Oct. 29 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and his colleagues sound as if they'd prefer to just say no to an interest-rate cut this week. The financial markets may not let them.
Policy makers from Bernanke on down have avoided signaling they want to reduce benchmark lending rates at their Oct. 30-31 meeting, ever since lowering them by a larger-than-anticipated half percentage point in September. Instead, Fed officials have stressed how uncertain the outlook is and, in words Bernanke used twice in a single week, how ``challenging'' it is to make policy.
Traders don't agree. They consider the chances of a rate cut this week as a cinch, judging from federal funds futures prices at the end of last week. If the Fed disappoints them, it risks upsetting still-fragile markets and hurting the economy.
``The Fed is reluctant to ease,'' says Louis Crandall, chief economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a unit of ICAP Plc, the world's largest broker for banks and other financial institutions. ``But it also doesn't want to unsettle the financial markets unnecessarily.''
The likely rationale if the Fed cuts: a desire to prevent the worst case, in which renewed market tumult, rising oil prices and falling home values drive the U.S. economy into recession.
No Promises
The Fed, though, may combine such a move with an open-ended statement that doesn't promise further cuts. Its goal would be to dissuade investors from anticipating a series of reductions, an outlook that could further weaken the dollar and revive inflation concerns.
``They'll use the statement to try to temper expectations of further rate cuts,'' says Michael Feroli, a former Fed economist who is now with JPMorgan Chase & Co. in New York.
Speculation about what the Fed will do this week has swung widely since the central bank cut its target for the federal funds rate -- the rate banks charge each other for overnight loans -- to 4.75 percent from 5.25 percent on Sept. 18.
Traders in federal funds futures initially bet heavily on an Oct. 31 rate cut, pushing the odds of such a move to 75 percent or more at the beginning of October. They then scaled their expectations back below 50 percent after the government on Oct. 5 revised August payroll numbers to show a gain instead of a decline.
Increasing Odds
Further weakness in housing, along with dismal earnings reports from Citigroup Inc. and other big banks, helped trigger fresh market turmoil during the last two weeks, prompting traders to again raise the odds of a rate cut, with some even expecting a half-point reduction.
``The markets are yo-yoing all over the place,'' says former Fed Governor Lyle Gramley, now a senior economic adviser at Stanford Group Co. in Washington. ``The Fed ought to have a cooler head.''
Gramley is among a minority of economists who expect the Fed to stand pat. He says policy makers may not have enough evidence of a weaker economy to support another rate reduction now.
Indeed, Fed officials don't depict an economy in as dire straits as some in the markets do, suggesting they'd prefer to wait and see how conditions develop before cutting rates again.
While housing keeps weakening, the rest of the economy is holding up. Retail sales rose 0.6 percent in September, double the increase of the previous month. Business investment in computers and machinery also increased, prompting some economists to raise estimates for third-quarter growth.
Anecdotal Information
Anecdotal information the Fed has gathered from business contacts, which has more weight in uncertain times, shows the economy expanding, albeit at a slower pace than when the central bank's Federal Open Market Committee met last month.
In a regional survey known as the Beige Book, none of the 12 Fed banks reported signs of a sharp contraction in growth, based on information collected through Oct. 5.
``On balance, I would characterize the data we have received on the real economy since the last FOMC meeting as supporting our baseline forecast,'' Chicago Fed President Charles L. Evans said in an Oct. 22 speech.
That forecast calls for the economy to pick up over the next year to a growth rate closer to 2.5 percent after slowing below that level in the final quarter of this year.
Policy makers, including San Francisco Fed President Janet Yellen, have also highlighted the economy's ability to weather financial turmoil in the past as reason to avoid overreacting to the latest market squall.
The 1998 Experience
They cite 1998, when stocks slumped and credit costs rose after the collapse of hedge fund Long Term Capital Management in September. Helped by three rapid-fire rate cuts by the Fed, the economy barreled ahead, growing by 6.2 percent in the fourth quarter.
Like today, the Fed had problems managing expectations. After trimming rates a quarter percentage point in September, the central bank had to follow with similar reductions in October and November after the first cut failed to stabilize financial markets.
The Fed tried to avoid a similar situation last month with its half-point cut, says Laurence Meyer, a Fed governor from 1996 to 2002 and now vice chairman of Macroeconomic Advisers LLC of St. Louis. Instead, it once again faces calls for another cut. And traders are betting it will comply once more, if only to short-circuit a renewed increase in borrowing costs in credit markets.
Economic Risk
An economic-risk index compiled by Citigroup suggests that credit costs are rising after dropping in the aftermath of the September rate cut.
Bernanke provided the likely justification for another reduction in an Oct. 19 speech, when he discussed how to carry out policy during times of uncertainty. Rather than acting cautiously, he said then, the central bank might be better off acting boldly in response to shocks to the economy.
``That approach is motivated by the notion that the perfect should not be the enemy of the good,'' he said.
This wouldn't be the first time a Bernanke-led Fed acceded to traders' expectations. The Fed raised rates on June 29, 2006, even though some officials wondered whether the action was needed, according to minutes of the meeting. Behind the increase: rising inflation expectations in the month before, as measured by Treasury inflation-protected securities.
The Fed, though, crafted its statement at that meeting to signal its two-year rate-hiking cycle might be at an end. Inflation fears ebbed, growth slowed and the central bank didn't change rates again until it cut them this September.
Monday, October 29, 2007
Canada's manufacturers feeling left on their own
Canadian manufacturers appear to be increasingly alone in their alarm over the damaging effects of the soaring currency and the faltering U.S. economy, as policy makers look to the wider picture and see cause for optimism.
The anxiety level rose a few notches last month after the Canadian dollar pushed beyond parity with the U.S. dollar, exacerbating worries about the U.S. housing slowdown. The currency has since continued its meteoric rise and on Monday hit a 47-year high of over US$1.04.
A fourth-quarter survey of manufacturers showed just how glum the sector was becoming. The number of firms reporting impediments to production jumped to 36 percent from 28 percent in the third quarter. Those expecting a drop in production grew to 23 percent from 15 percent and those seeing a fall in new orders rose to 22 percent from 19 percent.
The sector has shed 71,000 jobs in the past year. And by most accounts, things are only going to get worse.
"I think the real impact is going to be seen over the next six months," said Jayson Myers, president of the Canadian Manufacturers and Exporters association.
"Maybe the dollar is just the symptom here of the weakness of the U.S. dollar and the weakness of the U.S. economy. That is going to have a far more negative impact on expectations than perhaps even the dollar itself," he said.
Canadian manufacturers are the canary in the coal mine, getting the first whiff of any bad news from the U.S. economy because that is the main market for their goods. The sector accounts for roughly 70 percent of total exports.
"It's going to be much more difficult to adjust to a high dollar if your customers are not buying as much of your product," said Myers.
The anxiety level rose a few notches last month after the Canadian dollar pushed beyond parity with the U.S. dollar, exacerbating worries about the U.S. housing slowdown. The currency has since continued its meteoric rise and on Monday hit a 47-year high of over US$1.04.
A fourth-quarter survey of manufacturers showed just how glum the sector was becoming. The number of firms reporting impediments to production jumped to 36 percent from 28 percent in the third quarter. Those expecting a drop in production grew to 23 percent from 15 percent and those seeing a fall in new orders rose to 22 percent from 19 percent.
The sector has shed 71,000 jobs in the past year. And by most accounts, things are only going to get worse.
"I think the real impact is going to be seen over the next six months," said Jayson Myers, president of the Canadian Manufacturers and Exporters association.
"Maybe the dollar is just the symptom here of the weakness of the U.S. dollar and the weakness of the U.S. economy. That is going to have a far more negative impact on expectations than perhaps even the dollar itself," he said.
Canadian manufacturers are the canary in the coal mine, getting the first whiff of any bad news from the U.S. economy because that is the main market for their goods. The sector accounts for roughly 70 percent of total exports.
"It's going to be much more difficult to adjust to a high dollar if your customers are not buying as much of your product," said Myers.
Bank of America to trim metals trading desk
NEW YORK, Oct 29 (Reuters) - Bank of America Corp will no longer make markets in precious and base metals trading starting Monday, but will continue to have a metals service for its clients, a company spokeswoman said.
"I can confirm for you that we will no longer actively make markets in metals, but that we will continue to facilitate client trades," a Bank of America spokeswoman told Reuters.
Asked if staff would remain to execute those trades, the spokeswoman said, "I would think that's basically assumed," though she did not specify whether they would remain at both the New York and London metals desks.
"We do still have a commodities business," she said, but added, "We're not going to make (metals) markets for the street."
The company spokeswoman declined to divulge the exact number of staff being let go, but said the change in the bank's metals trading focus would be effective on Monday.
A trader at Bank of America's London trading desk said a few people at the metals operation there had already left, while another trader at a desk nearby described departures on the metals desk as "carnage."
In New York, a trading source at Bank of America said early talk that the bank would eliminate metals trading was untrue.
"I can confirm for you that we will no longer actively make markets in metals, but that we will continue to facilitate client trades," a Bank of America spokeswoman told Reuters.
Asked if staff would remain to execute those trades, the spokeswoman said, "I would think that's basically assumed," though she did not specify whether they would remain at both the New York and London metals desks.
"We do still have a commodities business," she said, but added, "We're not going to make (metals) markets for the street."
The company spokeswoman declined to divulge the exact number of staff being let go, but said the change in the bank's metals trading focus would be effective on Monday.
A trader at Bank of America's London trading desk said a few people at the metals operation there had already left, while another trader at a desk nearby described departures on the metals desk as "carnage."
In New York, a trading source at Bank of America said early talk that the bank would eliminate metals trading was untrue.
Gold price sets a new record high
Soaring oil prices and weak dollar have caused the price of gold to spiral to new record high, ever witnessed during the past 27 years.
The precious metal was traded at a peak of $794.70 per ounce in the London market, the highest price since January 1980.
Since gold price moves in tandem with oil prices, as the US dollar slides, investors often purchase gold as a protection against economic trouble, political turmoil and inflation hedge.
Meanwhile, the euro surged to another record high against the dollar, since its float in 1999, to reach $1.44 on Monday.
Also, oil prices hit a historic new high of $93 per barrel for the first time due to concerns over supply shortages.
The precious metal was traded at a peak of $794.70 per ounce in the London market, the highest price since January 1980.
Since gold price moves in tandem with oil prices, as the US dollar slides, investors often purchase gold as a protection against economic trouble, political turmoil and inflation hedge.
Meanwhile, the euro surged to another record high against the dollar, since its float in 1999, to reach $1.44 on Monday.
Also, oil prices hit a historic new high of $93 per barrel for the first time due to concerns over supply shortages.
US gold futures end $US5 higher
US gold futures finished $US5 higher overnight after initially surging to just below $US800 in electronic trade, as a dollar slump and record crude oil prices prompted bullion investors to enter the market.
However, analysts cautioned that a near-record high in speculative net long positions in the futures market could prompt a correction in gold before prices could rise further.
Most-active December gold on the COMEX division of the New York Mercantile Exchange settled up $US5.10 at $US792.60 an ounce. It hit a low of $US787.70.
In overnight electronic sessions, COMEX gold traded as high as $US798.30 as the dollar fell to a fresh record low against the euro and a major currency basket on speculation that the Federal Reserve will cut US interest rates.
COMEX December silver closed up 15 US cents or 1.1 per cent at $US14.430 an ounce, trading between $US14.290 and $US14.540.
LME
Copper closed lower overnight after a major wage deal, having risen to its highest level in over a week as the dollar tumbled on growing speculation of a US rate cut.
Analysts said sentiment was dented after workers at Southern Copper, one of the world's largest copper producers, reached a wage agreement on Saturday.
Copper for delivery in three months on the London Metal Exchange ended at $US7,845 per tonne compared with $US7,870 on Friday. Earlier, it touched $US7,969, the highest since October 18.
Three-months lead closed at $US3,640 a tonne, down $US20.
Zinc was firm at $US2,905 from $US2,900, tin was up at $US16,850 from $US16,450/16,500 and aluminium traded down at $US2,525 from $US2,538 on Friday.
Nickel traded down at $US31,550 from $US31,800 on Friday.
NYMEX
US crude oil futures ended sharply higher on Monday, rallying to a record high above $US93 as Mexico's weather-curbed oil output, a weak dollar and geopolitical tensions combined to lift prices.
On the New York Mercantile Exchange, December crude rose $US1.67, or 1.82 per cent, to settle at a record $US93.53 per barrel, trading from $US91.52 to an intraday record $US93.80.
In London, December Brent crude rose $US1.63, or 1.84 per cent, to settle at $US90.32 a barrel.
However, analysts cautioned that a near-record high in speculative net long positions in the futures market could prompt a correction in gold before prices could rise further.
Most-active December gold on the COMEX division of the New York Mercantile Exchange settled up $US5.10 at $US792.60 an ounce. It hit a low of $US787.70.
In overnight electronic sessions, COMEX gold traded as high as $US798.30 as the dollar fell to a fresh record low against the euro and a major currency basket on speculation that the Federal Reserve will cut US interest rates.
COMEX December silver closed up 15 US cents or 1.1 per cent at $US14.430 an ounce, trading between $US14.290 and $US14.540.
LME
Copper closed lower overnight after a major wage deal, having risen to its highest level in over a week as the dollar tumbled on growing speculation of a US rate cut.
Analysts said sentiment was dented after workers at Southern Copper, one of the world's largest copper producers, reached a wage agreement on Saturday.
Copper for delivery in three months on the London Metal Exchange ended at $US7,845 per tonne compared with $US7,870 on Friday. Earlier, it touched $US7,969, the highest since October 18.
Three-months lead closed at $US3,640 a tonne, down $US20.
Zinc was firm at $US2,905 from $US2,900, tin was up at $US16,850 from $US16,450/16,500 and aluminium traded down at $US2,525 from $US2,538 on Friday.
Nickel traded down at $US31,550 from $US31,800 on Friday.
NYMEX
US crude oil futures ended sharply higher on Monday, rallying to a record high above $US93 as Mexico's weather-curbed oil output, a weak dollar and geopolitical tensions combined to lift prices.
On the New York Mercantile Exchange, December crude rose $US1.67, or 1.82 per cent, to settle at a record $US93.53 per barrel, trading from $US91.52 to an intraday record $US93.80.
In London, December Brent crude rose $US1.63, or 1.84 per cent, to settle at $US90.32 a barrel.
Strong showing from metals and oil lifts Footsie
Miners led the way forward today on strong demand for commodities and a smattering of takeover activity.
Analysts at JP Morgan raised their target prices for many of the leading mining groups, after upgrading their forecasts for metals prices.
"The biggest upgrade among the major commodities were nickel (+33% long term) followed by iron ore (18%)," said the bank. It raised its target prices on BHP Billiton, up 25p to £18.68; Antofagasta, ahead 11p to 860.5p; Anglo American, 107p higher at £33.52, and Vedanta Resources, up 74p to £22.30.
Xstrata rose 48p to £35.76 as it made a $2.8bn bid for Australian nickel miner Jubilee Mines. The news gave a lift to Talvivaara, a Finnish nickel and zinc company, which added 17.25p to 297.25p
Thanks mainly to the miners the FTSE 100 closed 44.7 points higher at 6706.0. But the market's rally was far from resilient and volumes were nothing to write home about. There is some caution ahead of this week's US interest rate decision by the Federal Reserve, not to mention concern about the effect of ever increasing oil prices on the global economy.
David Buik of spread betting group Cantor Index said: "The poor volumes tell us that punters don't believe the ebullience. It's all about mining and oil stocks and a few banks rallying to the cause, but there is no conviction in the market maker's stance. Oil is nearly $93 a barrel and gold is $797 an ounce. I hope that equity geeks get their Fed rate cut on Wednesday – God help them if they do not."
The strength in the oil price helped BP climb 5p to 634p and Royal Dutch Shell 12p to £21.40.
Royal Bank of Scotland edged up 4p to 511.5p despite a 51 page note from Citigroup suggesting the bank's involvement in the consortium which bought Dutch rival ABN Amro could destroy around £15bn of value.
"RBS management must prove to shareholders that the acquisition of ABN's wholesale and international retail businesses was in their best interests," said Citi. "Our analysis shows that even with full synergies the deal could still destroy around £15bn value by reducing capital returns (around £5bn) and reversing early signs of a recovery in the stock's rating (around £10bn).
"We expect downward pressure on RBS's rating to reflect the sharp increase in balance sheet leverage post the ABN acquisition. In the current environment we expect excessive leverage to be heavily penalised by the market."
Citi, which was one of the investment banks advising Barclays in its unsuccessful rival bid for ABN, restarted coverage of RBS with a downgrade from buy to sell and a 450p target price.
Housebuilders were hit by a Hometrack survey showing house prices had fallen for the first time in two years. Taylor Wimpey fell 8.5p to 230.5p while Barratt Developments lost 20p to 631p.
Standard Life lost 2.5p to 276p as Resolution dropped its support for a £4.9bn bid from the insurer. Rival Pearl now looks in a winning position to take over Resolution, up 1.5p at 728p.
Supermarket group J Sainsbury was 13p lower at 552.5p after Friday's reports that Delta Two, the Qatari backed fund, was seeking an extra £500m of financing for its proposed 600p a share bid. The Takeover Panel has set a November 8 deadline for Delta Two to put up or shut up.
But Marks & Spencer added 14p to 642p as Legal & General increased its stake by around 1% to 4.14%.
Lower down the market, contamination control group Tristel added 8p to 54.5p after full year profits rose 49%.
Analysts at Daniel Stewart issued a buy note on the company, saying: "Despite recent sluggish share price performance, we suggest that Tristel's fundamentals are not reflected by its current market valuation."
Vyke Communications, the mobile voice-over-internet protocol (VoIP) supplier, jumped 14p to an all-time high of 195p. The company has announced a £12m placing with institutions to help fund its new distribution agreement with Nokia. The deal means customers with Nokia handsets can be directed through to the Vyke website, receive a $1 credit and sign up as Vyke customer enabling them to make cheap international calls over the internet.
But specialist steel group Metalrax slumped 17.75p to 38.25p after it warned 2007 results would be significantly worse than current market expectations.
Mining group Bezant Resources lost as 9.5p to 87p as a number of retail investors decided to cash in. The company's broker Mirabaud Securities has a 146p price target on the business and has made a series of recent presentations to institutions in Scotland and the north of England. Traders believe the company could issue a positive drilling update sometime next month.
Max Petroleum, the Kazakhstan-focused oil and gas explorer, fell 14.25p to 96p after its shares came back from suspension. The company launched an investigation into certain related party transactions, and on Friday announced it had dismissed seven employees for breach of contract. It said there would be no material impact on the group's financial position.
Finally, data centre group Telecity slipped 4p to 277p in its first day of full dealings after conditional trading started last week. The group joined the market at 220p a share.
Analysts at JP Morgan raised their target prices for many of the leading mining groups, after upgrading their forecasts for metals prices.
"The biggest upgrade among the major commodities were nickel (+33% long term) followed by iron ore (18%)," said the bank. It raised its target prices on BHP Billiton, up 25p to £18.68; Antofagasta, ahead 11p to 860.5p; Anglo American, 107p higher at £33.52, and Vedanta Resources, up 74p to £22.30.
Xstrata rose 48p to £35.76 as it made a $2.8bn bid for Australian nickel miner Jubilee Mines. The news gave a lift to Talvivaara, a Finnish nickel and zinc company, which added 17.25p to 297.25p
Thanks mainly to the miners the FTSE 100 closed 44.7 points higher at 6706.0. But the market's rally was far from resilient and volumes were nothing to write home about. There is some caution ahead of this week's US interest rate decision by the Federal Reserve, not to mention concern about the effect of ever increasing oil prices on the global economy.
David Buik of spread betting group Cantor Index said: "The poor volumes tell us that punters don't believe the ebullience. It's all about mining and oil stocks and a few banks rallying to the cause, but there is no conviction in the market maker's stance. Oil is nearly $93 a barrel and gold is $797 an ounce. I hope that equity geeks get their Fed rate cut on Wednesday – God help them if they do not."
The strength in the oil price helped BP climb 5p to 634p and Royal Dutch Shell 12p to £21.40.
Royal Bank of Scotland edged up 4p to 511.5p despite a 51 page note from Citigroup suggesting the bank's involvement in the consortium which bought Dutch rival ABN Amro could destroy around £15bn of value.
"RBS management must prove to shareholders that the acquisition of ABN's wholesale and international retail businesses was in their best interests," said Citi. "Our analysis shows that even with full synergies the deal could still destroy around £15bn value by reducing capital returns (around £5bn) and reversing early signs of a recovery in the stock's rating (around £10bn).
"We expect downward pressure on RBS's rating to reflect the sharp increase in balance sheet leverage post the ABN acquisition. In the current environment we expect excessive leverage to be heavily penalised by the market."
Citi, which was one of the investment banks advising Barclays in its unsuccessful rival bid for ABN, restarted coverage of RBS with a downgrade from buy to sell and a 450p target price.
Housebuilders were hit by a Hometrack survey showing house prices had fallen for the first time in two years. Taylor Wimpey fell 8.5p to 230.5p while Barratt Developments lost 20p to 631p.
Standard Life lost 2.5p to 276p as Resolution dropped its support for a £4.9bn bid from the insurer. Rival Pearl now looks in a winning position to take over Resolution, up 1.5p at 728p.
Supermarket group J Sainsbury was 13p lower at 552.5p after Friday's reports that Delta Two, the Qatari backed fund, was seeking an extra £500m of financing for its proposed 600p a share bid. The Takeover Panel has set a November 8 deadline for Delta Two to put up or shut up.
But Marks & Spencer added 14p to 642p as Legal & General increased its stake by around 1% to 4.14%.
Lower down the market, contamination control group Tristel added 8p to 54.5p after full year profits rose 49%.
Analysts at Daniel Stewart issued a buy note on the company, saying: "Despite recent sluggish share price performance, we suggest that Tristel's fundamentals are not reflected by its current market valuation."
Vyke Communications, the mobile voice-over-internet protocol (VoIP) supplier, jumped 14p to an all-time high of 195p. The company has announced a £12m placing with institutions to help fund its new distribution agreement with Nokia. The deal means customers with Nokia handsets can be directed through to the Vyke website, receive a $1 credit and sign up as Vyke customer enabling them to make cheap international calls over the internet.
But specialist steel group Metalrax slumped 17.75p to 38.25p after it warned 2007 results would be significantly worse than current market expectations.
Mining group Bezant Resources lost as 9.5p to 87p as a number of retail investors decided to cash in. The company's broker Mirabaud Securities has a 146p price target on the business and has made a series of recent presentations to institutions in Scotland and the north of England. Traders believe the company could issue a positive drilling update sometime next month.
Max Petroleum, the Kazakhstan-focused oil and gas explorer, fell 14.25p to 96p after its shares came back from suspension. The company launched an investigation into certain related party transactions, and on Friday announced it had dismissed seven employees for breach of contract. It said there would be no material impact on the group's financial position.
Finally, data centre group Telecity slipped 4p to 277p in its first day of full dealings after conditional trading started last week. The group joined the market at 220p a share.
Canadian dollar tops $1.05
The Canadian dollar gained more than one U.S. cent Monday to top $1.05 -- a 47-year high -- before retreating slightly.
The Canadian currency closed at $1.0496, making a U.S. dollar worth 95.27 Canadian cents, up from Friday's close of $1.0393, or 96.22 Canadian cents.
The Canadian dollar reached $1.0509, or 95.15 Canadian cents, in earlier trading.
The Canadian currency has climbed more than 18 cents, or 22 percent, this year.
The Canadian currency closed at $1.0496, making a U.S. dollar worth 95.27 Canadian cents, up from Friday's close of $1.0393, or 96.22 Canadian cents.
The Canadian dollar reached $1.0509, or 95.15 Canadian cents, in earlier trading.
The Canadian currency has climbed more than 18 cents, or 22 percent, this year.
Gold to Oil Ratio Falling in 2007
The gold to oil ratio has been falling in 2007 with oil prices increasing at a faster rate than gold. The ratio now sits around 8.45 barrels to gold ounce, the lowest all year. With gold hitting 28-year highs and oil at all-time highs, the question now becomes: Is oil too high or is gold not high enough? -Resource Investor
US dollar pushed to new record low on rate cut expectations
NEW YORK : The US dollar dived to another record low against the euro on Monday amid growing anticipation in the currency market that the US central bank will cut borrowing costs again later this week.
Currency analysts said a widely expected cut in interest rates and concern about US economic growth had pushed an already much-weakened dollar to new depths.
The euro was changing hands at 1.4422 dollars around 2200 GMT, up from 1.4391 dollars late Friday.
In earlier trading, the euro had struck 1.4438 dollars, its highest level since the single currency's creation in 1999. The European currency has rocketed around 14 percent against the dollar in the past 12 months.
The dollar's fortunes dwindled as the Federal Reserve's two-day policy meeting due to open on Tuesday, neared.
Most economists expect the Fed to cut its key short-term federal funds rate on Wednesday.
The central bank slashed the fed funds rate by half-a-percentage point on September 18 to 4.75 percent, hoping it would help offset a credit squeeze and offer a boost to the housing market which has been in a slump since early 2006.
"Foreign exchange carry trades not only thrive on the anticipated reduction in a nation's interest rate vis-a-vis other nations, but also in the resulting decline in the value of that currency ahead of further rate reductions," said CMC Markets' chief forex analyst Ashraf Laidi.
The dollar is coming under heightened pressure ahead of the Fed meeting as traders prefer to buy currencies with higher-yield potential. Low or falling interest rates do not, generally, boost a currency's prospects or appeal.
"With the clock ticking until the all-important Federal Reserve interest rate decision ... on October 31st, traders are quickly upping the ante and betting that the central bank will be cutting rates on Halloween," said Terri Belkas, a currency analyst at Forex Capital Markets.
The US currency has weakened amid uncertainty over US economic growth. Its weakness is helping underpinning US exports, but has made it more expensive for Americans to purchase pricey foreign goods.
Oil and gold prices have also surged strongly in recent weeks, putting further pressure on the US economy which imports a majority of its oil.
The British currency climbed as high as 2.0624 dollars before slipping back to the 2.06 threshold. Its gains came after strong mortgage lending data from the Bank of England dampened the chances of an early interest rate cut.
The Canadian dollar meanwhile struck a 47-year high against the dollar, gaining on the US currency's recent weakness, as well as soaring demand for oil and other natural resources.
The Canadian dollar touched 1.0474 US dollars in earlier trading on Monday.
In late New York trade, the dollar was at 1.1643 Swiss francs, up from 1.1639 Swiss francs late Friday.
The pound was at 2.0629 dollars, up from 2.0522, while the dollar fetched 114.60 yen, up from 114.24 yen late last week. - AFP/de
Currency analysts said a widely expected cut in interest rates and concern about US economic growth had pushed an already much-weakened dollar to new depths.
The euro was changing hands at 1.4422 dollars around 2200 GMT, up from 1.4391 dollars late Friday.
In earlier trading, the euro had struck 1.4438 dollars, its highest level since the single currency's creation in 1999. The European currency has rocketed around 14 percent against the dollar in the past 12 months.
The dollar's fortunes dwindled as the Federal Reserve's two-day policy meeting due to open on Tuesday, neared.
Most economists expect the Fed to cut its key short-term federal funds rate on Wednesday.
The central bank slashed the fed funds rate by half-a-percentage point on September 18 to 4.75 percent, hoping it would help offset a credit squeeze and offer a boost to the housing market which has been in a slump since early 2006.
"Foreign exchange carry trades not only thrive on the anticipated reduction in a nation's interest rate vis-a-vis other nations, but also in the resulting decline in the value of that currency ahead of further rate reductions," said CMC Markets' chief forex analyst Ashraf Laidi.
The dollar is coming under heightened pressure ahead of the Fed meeting as traders prefer to buy currencies with higher-yield potential. Low or falling interest rates do not, generally, boost a currency's prospects or appeal.
"With the clock ticking until the all-important Federal Reserve interest rate decision ... on October 31st, traders are quickly upping the ante and betting that the central bank will be cutting rates on Halloween," said Terri Belkas, a currency analyst at Forex Capital Markets.
The US currency has weakened amid uncertainty over US economic growth. Its weakness is helping underpinning US exports, but has made it more expensive for Americans to purchase pricey foreign goods.
Oil and gold prices have also surged strongly in recent weeks, putting further pressure on the US economy which imports a majority of its oil.
The British currency climbed as high as 2.0624 dollars before slipping back to the 2.06 threshold. Its gains came after strong mortgage lending data from the Bank of England dampened the chances of an early interest rate cut.
The Canadian dollar meanwhile struck a 47-year high against the dollar, gaining on the US currency's recent weakness, as well as soaring demand for oil and other natural resources.
The Canadian dollar touched 1.0474 US dollars in earlier trading on Monday.
In late New York trade, the dollar was at 1.1643 Swiss francs, up from 1.1639 Swiss francs late Friday.
The pound was at 2.0629 dollars, up from 2.0522, while the dollar fetched 114.60 yen, up from 114.24 yen late last week. - AFP/de
Dollar hits new lows, oil a new high — but why?
Two new financial records of note today, though neither is much for Americans to brag about.
The U.S. dollar — once the king of currency — continued its downhill slide, hitting new lows against most other currencies as the price of a barrel oil closed in on $94, another high. The dollar today is worth only 95 cents against the Canadian loonie, a low not seen since 1960. As for the euro, it's now worth 44% more than the greenback — $1.44, another record.
And that shiny yellow metal approached a 28-year record high. Gold closed at nearly $793.
Why? The money people seem to agree that the Federal Reserve will cut interest rates again on Wednesday to try to boost the flagging economy.
Isn't that good news? Not necessarily. What's good for exporters may end up fueling inflation across the board.
"The Fed faces a quandary as they need to ease (rates) in order to get the economy going, but a weaker dollar, while good for US exports, does raise the concern that inflation will rise,” Gerald Lucas, senior investment adviser at Deutsche Bank, told the Financial Times.
Looking at the big economic picture, USA TODAY's Barbara Hagenbaugh and Barbara Hansen write that a slowdown is at hand, but it's not clear how deep it might go or how long it might last.
The analyzers at Briefing.com aren't so gloomy, however:
Granted the weak dollar is contributing to the rise in oil prices, but thus far, the consumer has been pretty impervious to the high prices thanks to rising personal incomes that are a byproduct of a tight labor market.
There are lingering concerns, of course, that rising oil prices will soon undercut the consumer given the housing sector recession, but those concerns were tabled on Monday as the stock market extended recent gains with oil prices topping $93 per barrel.
The U.S. dollar — once the king of currency — continued its downhill slide, hitting new lows against most other currencies as the price of a barrel oil closed in on $94, another high. The dollar today is worth only 95 cents against the Canadian loonie, a low not seen since 1960. As for the euro, it's now worth 44% more than the greenback — $1.44, another record.
And that shiny yellow metal approached a 28-year record high. Gold closed at nearly $793.
Why? The money people seem to agree that the Federal Reserve will cut interest rates again on Wednesday to try to boost the flagging economy.
Isn't that good news? Not necessarily. What's good for exporters may end up fueling inflation across the board.
"The Fed faces a quandary as they need to ease (rates) in order to get the economy going, but a weaker dollar, while good for US exports, does raise the concern that inflation will rise,” Gerald Lucas, senior investment adviser at Deutsche Bank, told the Financial Times.
Looking at the big economic picture, USA TODAY's Barbara Hagenbaugh and Barbara Hansen write that a slowdown is at hand, but it's not clear how deep it might go or how long it might last.
The analyzers at Briefing.com aren't so gloomy, however:
Granted the weak dollar is contributing to the rise in oil prices, but thus far, the consumer has been pretty impervious to the high prices thanks to rising personal incomes that are a byproduct of a tight labor market.
There are lingering concerns, of course, that rising oil prices will soon undercut the consumer given the housing sector recession, but those concerns were tabled on Monday as the stock market extended recent gains with oil prices topping $93 per barrel.
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