The euro gained across the board after the European Central Bank left interest rates unchanged at 4.0% as expected. ECB Chairman Trichet said in the post-meeting press conference that the biggest risk for price pressures is that they will increase. His hawkish comments reduced expectations of a rate easing in the coming couple of months. The euro broke 1.46 and tested 1.4650 versus the dollar.
Meanwhile, the Bank of England (BOE) made its first rate cut decision in 2 two years. The bank lowered its benchmark rates by a quarter-percentage point to 5.50%. The sterling dipped to as low as 2.0184 after the rate decision.
The dollar was little changed after a report showed US weekly jobless claims fell from 352k to 338k. Market will focus on the employment report to be released by the Labor Department tomorrow. Non-farm payrolls are expected to fall from 166k to 75k in November. Should the job report surprised the market by showing an above 100k figure as Wednesday's ADP job report did, the greenback is very likely to rebound sharply across the board.
The Canadian dollar gained as oil price rebounded to above 90 dollar per barrel and a run of strong economic data.
Euro Gained On Trichet's Hawkish Comments
GBP Pounded by BoE
by Korman Tam
The greenback was mixed in the Wednesday session, advancing versus the British pound and the yen while struggling against the euro and Aussie. With the exception of the sterling, the higher yielding currencies rallied against the yen as speculators continued to jump back into the carry trades following the sharp unwinding of recent sessions.
Economic data from the US were largely softer than expectations. The October PPI increased by 0.1% on a monthly basis, down from a 1.1% increase previously while the annualized PPI jumped to 6.1% from 4.4% previously. Core PPI was flat on a monthly basis versus 0.1% previously, but the yearly core PPI jumped to 2.5%, from 2.0%. Meanwhile, retail sales for October were weaker with the headline report inline with estimates at 0.2%, but down from the previous month at 0.6%. The excluding-autos retail sales figure missed expectations, down to 0.2% versus 0.4% a month earlier.
Bank of Canada Deputy Governor Jenkins expressed concern over the rapid appreciation in the Canadian dollar, saying the recent rise is stronger than historical experience have suggested. He said that Canada has been bearing a disproportionate share of adjustment in global imbalances. He warned that if the Loonie remains at current levels, there will be increased risks of significantly lower inflation and output.
ECB Hold Rates
The European Central Bank (ECB) maintained its benchmark interest rate at 4.00% at its meeting this Thurday. The Bank of England is also expected to hold its lending rate in place, at 5.75%. While these two moves should be seen by Dollar bulls as acts of clemency, they are more akin to a stay of execution than to a commutation of its death sentence. The reasoning is that it is inevitable that the US-EU interest rate difference will be bridged over the next few months, as the Fed continues to lower rates while the ECB is in the process of hiking them. The only question is when. Accordingly, analysts will be paying close attention to the language employed by the heads of the various Central Banks at their next meetings to get a sense of timing.
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Market Crash Ahead?
Currently, The Asian, US and elsewhere stock market looks healthy. The problem in the US housing market is "contained" in the subprime sector. Everything seems to be robust...
But what others don't know is that the risk of loss is always at its highest on the precise moment that most people judge it of least concern. Eventually, prices would reach its tipping point... a moment of desperate reality... another market crash. Most likely, there will be no crash tomorrow nor the day after. But there are some things you are better off preparing for, even though they may not happen for a while.
Here are some of the concerns that traders should focus on in the coming days.
1. The Chinese stock market is getting hit hard. Its CSI 300 Index is down 17% in the last three weeks. Brokerage account openings have dropped by two-thirds. Could global hot money... and local cold cash…turn bearish on Chinese shares? Could this trigger a worldwide equity sell-off? Yes it might.
2. The dollar is in trouble. The Friday's NFP released data was in favor for the dollar but it didn't help much. On Wednesday, it hit its lowest level against the pound (GBP) in 26-years. It is now near its lowest level ever against the euro. Trillions worth of dollars now sit in foreign vaults. while reserve managers openly talk of diversifying away from greenbacks. Foreigners don't have to abandon the dollar in masse to knock it down, all they have to do is to let up on their purchases of dollar-denominated assets - such as U.S. Treasuries. Could it happen? Could the shock cause a crash in major financial markets? Why.. yes... it might.
3. All paper currencies are dangerous. The dollar is not the only paper currency in the world whose supply is growing rapidly. Practically every central bank is printing up its own money in vast quantities - trying to keep up with the U.S. brand. This is why the world has so much "liquidity." It's why so many assets are rising in price so steeply. But could investors suddenly become fearful of so much monetary inflation? Could consumer prices shoot up as asset prices already have? Could the world's people want to get rid of their paper currencies in favor of other stores of value - notably gold?
4. A Milan-based bank, Italease, has just seen its derivative portfolio blow up. So has Bear Stearns (BSC). Large lenders are getting skittish of complex debt instruments, just as more deals than ever before come to market. So far this year $1 trillion in deals have been done in the North America - a rate of deal-making nearly 50% higher than the year before. What happens if the wheeler-dealers don't find the credit they're looking for? What would investors think if even one of these mega-deals blew up badly?
5. The Bank of England raised its key interest rate on Thursday by 25 basis points to 5.75 percent, another six-year high. This is the fifth time this year. The ECB's Trichet held steady this month but hints that rates will go up in the future. Elsewhere, banks are likely to hike rates too. And watch out if the Chinese decide to do some serious tightening.
Could there be even bigger blow ups waiting to happen? And could they cause a stampede for the exits? Anthony Bolton, Britain's most successful fund manager, worries about it. So does the Bank of International Settlements. And so do central bankers in Madrid, London and who knows where else. And if the pros stop lending so freely, might not it trigger a credit crunch and a crash?
For the last 2 weeks. The majors just did a range bound. If you look at it in a medium term chart, market is indicision phase. The after effect of this would be a breakout, whether a big reversal or a continues steep down... we don't know yet. But we will keep our eyes open.. and keep our ear on the ground.
