Dollar rises after Fed minutes reveal rate debate

NEW YORK: The dollar rose against the euro on Wednesday (Apr 8) after the minutes of the Federal Reserve’s last policy meeting showed a split over the timing of an interest rate increase.

According to the minutes of the Mar 17-18 meeting of the Federal Open Market Committee, “several participants” thought conditions were right for a June hike in the federal funds rate, stuck near zero since late 2008.

Others deemed the economy would not be able to weather a hike until later in the year, while “a couple” said liftoff would remain unlikely until 2016.

“After the FOMC meeting, people were convinced that the June rate hike was off the table, and the bottom line is between now and then,” said David Solin of Foreign Exchange Analytics. But the foreign exchange market “had jumped the gun by thinking that a June hike was off the table,” he said.

The dollar strengthened against the euro, pushing it down to US$ 1.0780 from US$ 1.0811 late Tuesday.

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said that the minutes had “a somewhat more hawkish tone than many were expecting, especially given the extent to which the Fed cut its forward guidance on growth and inflation at its March meeting.”

Shekel strengthens further against dollar

The shekel has strengthened sharply against the US dollar following the disappointing jobs figures released in the US on Friday. The representative shekel-dollar rate was set 0.45% lower today, in comparison with Thursday’s rate (the last time representative rates were set before the start of the Passover holiday), at NIS 3.956/$ , and the representative shekel-euro rate was set 0.02% lower, at NIS 4.2775/. Following the setting of the representative rates, the shekel continued to strengthen against the dollar, and the shekel-dollar exchange rate is currently a further 1.2% down, at NIS 3.9102/$ . Against the euro, the shekel is currently weaker by 0.83%, at NIS 4.313/.

FXCM Israel says in its market review this morning, “The shekel-dollar rate is falling in response to Friday’s disappointing employment figures from the US. The figures are the worst since 2013, arousing fears that the US economy is losing momentum, and cooling expectations of an interest rate hike in the US. If we see a continued decline in the next few months in the rate of creation of new jobs in the US, the Federal Reserve will have to defer its planned interest rate hike. Even in its most hawkish statements, the Federal Reserve has stressed that any interest rate rise depends on consistent improvement in the labor market.

“The disappointing jobs figure could be a signal for a sharp correction both in share indices and in the dollar on world markets. The shekel-dollar pair is now close to NIS 3.9/$ . A fall below this level could accelerate towards NIS 3.87/$ , and if this happens it is certainly conceivable that the Bank of Israel will intervene in trading in an attempt stem the decline.”

Published by Globes [online], Israel business news – www.globes-online.com – on April 6, 2015

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Shekel-dollar rate sinks

The local foreign exchange market has given its first reaction this morning to last week’s disappointing US jobs report. The The shekel-dollar exchange rate is currently down 0.9% in comparison with Thursday’s representative rate (the last time representative rates were set before the start of the Passover holiday), at NIS 3.9203/$ , while the shekel-euro rate is up 0.59%, at NIS 4.3026/.

Just 126 thousand new jobs were added to the US labor market in March. This compares with a forecast of 245 thousand, and comes after 295 thousand jobs were added in February. The US unemployment rate remains at 5.5%, as expected.

FXCM Israel says in its market review this morning, “The shekel-dollar rate is falling in response to Friday’s disappointing employment figures from the US. The figures are the worst since 2013, arousing fears that the US economy is losing momentum, and cooling expectations of an interest rate hike in the US. If we see a continued decline in the next few months in the rate of creation of new jobs in the US, the Federal Reserve will have to defer its planned interest rate hike. Even in its most hawkish statements, the Federal Reserve has stressed that any interest rate rise depends on consistent improvement in the labor market.

“The disappointing jobs figure could be a signal for a sharp correction both in share indices and in the dollar on world markets. The shekel-dollar pair is now close to NIS 3.9/$ . A fall below this level could accelerate towards NIS 3.87/$ , and if this happens it is certainly conceivable that the Bank of Israel will intervene in trading in an attempt stem the decline.”

Published by Globes [online], Israel business news – www.globes-online.com – on April 6, 2015

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

German firms increasingly worried about weak euro

Germany’s DIHK Chambers of Commerce said yesterday that while the weak euro would initially boost Europe’s largest economy by enabling exporters to offer their goods abroad for less, firms were increasingly concerned about the exchange rate.

“The strong exchange-rate fluctuations in recent months are making it difficult to develop long-term plans and increasing the cost of the hedging transactions they need to do,” the DIHK said.

Most firms in Germany have to import goods and these have become noticeably more expensive due to the weak euro, it said.

A DIHK survey earlier this year found that almost a fifth of German companies see the weak euro as a business risk, compared with 11% of firms in a poll in October.

While firms now pay around a third less for oil than they did six months ago, the weak euro exchange rate is counteracting some of those gains given that oil is priced in US dollars, the DIHK said.

“A weak exchange rate should not create the impression of greater competitiveness. A weak currency generally goes with a weaker economy,” it said.

“The devaluation of the euro is therefore also a sign that investors have more confidence in other countries’ dynamism, especially in the US.”

The DIHK also said there was a risk of competitive devaluation after several central banks around the world reduced their key interest rates and so stopped their currencies from appreciating more strongly. “That shows that competitive devaluation that seeks to boost your own export industry doesn’t achieve anything because other countries can always follow suit,” it said.

Reuters

euro rate – Yahoo Search Results

The weaker euro, which could approach parity with the US dollar, is making the European Central Bank’s task of kickstarting the eurozone economy easier. Officially, the ECB has no exchange rate target. “In the current context, pushing down the euro is probably the only means the ECB has for pushing up inflation,” Natixis economist Sylvain Broyer told AFP. The ECB has rolled out a series of …

Euro up after Greece agreement, Shanghai surges again

The euro pushed higher Friday after Greece’s promise to provide new plans to reform its bailout, while Shanghai stocks continued their latest rally towards a seven-year high.

Traders moved into the single currency after Greece’s deal with its key European partners, who agreed to finish work “as fast as possible” on completing its EU-IMF rescue programme.

But while the dollar’s rally against the euro and yen fizzled out, analysts said they expect the currency to resume its advance as the US Federal Reserve prepares for a rate hike while the Japanese and European central banks print more cash.

In equities trade, Tokyo swung from initial losses to end 0.43 percent higher, adding 83.66 points to 19,560.22, while Sydney added 0.40 percent, or 24.7 points, to close at 5,975.5.

Seoul was flat by the close, edging down 0.65 points to 2,037.24, and Hong Kong lost 0.38 percent, or 93.65 points to 24,375.24.

Shanghai rallied 0.98 percent, or 35.05 points, to 3,617.32. The market has climbed more than nine percent following an eight-session winning streak and is now at its highest level since mid 2008.

Investors welcomed news that Greek Prime Minister Alexis Tsipras had agreed to hand over a fresh package of reforms to its paymasters as his anti-austerity government tries to overhaul the terms of its bailout.

The left-wing Greek leader made the announcement after emergency talks with German Chancellor Angela Merkel, French President Francois Hollande and the European Union’s top officials on the sidelines of a European summit in Brussels. He said the bailout was “back on track”.

While the crisis is not yet over, the news will come as a relief to markets as an ongoing standoff over Athens’ bailout has raised fears it will crash out of the eurozone.

In afternoon Asian trade, the euro bought $ 1.0680 and 129.02 yen against $ 1.0660 and 128.77 yen in New York Thursday.

The dollar was at 120.73 yen, compared with 120.80 yen in US trade.

– Oil prices push lower –

The greenback has been on a rollercoaster ride this week after sinking in reaction to the Federal Reserve’s lowered expectations for interest rates and economic growth.

That cooled talk of a rate rise in early summer, sending the dollar tumbling and stocks rising. At one point in New York Wednesday, after the announcement, it fell to 119.57 yen while the euro was at $ 1.1010.

The US currency has since recovered, notching up gains over the past two days.

On Thursday the Dow eased 0.65 percent and the S&P 500 shed 0.49 percent, but the Nasdaq added 0.19 percent.

“We’re seeing a bit of profit-taking here,” Hartmut Issel, the Singapore-based head of equity, credit and macro for the Asia-Pacific chief investment office at UBS Wealth Management, told Bloomberg TV.

“I wouldn’t recommend to lose sight of the bigger picture. Yes, the Fed is currently a bit more dovish than we thought going into the meeting, but we are still talking about a very strong US economy, with a strong labour market.”

Oil prices fell further owing to lingering concerns about a global supply glut. US benchmark West Texas Intermediate for April delivery fell 47 cents to $ 43.49 and Brent crude for May slipped 23 cents to $ 54.20 in afternoon trade.

Gold fetched $ 1,172.01 against $ 1,164.38 late Thursday.

In other markets:

— Mumbai fell 0.73 percent, or 208.59 points, to end at 28,261.08.

National Thermal Power Corporation fell 6.25 percent to 145.50 rupees, while IT major Wipro rose 2.92 percent to 651.85 rupees.

–Bangkok closed down 0.14 percent, or 2.17 points, to 1,529.96.

Oil company PTT dropped 1.53 percent to 322.00 baht, while Bank of Ayudhya fell 4.15 percent to 46.25 baht.

— Taipei rose 0.13 percent, or 12.96 points, to 9,749,69.

— Wellington rose 0.20 percent, or 11.97 points, to 5,871.38.

Air New Zealand was up 1.06 percent at NZ$ 2.85 while market heavyweight Fletcher Building was unchanged at NZ$ 8.93.

— Manila ended flat, inching up 3.83 points to 7,818.38.

Universal Robina added 2.23 percent to 220.00 pesos, San Miguel Corp. fell 3.34 percent to 67.95 pesos and Philippine Long Distance Telephone dropped 1.40 percent to 2,810.00 pesos.

— Jakarta closed flat, dipping 0.75 points to 5,453.10.

Cigarette maker Gudang Garam lost one percent to 51,950 rupiah, while palm oil producer Astra Agro Lestari rose 0.49 percent to 25,750 rupiah.

— Kuala Lumpur closed down 0.30 percent, or 5.48 points, at 1,803.65.

Public Bank dropped 0.21 percent to 18.60 ringgit, Sime Darby lost 0.43 percent to 9.26 ringgit, while Tenaga Nasional gained 0.14 percent to 14.60 ringgit.

— Singapore rose 0.78 percent, or 26.28 points, to 3,412.44.

DBS Bank gained 0.50 percent to Sg$ 20.06 while real estate developer Capitaland was up 1.15 percent to Sg$ 3.52.

US firms use cheap euros to access dollars, but window closing

By Jamie McGeever

LONDON, March 18 (Reuters) – The stark divergence between U.S. and euro zone monetary policy has made it more attractive than ever for U.S. companies to raise cash in euros and swap it back into dollars this year, but that window of opportunity could be closing.

The euro/dollar cross currency basis swap, effectively the cost of swapping one currency into the other without the exchange rate risk, recently showed the highest premium for dollars in more than two years.

This could deter U.S. firms from raising funds in euros and swapping them back into dollars, although the cost of raising dollar funds outright on the wider capital markets is even more prohibitive thanks to the widening gap between official U.S. and euro zone borrowing rates.

As long as it’s cheaper for U.S. firms to access dollar funds via the cross-currency basis markets, it will remain an attractive option, even if the rush to do so seen at the start of the year slows down.

“Valuation will make corporate issuance quite opportunistic as long as the cost of doing so is cheaper than credit spreads,” said Fabio Bassi, head of European interest rate derivatives strategy at JP Morgan in London.

Several U.S. multinationals have come across the Atlantic to raise billions of dollars in recent weeks, including Coca-Cola , AT&T and Mondelez.

There’s no clear-cut measure of how much it costs U.S. firms to raise funds in euro capital markets. That’s determined by each firm’s creditworthiness, risk perception in the eyes of investors and specific terms of the fund-raising in question.

U.S. firms have raised the most funds in euros year-to-date since the pre-crisis calm of 2007, even though the cost of swapping those euros back into dollars has risen to its highest in over two years.

They have issued 35.2 billion euros of bonds so far this year, according to Thomson Reuters data. That’s as much as the previous six years’ comparable totals combined, the highest since 2007 and the second highest since 2000.

They’re on track to raise a record amount this year of between 75 and 90 billion euros, according to Bank of America Merrill Lynch recent estimates. Potentially, that would be nearly double last year’s total of 51 billion euros.

These numbers show that proportionally, the share of U.S. investment grade debt issuance in euros this year will virtually double to as much as 30 percent of all issuance.

WIDER US-EURO ZONE SPREADS

Issuance tends to be greater in the first quarter anyway as companies budget and plan for the year ahead. A plentiful supply of global liquidity and a maturing euro zone market have also helped.

Not all of those euros will be swapped back into dollars, however. Some will be used to fund euro zone-based investment and spending, or for currency hedging purposes.

But the cost of doing just that on the cross-currency basis swap markets may still be relatively attractive. The benchmark three-month euro/dollar cross-currency basis swap rate hit -30 basis points recently, a level not seen since late 2012.

That negative number implies the premium an investor demands to swap his euro-interest rate exposure into dollar-denominated rate exposure. JP Morgan reckon the “break-even” level is around -38 basis points, although it could feasibly move out to as much as -50 basis points.

On Wednesday it had eased back to around -25 basis points.

Compare that to the spread of relative U.S. and euro zone government bond yields, as the European Central Bank launches its trillion-euro bond buying programme to tackle deflation and revive growth just as the Federal Reserve prepares the ground for its first interest rate since June 2006.

The six-month U.S. yield is 16 basis points and the euro zone equivalent is -21 basis points, giving a spread of 37 basis points.

The gap widens the further out the curve you go. The two-year U.S. yield is 0.67 percent and the euro zone equivalent is -0.21 percent, giving a spread of 88 basis points. The spread between equivalent 30-year yields recently hit 200 basis points, the widest on record.

“The pace of issuance is unlikely to continue, despite the busy pipeline,” said James Cunniffe Corporate on the bond syndicate desk at HSBC in London.

“But the rates are clearly attractive,” he said.

(Editing by Mark Heinrich)

Shekel weakens against dollar after February CPI

The shekel continues to weaken against the US dollar, following the release of the Consumer Price Index reading for February yesterday, which showed a surprise 0.7% drop. The shekel-dollar rate has risen by 0.38% this morning, in comparison with Friday’s representative rate, to NIS 4.0302/$ . The shekel-euro rate is down by the same margin, at NIS 4.2459/€.

US investment bank Goldman Sachs predicts that the dollar-euro rate will reach parity within the next six months, and will fall to $ 0.80/€ by the end of 2017, a year after the European Central Bank is expected to end its quantitative easing program.

The Federal Open Market Committee of the US Federal Reserve is due to announce its interest rate decision on Wednesday. Following better than expected US job figures for February, expectations have risen of an interest rate rise in the US in September, and the Federal Reserve’s announcement this week will be closely scrutinized for hints in this direction.

Tamir Fishman Mutual Funds CEO David Katash says that the drop in the CPI in February justifies the Bank of Israel’s decision to cut its interest rate to 0.1%. “It looks as though the Bank of Israel will have to take further action to encourage growth in the economy, and that the interest rate tool by itself is not enough,” Katash said.

Published by Globes [online], Israel business news – www.globes-online.com – on March 16, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Positive signs continue for sterling pound

A positive end to the week saw sterling further its gains against both the euro and US dollar, as a member of the US Federal Reserve’s monetary policy committee spoke out about the dangers of a premature increase in US interest rate.
The week ahead could be an important one for sterling, with a host of data released from the UK, including Purchasing Managers Index (PMI) data from a number of industries.
This will be closely followed on Tuesday by the PMI for the construction industry, which has shown significant expansion over the past year. PMI data for the services sector on Wednesday will be eagerly awaited, with this sector contributing to around 70 percent of UK industry.
Following this we will see the release of the latest interest rate decision from the Bank of England. Following recent comments from BoE Gov. Mark Carney, it is highly unlikely we will see a rate change, resulting in something of a non-event here.

The euro
The euro had a mixed day on Friday, as official data earlier showed that French consumer spending rose 0.6 percent last month, significantly beating expectations for a 0.5 percent fall. December’s figure has also been revised up to a 1.6 percent increase. Yet the single currency lost ground again on Friday.
The euro zone data flow is high this week. Just like the UK they will be releasing the Purchasing Managers Indices for all sectors and all countries during the course of the week.
The European Central Bank (ECB) is also holding its monthly meeting. There is expected to be no change in the euro zone interest rate but they will be issuing an updated economic forecast on growth.
Expectations are for a positive upgrade — it should be noted that Germany and Spain recorded greater growth rates than the UK for the final quarter of 2014 — so we may see some support for the euro. It also has to remembered that the ECB have been keen for euro weakness to boost activity and exports and this does seem to be happening.

US economy
Friday was a positive day overall for the US, who saw their economy grow by 2.2 percent, making it the fastest growing economy in the developed world. Another welcome development came in the form of positive consumer confidence. However the US dollar was undermined towards the end of the day as a Federal Reserve Member cautioned against US interest rates being increased too quickly.
Another busy week is in store for the US, starting with the Purchasing Manager Indices (PMI) for Manufacturing coming out on Monday, as well as personal income and spending. Federal Reserve Chair Yellen has described these data releases as a possible threshold that she wants to see increase before raising interest rates.
Yellen is actually due to speak mid-week — she may vote for an interest rate hike, with a few Federal Reserve members already suggesting June as the possible month for the start of a rate hike. Non-Manufacturing PMI is out also due, and expected to show continued growth, along with an indicator for employment change.
Thursday will see another indicator for unemployment claims data for the US, leading up to the all-important Non-Farm Employment change data released on Friday.
Federal Reserve member Williams also speaks on Thursday, shining the spotlight on another member predicting when the start of an Interest rate hike may take place.
Friday is likely to be the most volatile day for the US dollar with the non-farm employment change due, which has shown steady positive growth in the employment market. Average Earnings data is also out, a key figure that the Federal Reserve want to keep an eye on, along with the trade balance figures and unemployment rate following from the Employment change release.
The fortunes of the US dollar are moving up and down in these uncertain times. If you are looking to buy or sell US dollars, we suggest contacting your trader now for the latest rates, economic and market news and currency buying strategies.

Japanese yen
The Japanese yen had a poor finish to the week, dropping against the US dollar at the end of the week. Official data showed that Japan’s household spending fell 0.3 percent last month, compared to expectations for a 0.4 percent rise. This followed a 0.4 percent increase in December. This was not the only piece of poor news for Japan on Friday, as a separate report showed Japan’s retail sales declined at an annualised rate of 2 percent, much worse than experts’ expectations.

Canadian dollar
Friday saw the Canadian dollar jump, as demand for its US counterpart dropped, shrugging off data that showed a consumer price fall last month, despite the initial higher expectations.

Charles Purdy is director of Smart Currency Exchange, London.

Euro Collapse No Longer a Major Concern for US Companies – Analyst Blog

The European Central Bank (ECB), in its bid to boost the Eurozone’s flagging economy, began its quantitative easing (QE) on Monday. The QE is guiding the long-term bond yields in the region to near zero, while the central bank continues buying the government debt using the newly-printed euros. This should be flooding the markets with euro.

Last Friday, the ECB announced its 1 trillion euro ($ 1.1 trillion) bond-buying program. Since then, and particularly from Monday with the commencement of the QE plan, weakness in the euro grew. The US dollar achieved a 12-year high and has gained over 31% against the euro over the last 12 months.

Dollar-Euro Parity

There are calls now for a one-to-one exchange rate between the currencies, or in simple terms – dollar-euro parity might be in the cards. The parity existed when the euro was introduced, and it happened again in Nov 2002.

Changing money supplies and the contrasting central bank policies between the two regions have been fueling the chances of the parity. Moreover, there are heightened chances of the US Fed raising interest rates and cutting down the money supply. This will further make dollar-denominated assets more valuable.

What Role Does the Dollar Play Now?

Meanwhile, the Dow crashed about 332 points on Tuesday. Data from Wunderlich suggested the S&P 500 has dropped in 19 of the 27 occasions when the dollar strengthened. The Fed’s sooner-than-expected rate hike fears have also been dragging US equities down. So a strengthening dollar cannot be solely blamed for a dip in equities.

The latest slump in the domestic stock markets should not deter the mood altogether. Though there are adverse effects of a stronger dollar, there are positives too. The plunge in the euro — or let’s say the gain in the dollar — bodes well for a lot businesses in the US.

While it does offer Americans a great opportunity to travel to the other side of the pond at a lower cost, a major benefit of a stronger dollar scenario is that it slashes import prices. Moreover, a stronger dollar is said to be beneficial over the long term in drawing more capital to the country.

Speaking of imports, the US is the second largest importer in the world. According to the United States Census Bureau’s numbers for trade in goods with European Union, January imports from the European Union were at $ 31,588.8 million, as against exports of $ 22,265.7 million. Imports had also outpaced exports in 2014, as for imports of $ 417,836.7 million, exports totaled $ 276,698.4.

Separately, US heavily imports vehicle, machines, engines, pumps, pharmaceuticals, aircraft, spacecraft and alcoholic beverage from Germany and France. So these related companies should also be cheering the devaluation of the euro.

On the other hand, the stronger dollar negatively affects exporters. US firms lose out on the competitive space, as US products become more expensive for consumers in foreign lands — Europe, in this instance.

Also, euro-denominated earnings take a plunge. Price adjustments cannot be made straightaway. They need to incur the currency headwinds that affects revenues and profits in U.S. dollar terms.

However, certain US firms this time can move beyond the import advantage as they have a new strategy – “Reverse Yankees” – to offset pressures from the weaker euro.

Reverse Yankees: The Smart Bet by US Firms

Per this strategy, US companies have been increasingly offering euro-denominated bonds. According to Dealogic, euro-denominated issuance by US firms exceeded 33 billion euros in 2015. This is three times higher than the year-ago period’s number. The borrowing cost in euros is at an historic low. It is cheap relatively to dollar funding. Thus, some multinationals are taking advantage of this master strategy.

The Coca-Cola Company KO offered the largest amount ever by a U.S. firm in euro-bonds. In late February, Coca-Cola offered 8.5 billion euros worth of euro-denominated bonds. Very recently, Kinder Morgan, Inc. KMI also priced 1.25 billion euros of euro-denominated bonds. This is the company’s first issuance of bond offering in euros. It is a smart move by the company to enter the European market at a time of record low borrowing costs and a favorable currency exchange rate.

AT&T, Inc. T, The Priceline Group Inc. PCLN and even Warren Buffett’s Berkshire Hathaway Inc. BRK.A have jumped in to reap benefits of the demand and high prices for euro-denominated bonds. Apple Inc. AAPL was pretty fast in noticing the trend and had debuted after issuing 2.8 billion euros of bonds in Nov 2014. The iPhone maker was taking advantage of a market offering the lowest yields in over half a decade as compared to dollar-denominated debt.

Reportedly, US firms are selling euro bonds that offer about 1.5%-1.75% lower yields than equivalent bonds issued in the US. Apart from the lower borrowing cost advantage, the strategy also offers a hedge against currency devaluation risk.

For firms anticipating further strength in the dollar, and thus a weaker euro, paying off the bonds will be cheaper. If the euro improves, these firms may bank on their revenue stream in euros. The firms may lock the current exchange rates by borrowing in euros. They may later on pay off the bonds with their euro revenues.

Conclusion

A strong currency in general may often be seen as a short-term negative, particularly for the exporters. However, importers will always gain and this makes more sense for the US, which is the second biggest importer. The currency-hedging action and the “Reverse Yankees” trend now offer great protection to US firms.

Moreover, expanding in Eurozone through mergers and acquisitions will be cheaper now. In order to utilize this advantage, US healthcare companies have been busy of late in buying European companies.

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