructive for the dollar,'' said Jakubzak, who expects the dollar to rise to $1.30 by year-end. ``What happens in the U.S. will also happen in the other places in the world.''
Paulson Plan
U.S. lawmakers are reviewing a tentative agreement to revive credit markets by authorizing a $700 billion plan to buy troubled assets from financial institutions. ``The deal is done,'' said Senator Judd Gregg, a New Hampshire Republican, a ranking member of the Budget Committee. The House and Senate may vote Sept. 29 on it, he said.
Dollar bears say the U.S. budget and trade deficits and negative real interest rates make a sustained dollar rally unlikely. Paulson's plan to buy devalued securities from banks would drive U.S. government debt above 70 percent of gross domestic product, the most since 1954, based on economist estimates and details of the bailout.
Barclays, TD
If the Treasury spends the entire amount next year, it would drive next year's budget deficit to $1 trillion or more from about $500 billion now. Michael Feroli, an economist at JPMorgan Chase & Co. in New York, estimated the combination of the Paulson plan, additional government expenditures, and a slower economy, may swell the deficit to $1.5 trillion, or 10 percent of GDP.
The currency will drop to $1.57 per euro by year-end, according to London-based Barclays Plc, the world's third- largest foreign exchange trader. Toronto-based TD Securities, a unit of Canada's second-biggest bank by assets, said it will weaken below $1.60 in the next few months.
``Authorities don't want excessive dollar weakness to feed the sell-America mentality,'' said Chris Turner, head of foreign exchange strategies in London at ING Groep NV, the largest Dutch financial-services company. ``We are not there yet, but the risk is there. People I speak to are worried about a budget explosion.''
The government depends on foreign money to finance the budget deficit because investors outside the U.S. own 56 percent of the $4.8 trillion in marketable Treasuries outstanding, up from 42 percent five years ago, according to data compiled by the government.
`Been Crushed'
While the G-7 decided against intervening in April when the dollar fell below $1.60 per euro for the first time, tolerance for a weaker currency may be limited because of the turmoil sweeping the financial system. The next meeting is scheduled for Oct. 10 in Washington.
In the past month, the government took over Washington- based Fannie Mae and McLean, Virginia-based Freddie Mac, the two biggest mortgage finance companies, as well as New York-based American International Group Inc., the largest U.S. insurer. New York-based Lehman Brothers Holdings Inc. went bankrupt and Washington Mutual Inc. of Seattle was seized by regulators in the biggest bank failure in U.S. history.
``At the end of the day, the financial sector is our flagship,'' Kenneth Rogoff, a professor of economics at Harvard University, and a former chief economist at the International Monetary Fund, said in an interview on Bloomberg Radio Sept. 19. ``It has been crushed, and that's going to have a big impact on international capital flows. That's going to affect the positions of the dollar in the global financial system.''
Wednesday, September 24, 2008
Bernanke Sees `Grave Threats' to Financial Stability (Update5)
By Craig Torres
Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.
``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''
Bernanke's comments, his most dire about the economy since he became central bank chief in 2006, may stoke investors' expectations the Fed will lower interest rates by year-end to alleviate the credit crisis. He reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion fund to remove devalued assets from the banking system.
Without the bailout, ``credit will be restricted further for homeownership, for small business, for individual consumers and so on, but that is not just an inconvenience,'' Bernanke said. ``What that is going to do is affect spending and economic activity and it will cause the economy as a whole to decline and be much weaker than it otherwise would be.''
The Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 78 percent chance of a reduction, futures prices show.
`Downside Risks'
``The downside risks'' to economic growth ``remain a significant concern,'' Bernanke said.
Lawmakers including Representative Paul Kanjorski, the second highest-ranking Democrat on the House Financial Services Committee, said taxpayers don't want to rescue mortgage lenders and other financial institutions viewed as responsible for the credit crisis.
Taxpayer interests ``must trump those of corporate fat cats and cowboy capitalists,'' Kanjorski of Pennsylvania told Bernanke at an afternoon hearing by the House panel. ``Americans are tired of enabling corporate excess.''
The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.'
Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''
Waning Credit
Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey.
Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.
``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''
Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Declining growth abroad could reduce the lift the U.S. economy received from exports in the first half, he said.
`Quite Adverse'
``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said.
Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.
``The inflation outlook remains highly uncertain,'' he said. ``The upside risks to inflation remain a significant concern.''
Responding to questions from lawmakers, Bernanke said that should the rescue succeed and spur an economic recovery, the Fed may raise interest rates sooner than it otherwise would. For the plan itself, ``I don't expect any effect on inflation,'' he said.
Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly.
Worsening Crisis
In a worsening credit crisis, ``people cannot borrow to buy a car, to send a student to college, to buy a house,'' Bernanke told the House committee today. Scant lending harms ``people at the lunch bucket level.''
Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year.
The Fed has also pumped billions of dollars into banks to try to restore liquidity, while invoking extraordinary powers to loan to securities firms.
The Treasury this month took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.
Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.
``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''
Bernanke's comments, his most dire about the economy since he became central bank chief in 2006, may stoke investors' expectations the Fed will lower interest rates by year-end to alleviate the credit crisis. He reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion fund to remove devalued assets from the banking system.
Without the bailout, ``credit will be restricted further for homeownership, for small business, for individual consumers and so on, but that is not just an inconvenience,'' Bernanke said. ``What that is going to do is affect spending and economic activity and it will cause the economy as a whole to decline and be much weaker than it otherwise would be.''
The Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 78 percent chance of a reduction, futures prices show.
`Downside Risks'
``The downside risks'' to economic growth ``remain a significant concern,'' Bernanke said.
Lawmakers including Representative Paul Kanjorski, the second highest-ranking Democrat on the House Financial Services Committee, said taxpayers don't want to rescue mortgage lenders and other financial institutions viewed as responsible for the credit crisis.
Taxpayer interests ``must trump those of corporate fat cats and cowboy capitalists,'' Kanjorski of Pennsylvania told Bernanke at an afternoon hearing by the House panel. ``Americans are tired of enabling corporate excess.''
The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.'
Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''
Waning Credit
Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey.
Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.
``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''
Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Declining growth abroad could reduce the lift the U.S. economy received from exports in the first half, he said.
`Quite Adverse'
``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said.
Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.
``The inflation outlook remains highly uncertain,'' he said. ``The upside risks to inflation remain a significant concern.''
Responding to questions from lawmakers, Bernanke said that should the rescue succeed and spur an economic recovery, the Fed may raise interest rates sooner than it otherwise would. For the plan itself, ``I don't expect any effect on inflation,'' he said.
Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly.
Worsening Crisis
In a worsening credit crisis, ``people cannot borrow to buy a car, to send a student to college, to buy a house,'' Bernanke told the House committee today. Scant lending harms ``people at the lunch bucket level.''
Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year.
The Fed has also pumped billions of dollars into banks to try to restore liquidity, while invoking extraordinary powers to loan to securities firms.
The Treasury this month took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.
Tuesday, September 23, 2008
Dollar Falls Versus Euro Amid Delay in U.S. Bailout Proposal
Dollar Falls Versus Euro Amid Delay in U.S. Bailout Proposal
By Stanley White and Ye Xie
Enlarge Image/Details
Sept. 24 (Bloomberg) -- The dollar fell against the euro on bets U.S. congressional scrutiny will delay passage of the government's $700 billion rescue plan for financial institutions.
The dollar also declined against the British pound after Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said yesterday failure to pass the bailout would threaten the U.S. economy as lawmakers balked at rubber-stamping the plan. The Australian and New Zealand dollars slumped as prices dropped for commodities the two countries export.
``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''
The dollar slid to $1.4683 per euro at 7:54 a.m. in Tokyo from $1.4648 late yesterday in New York. It was at 105.76 yen from 105.56 yen. Against the pound, the dollar traded at $1.8552 from $1.8522. The euro bought 155.31 yen from 154.63 yen. The dollar may decline to $1.4710 per euro today, Soma forecast.
The Australian dollar fell to 83.07 U.S. cents from 84.40 cents late in Asia yesterday. New Zealand's dollar weakened 1.5 percent to 67.97 U.S. cents.
Gold, Australia's third most-valuable raw material export, fell below $900 an ounce in New York yesterday. Crude oil, its fourth most-valuable export, also slipped. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.
Government Plan
Paulson and Bernanke appeared before the Senate Banking Committee to provide details on the proposed bailout. Under the plan, the government would buy devalued securities from financial institutions that economists estimate would drive government debt above 70 percent of gross domestic product and push the annual budget gap to an all-time high next year.
``The sooner we get a plan in place -- we can worry about the details later -- the sooner we can reduce uncertainty,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.
European Contraction
Gains in the euro may be limited by speculation weakening German business confidence will point to slower growth in the 15 countries that share the currency.
The Ifo institute's business climate index declined to 94.3 from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.
``Economic data in Europe reminds people there's more weakness coming,'' said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. ``It's going to provide longer-term support for the dollar, but right now all focus is on the bailout plan.''
The U.S. currency has lost almost 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.
By Stanley White and Ye Xie
Enlarge Image/Details
Sept. 24 (Bloomberg) -- The dollar fell against the euro on bets U.S. congressional scrutiny will delay passage of the government's $700 billion rescue plan for financial institutions.
The dollar also declined against the British pound after Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said yesterday failure to pass the bailout would threaten the U.S. economy as lawmakers balked at rubber-stamping the plan. The Australian and New Zealand dollars slumped as prices dropped for commodities the two countries export.
``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''
The dollar slid to $1.4683 per euro at 7:54 a.m. in Tokyo from $1.4648 late yesterday in New York. It was at 105.76 yen from 105.56 yen. Against the pound, the dollar traded at $1.8552 from $1.8522. The euro bought 155.31 yen from 154.63 yen. The dollar may decline to $1.4710 per euro today, Soma forecast.
The Australian dollar fell to 83.07 U.S. cents from 84.40 cents late in Asia yesterday. New Zealand's dollar weakened 1.5 percent to 67.97 U.S. cents.
Gold, Australia's third most-valuable raw material export, fell below $900 an ounce in New York yesterday. Crude oil, its fourth most-valuable export, also slipped. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.
Government Plan
Paulson and Bernanke appeared before the Senate Banking Committee to provide details on the proposed bailout. Under the plan, the government would buy devalued securities from financial institutions that economists estimate would drive government debt above 70 percent of gross domestic product and push the annual budget gap to an all-time high next year.
``The sooner we get a plan in place -- we can worry about the details later -- the sooner we can reduce uncertainty,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.
European Contraction
Gains in the euro may be limited by speculation weakening German business confidence will point to slower growth in the 15 countries that share the currency.
The Ifo institute's business climate index declined to 94.3 from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.
``Economic data in Europe reminds people there's more weakness coming,'' said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. ``It's going to provide longer-term support for the dollar, but right now all focus is on the bailout plan.''
The U.S. currency has lost almost 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.
Sunday, September 21, 2008
Crude Oil Falls After Nigerian Militants Call End to Attacks
By Gavin Evans
Sept. 22 (Bloomberg) -- Crude oil fell for the first time in four days as Nigerian militants stopped attacks on oil facilities and investors awaited the U.S. government's proposed $700 billion rescue package for the finance industry.
The rally in oil, up 15 percent the past three days, stalled as the Movement for the Emancipation of the Niger Delta ended attacks that cut production by 280,000 barrels a day the past week. U.S. lawmakers are pledging fast consideration of the Treasury's plan to buy devalued mortgage-related securities from investment firms to keep the financial system from stalling.
Crude oil for October delivery fell 86 cents, or 0.8 percent, to $103.69 a barrel at 8:24 a.m. in Sydney. The contract, which expires at the close of trading today, jumped as much as 7.4 percent on Sept. 19 as investors bought oil to cancel out earlier bets on falling prices.
The more widely held November contract traded at $102.52 a barrel, down 0.2 percent. It gained 5.3 percent on Sept. 19.
Oil fell more than $10 a barrel early last week as the bankruptcy of Lehman Brothers Holdings Inc. shocked world equity markets. Prices gained 3.3 percent over the five trading days, the first weekly increase since August, as the dollar slumped on the prospect of the biggest U.S. financial bailout since the Great Depression.
The U.S. dollar fell to $1.4483 against the euro in early Asian trading today. The currency dropped 1.7 percent last week, its biggest decline since March 28, to $1.4466 per euro in late New York trading on Sept. 19.
Brent crude oil for November settlement rose $4.42, or 4.6 percent, to $99.61 a barrel on London's ICE Futures Europe exchange on Sept. 19.
Sept. 22 (Bloomberg) -- Crude oil fell for the first time in four days as Nigerian militants stopped attacks on oil facilities and investors awaited the U.S. government's proposed $700 billion rescue package for the finance industry.
The rally in oil, up 15 percent the past three days, stalled as the Movement for the Emancipation of the Niger Delta ended attacks that cut production by 280,000 barrels a day the past week. U.S. lawmakers are pledging fast consideration of the Treasury's plan to buy devalued mortgage-related securities from investment firms to keep the financial system from stalling.
Crude oil for October delivery fell 86 cents, or 0.8 percent, to $103.69 a barrel at 8:24 a.m. in Sydney. The contract, which expires at the close of trading today, jumped as much as 7.4 percent on Sept. 19 as investors bought oil to cancel out earlier bets on falling prices.
The more widely held November contract traded at $102.52 a barrel, down 0.2 percent. It gained 5.3 percent on Sept. 19.
Oil fell more than $10 a barrel early last week as the bankruptcy of Lehman Brothers Holdings Inc. shocked world equity markets. Prices gained 3.3 percent over the five trading days, the first weekly increase since August, as the dollar slumped on the prospect of the biggest U.S. financial bailout since the Great Depression.
The U.S. dollar fell to $1.4483 against the euro in early Asian trading today. The currency dropped 1.7 percent last week, its biggest decline since March 28, to $1.4466 per euro in late New York trading on Sept. 19.
Brent crude oil for November settlement rose $4.42, or 4.6 percent, to $99.61 a barrel on London's ICE Futures Europe exchange on Sept. 19.
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