The U.S. Dollar: Still Going Down

The dollar's weakness does a lot more than alter your vacation plans—and there's good news and bad news in the currency's decline

You aren't planning a flight to Düsseldorf anytime soon. Yokohama isn't on your calendar, either. So should you care that the dollar has plunged in value against the euro, the yen, and other currencies? For sure. Because even a nation as big and relatively insulated as the U.S. is profoundly affected by changes in the value of its currency, in ways both good and bad.

The dollar's slide continued on Feb. 28, when it hit nearly $1.52 per euro, the most money it has taken to buy a euro since the common currency was launched a decade ago. The U.S. Dollar Index, which tracks the dollar vs. a market basket of six major currencies, fell to 73.7, which is a decline of about 4% so far this year and 39% since early 2002. Currency traders were unimpressed by the support for the dollar voiced Feb. 28 by President George W. Bush, who said: "We believe in a strong dollar policy, and we believe, I believe, our economy's got the fundamentals in place to grow and continue growing."

Here are six winners and losers from the dollar's swan dive:

Blue Collars Win: Factory workers have been among the biggest economic losers over the past two decades. Even over the past year, as the dollar fell, manufacturing lost another 269,000 jobs. But the cheap dollar should begin to turn that situation around. It makes it easier for American exporters like Boeing and Caterpillar to gain market share abroad, and helps U.S. companies fight off competition from imports. "The primary beneficiary of the cheaper dollar will be blue-collar labor." says James Paulsen, chief investment officer of Wells Capital Management in Minneapolis.

Consumers Lose: You'll pay more for French wine, Korean electronics, and products made from Chilean copper. Domestic producers may take advantage of the situation to sneak through some of their own price increases. That will help push up the overall inflation rate. Producer prices increased 7.4% in the year through January. Jeoff Hall, chief U.S. economist at Thomson Financial , argues that the Fed is making a big mistake by giving secondary consideration to the inflation threat as it fights the economic slowdown and credit crunch. Says Hall: "I don't think they're doing the consumer any favors by cutting rates."

Disney World Wins: American tourist destinations, from Disney World to New York City's Times Square to Chicago's Navy Pier, win two ways from the cheap dollar. First, "It's getting pretty darn cheap to visit if you're a Canadian or a European," so foreign tourism is increasing, says David Wyss, chief economist at Standard & Poor's. In Manhattan, Europeans and Asians are arriving in such throngs that some merchants have started accepting euros in payment. Meanwhile, upper-middle-class Americans who might have jetted off to Rome are spending their diminished dollars at home.

Banks Lose: Foreign investors, including the super-rich sovereign wealth funds of oil-exporting and Asian nations, are losing faith in the dollar as a storehouse of value. So they're beginning to shift their money out of the U.S. financial system to Europe and elsewhere. Plus, rising interest rates hurt bank profits by eroding the value of their holdings such as bonds and fixed-rate mortgages, notes Wyss.

Farmers and Miners Win: Prices of raw commodities such as wheat, soybeans, copper, and platinum are going through the roof. That's not just because of increased global demand—in fact, foreign growth is showing signs of slowing. It's a speculative bet on higher inflation that just so happens to benefit American commodity producers. "As the Fed deals with one bubble in housing it creates another in commodities," says Thomson's Hall.

Retailers Lose: These days, a huge percentage of the things you buy at retail—including clothing, toys, and electronics—is imported. Retailers are paying more for goods but having a hard time pushing through price increases to consumers, so their profit margins are narrowing. It's not a good time to be Wal-Mart .

Overall: Win or Lose?

While economists broadly agree on who the winners and losers are, they disagree on whether the bottom line of a cheaper dollar, netting everything out, is positive or negative. Thomson's Hall votes for negative. He says the Fed should stop cutting interest rates, or even raise them, to prop up the dollar's value in the currency market. "The Fed needs to back off from its accommodative stance," says Hall. "I think it's backfiring disastrously."

But Wells' Paulsen takes the opposite viewpoint. He notes that the cheaper dollar's effect in shrinking the trade deficit has contributed about one percentage point to economic growth over the past year, which has just about offset the big drag on the economy from the falloff in homebuilding. If the dollar hadn't fallen, says Paulsen, the economy would be in much weaker condition. "Right now," he says, "I'd argue that the good outweighs the bad."

Commodity Prices Surge, As Investors Seek a Haven

The powerful rally in commodity markets is defying a global economic slowdown because investors are fleeing battered stock and bond markets, and the impact of their cash is being amplified by new, easier ways to buy and sell raw materials.

Demand remains strong and supply tight for many commodities, helping drive prices to record heights. But, in recent weeks, institutions, hedge funds and individuals have fueled much of the surge in everything from oil to wheat to platinum by pouring money into new investment vehicles that let them quickly and easily make big bets in relatively small markets.

Forex - Dollar steady ahead of Q4 GDP figures

February 28, 2008: 08:11 AM EST

The dollar remained close to its all-time low against the euro but was trading in a narrow range ahead of US fourth quarter GDP figures.

The dollar has been in the doldrums this week following a series of weak US data and a downbeat assessment of the economy's prospects from Federal Reserve chairman Ben Bernanke yesterday. This all combined to reinforce expectations that US interest rates will be cut by 50 basis points at the Fed's next monetary policy meeting in March, sending the euro to an all-time high yesterday afternoon of 1.5143 usd.

The US economic outlook has been bleak for some time, but a reasonable week for equity markets coupled with firmer-than-expected euro zone data meant the greenback hasn't benefited from the safe-haven flows seen in recent weeks when equity market turmoil and fears of a global economic slowdown prompted investors to switch out of risky assets and into dollars.

'Although the growth outlook remains challenging globally and equity markets are well off their highs from the third quarter of last year, a substantial easing in market tension and more orderly corrections is contributing to better growth sentiment,' said Geoffrey Yu, currency strategist at UBS. (NYSE:UBS)

This afternoon sees the release of fourth quarter US GDP figures which analysts expected to show a 0.7 pct quarter-on-quarter rise. Ahead of this comes the weekly jobless claims numbers, with the number of people filing for unemployment insurance for the first time expected last week to edge up to 350,000 from 349,000 a week earlier.

'With sentiment becoming increasingly pessimistic as to the outlook for the US economy, it seems as if it will take a notable shift in sentiment if we're to see any real recovery for the USD so expect today's GDP and claims readings to be under some scrutiny,' said Gary Thomson, head of sales trading at CMC Markets.

Gold futures continue to surge, up more than 1%

Metal earlier touches new record high of $967.70 an ounce
4:24 p.m. EST Feb. 27, 2008

Gold for April delivery rose $12.10, or 1.3%, to end at $961.0 an ounce on the New York Mercantile Exchange. Earlier, the contract hit a record $967.70 an ounce.

"We're definitely seeing the rally spurred by dollar weakness and a continued strong bid into all things commodity," said Zachary Oxman, senior trader at Wisdom Financial.

"Funds and speculators alike seem to be scrambling to get long commodities, gold especially," Oxman said.

Weakness in the U.S. dollar boosted gold's investment appeal. Gold, like many commodities, is denominated in dollars, and a lower U.S. currency makes it more affordable in other currencies.

The dollar was battered across the board, falling to a new record low of $1.5133 against the euro after downbeat durable-goods data and hints from U.S. Federal Reserve Chairman Ben Bernanke that more interest rate cuts are on the way. See Currencies.

The Commerce Department said new orders for durable goods fell 5.3% in January after a burst of orders in December, another sign that the economy is slowing. Economists surveyed by MarketWatch had anticipated a 5.1% drop. See Economic. Report.

After the data, Bernanke told Congress Wednesday that the central bank will remain on the course for additional rate cuts at least in the near term, and that downside risks to growth remain the key focus of monetary policy. See The Fed.

"Today's record lows in the U.S. dollar, record highs in gold and record highs on oil mark a key tipping point in currency markets, as traders further downgrade the U.S. currency to a low-yielding asset," said Ashraf Laidi, chief foreign-exchange strategist at CMC Markets US, in a note.

"The greenback is being damaged across the board on the notion that the ultra-low interest rates at the expense of escalating inflation is the only way forward to prevent further spreading of the U.S. recession," Laidi said.

On Tuesday, gold futures gained $8.40. Gold futures fell Monday after a senior Treasury official said the U.S. supports the proposed sale of part of the gold reserves held by the IMF.

Forex - Dollar steadies after sharp overnight falls ahead of Bernanke testimony

February 27, 2008: 08:34 AM EST

LONDON, Feb. 27, 2008 (Thomson Financial delivered by Newstex) -- The dollar steadied against major currencies after sharp falls overnight as market players awaited today's testimony by Federal Reserve Chairman Ben Bernanke, as well as US durable goods data.

The dollar plummeted against a range of currencies in Asian trade, with the euro surging through the all-important 1.50 usd level. The move came as yesterday's very weak consumer confidence and housing market data emphasised the dangers of a recession in the US, while very strong PPI inflation data added stagflation fears into the mix.

'In the currency markets, nagging doubts over price stability have seen investors resume their focus upon currencies whose central banks are firmly in inflation-fighting mode,' said Neil Mellor at the Bank of New York Mellon. (NYSE:BK)

'Accordingly, despite a continued back-up in longer-term Treasury yields, the US dollar has come under renewed selling pressure with euro/dollar in particular capturing the headlines with a sharp ascent above the psychologically key 1.50 usd level,' he said.

Markets had also jumped on comments yesterday by Federal Reserve vice-chairman Donald Kohn that even aggressive interest rate cuts in the US 'will not forestall a period of economic weakness in the near term'.

For now, however, the market has calmed ahead of Bernanke's testimony, where investors will be looking to see whether he echoes the concerns expressed by Kohn.

Also in focus will be the release of US durable goods data this afternoon.

Given the European Central Bank's resolutely hawkish stance and its emphasis on the need to tackle inflation, the euro was one of the major gainers against the dollar, hitting a new all-time high of 1.5087 usd, helped by solid euro zone M3 and German consumer confidence data this morning.

The other winners have been the Australian and New Zealand dollars, where interest rates are among the highest in the developed world and in Australia are expected to rise further still.

These currencies, along with the Canadian dollar, have also benefited from a massive rise in commodity prices overnight in the wake of falls in the US dollar.

The Australian dollar was hovering just below the important 0.94 usd level which would take it to a 23-year high, the New Zealand dollar hit a 24-year high of 0.8213 usd, while the Canadian dollar hit a 14-week high of 0.9756 per US dollar.

Elsewhere, the pound remained under pressure. The UK currency had come close to the 2 dollar mark again overnight but fell back on rumours of trouble at a UK bank.

The first estimate to UK fourth quarter GDP were released today and as expected left growth unrevised at a quarterly 0.6 pct. The details of the release were disappointing, however, with UK household spending coming in below forecasts while government spending was above forecasts.

Forex - Pound falls in jittery market on rumours of trouble at a UK bank

02.27.08, 5:34 AM ET

LONDON (Thomson Financial) - The pound fell against the euro and the pound as rumours circulated about possible trouble at a UK bank in an already very jittery market.

'Euro/sterling has ascended ... amid talk that a UK clearer might be having trouble raising funds -- and that this could even spur an emergency BoE base rate cut,' said Robert Howard at Thomson IFR Markets.

Many are sceptical, however, about how much truth there is in the rumour, especially given that a very jittery market is awash with rumours on a day when the euro has surged through the psychologically important 1.50 usd mark.

'There have been a bundle of rumours today and the market is just so reactive to everything at the moment,' said Mic Mills, a trader at TradIndex.com.

He added that there is also market talk of a possible liquidity injection by the Bank of England. The Bank of England was not immediately available for comment, however.

So far, BoE data shows that there was no demand for the central bank's standing facility, which attracts a punitive rate of interest, at 6.25 pct which is 100 basis points above the base rate of 5.25 pct.

'Given the highly nervous state of the markets this is however unlikely to be the end of the speculation where participants remain very much on the look out for any signs that a Northern Rock mark II is in the offing,' said David Corbell at Thomson IFR Markets.

The memory of the Northern Rock debacle last summer is still fresh in most minds. The bank had to go to the BoE for funding and a run on its deposits ensued. Northern Rock has since been nationalised.

At 10.09 am, the pound was trading at 1.9902 usd well below its earlier high of 1.9971 usd, while the euro was trading at 0.7570 stg, up from around 0.7540 at 8.30 am.

Rumours have also circulated, meanwhile, that the European Central Bank may be looking at intervening to curtail the euro's rise, though, again, this is seen as unlikely.

Oil Rises Above $102 as Weak Dollar Boosts Commodities Prices

Feb. 27 -- Crude oil rose to a record above $102 a barrel as a weakening dollar spurred investors to buy commodities priced in the U.S. currency.

Futures jumped in New York and London as the dollar fell to an all-time low against the euro. The UBS Bloomberg Constant Maturity Commodity Index rose to the highest ever, on gains for gold, silver, sugar, copper and coffee. A government report later today is expected to show U.S. crude inventories rose last week.

``This record is purely a play on the weakness of the dollar, as investors use both crude and gold as a hedge against inflation,'' said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. ``If the dollar keeps getting weaker, and we don't have inventory builds today, it could drive prices towards $105.''

Crude oil for April delivery rose as much as $1.20, or 1.2 percent, to $102.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $101.35 at 10:52 a.m. London time.

Prices pared gains after a Persian Gulf official familiar with Saudi Arabian oil policy said prices are higher than they should be and inventory gains are likely to continue through to the second quarter.

The dollar weakened to $1.5088 a euro, the lowest since the European single currency was introduced in 1999. The dollar has declined against all of the world's 16 biggest currencies in the past 12 months apart from the Korean won and South African rand.

`Intrinsic Value'

``Because oil has an intrinsic value, it's not exactly sensible that it becomes cheaper in other currencies so you get an adjustment upward in the U.S. dollar value of oil,'' said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``The general strength of commodity prices would instantly improve sentiment toward the oil price.''

Gold, up 15 percent this year, rose to a record $963.09 an ounce today in London, while silver advanced to a 27-year high. Among agricultural commodities, Robusta coffee climbed 2.1 percent on the Liffe exchange.

Brent crude for April settlement climbed as much as $1.06 to $100.53 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It traded at $99.90 at 10:52 a.m. local time.

Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended Feb. 19, according to a Commodity Futures Trading Commission report issued at the end of last week.

Inflation worries creep in

2/26/2008 11:05 AM ET

Producer prices rise in January. Home Depot reports a drop in profit and misses Wall Street's estimate. Mortgage foreclosures soar. MBIA lowers its dividend.

Higher energy and food prices sent producer prices surging in January.

The Producer Price Index jumped 1% in January, the Labor Department reported this morning, much higher than the 0.4% increase economists had expected. The PPI had fallen 0.3% in December.

Core PPI, which excludes volatile food and energy prices, rose 0.4% last month, 0.1% higher than the consensus estimate.

Year-over-year, the PPI is up 7.4%.

Stocks turned around by midmorning, adding to Monday's strong rally. At 11:05 a.m. ET, the Dow Jones Industrial Average was up 45 points to 12,614 after soaring 189 points Monday. This morning, the Nasdaq Composite Index had added 4 points to 2,360, and the Standard & Poor's 500 Index was up 1 point to 1,373.

Light, sweet crude oil was down 33 cents to $98.90 a barrel this morning.

Companies from Kellogg to Hershey have been forced to raise prices on their products because of surging costs for commodities like wheat and cocoa.

The Federal Reserve has been struggling to monitor inflation growth while keeping the economy on track, but some critics worry that the Fed has cut rates too much and too quickly, and "stagflation" has returned to the economic vocabulary.

Still, former Treasury Secretary Larry Summers said worries about stagflation, when inflation rises and economic growth slows, are not a huge concern.

"I just don't see (stagflation) as anywhere near around the corner right now in the U.S. I think you have inflation expectations pretty securely anchored in the 2-plus-percent range. If you think back to the 1970s, where people were thinking they were going to lose half the value of their money in a year, I don't think we're anywhere near that kind of thing," Summers, now managing director of D.E. Shaw Group, said on CNBC this morning.

Ahead of the Bell: Home Price Index

The Associated Press February 26, 2008, 6:23AM ET

Two readings of U.S. home prices to be released Tuesday will give investors and homeowners a sense of how far the housing market slipped at the end of 2007.

The Standard & Poor's/Case-Shiller monthly report on home prices for December is due at 9 a.m. EST. The Office of Federal Housing Enterprise Oversight releases its fourth-quarter 2007 report at 10 a.m. EST.

The indexes offer different pictures of the housing market. The Case-Shiller index, which focuses on major U.S. cities, has shown falling prices for months, while the government's year-over-year index has yet to slip into negative territory.

The government's index is calculated using loans of $417,000 or less that are bought or backed by government-sponsored Fannie Mae and Freddie Mac. It does not include properties bought with some of the riskier varieties of home loans that have gone sour over the past year.

Since peaking in mid-2005, the rate of home price appreciation in the government index has dropped off sharply to an increase of 1.8 percent in the third quarter of 2007, the smallest increase since 1995. It close to flat in parts of 1990 and 1991, but index has never dropped compared with a year earlier.

Both indexes examines price changes for the same properties over time instead of calculating a median price for houses sold during a particular month or quarter. Doing so prevents the data from being skewed by changes in the mix of houses sold. For example, sales of more expensive homes in any particular month or quarter would push median prices upward.

Home prices as measured by the 10-city Case-Shiller index fell in November for the 11th-straight month, dropping a record 8.4 percent. A broader reading measuring 20 metropolitan areas fell 7.7 percent in November.

Monday brought more bad housing market news, as the National Association of Realtors reported that sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month. The median price of a U.S. home sold in January slid to $201,100, a drop of 4.6 percent from a year ago, according to the Realtors group.

Forex - Euro surges after forecast-busting Ifo

02.26.08, 4:30 AM ET

LONDON (Thomson Financial) - The euro surged higher after a closely-watched survey into German business sentiment came in above market expectations, further reinforcing expectations that the European Central Bank will not be cutting rates any time soon.

Earlier in the session, the euro had come under pressure on talk the Ifo would disappoint to the downside.

In the event, the research institute revealed that its headline business climate index rose to 104.1 in February from 103.4 the previous month. Analysts polled by Thomson Financial News were expected the index to drop to 102.7.

The talk in the market before the release was that it would fall to 101.0 and that pushed the euro down to 1.4777 usd from 1.4839 usd.

'Offers into the 1.4830/40 usd area will now come into view as the pair looks to regain the losses out through amid the early weak headline speculation,' said Thomson IFR Markets analyst Matthew Foster Smith.

The IFO is likely to stoke talk that the European Central Bank's next forecasts in early March will be relatively buoyant, thereby fuelling talk that the central bank will keep borrowing costs on hold for a while longer.

The ECB has kept its key refi rate unchanged at 4.00 pct for eight months, unlike the US Federal Reserve and the Bank of England, both of whom are cutting rates, though at far different tempos. This has helped underpin the euro.

'The Fed's contrasting tone with that of the ECB and investors' search for higher returns should keep the euro supported for now even though we retain our medium to long term bearish view on the currency,' said Ian Stannard, currency strategist at BNP Paribas .

With most ECB watchers expecting the central bank to stay pat until June, the rhetoric of policy-makers will be closely monitored. A speech today from Axel Weber, the president of the Bundesbank, could well be important in this regard.

'Any sense that this typically hawkish policymaker is more nervous about growth could provide the excuse for the euro to push lower once again, and we continue to target 1.4450 usd,' said Daragh Maher, senior FX strategist at Calyon.

Citi's Hits: 15 Times $100 Million

Citigroup Inc. disclosed that traders in its investment bank piled up daily losses of more than $100 million on 15 separate occasions last year.

Those 15 financially disastrous days, which Citigroup disclosed in its annual report filed late Friday but declined yesterday to describe in detail, added to worries the New York bank's problems are deeper than those that led to about $20 billion in mortgage-related write-downs last year, the ouster of its chief executive and a sinking stock price.

Forex - Dollar steady vs yen, euro in afternoon trade in Asia ahead of US data

HONG KONG (Thomson Financial) - The US dollar hardly moved against the euro and the yen in afternoon Asian trade on Tuesday as investors opted to move to the sidelines ahead of key economic data due for release later this week.

On Friday the US Commerce Department will announce last month's consumer spending, which accounts for more than two-thirds of gross domestic product. Before that, new homes sales for January will be out on Wednesday.

'The currencies are stuck in a pretty narrow range. The currency market is focused on the US economic data,' said David Mann, currency strategist at Standard Chartered Bank. 'We should see some further increase in dollar selling' should the data confirm market fears that the world's largest economy is on the brink of a recession.

At 1.00 pm (0500 GMT), the euro was quoted at 1.4829 dollars from 1.4832 in Tokyo this morning. The dollar was at 107.92 yen from 108.04.

The dollar, though, may strengthen gradually against major currencies in coming weeks because 'we are nearing the end of the dollar weakness,' said Mann.

Existing home sales stronger than expected; Lowe's reports 33% profit drop

Last update: 2:51 p.m. EST Feb. 25, 2008

NEW YORK (MarketWatch) -- U.S. stocks rallied Monday afternoon as investors found relief after Standard & Poor's affirmed its triple-A ratings for bond insurers MBIA and Ambac Financial.

"It was taking MBIA and Ambac off credit watch by S&P, both names rallied and are taking the whole market with them," said Art Hogan, chief market strategist at Jefferies & Co.

"The headlines appear to be more bullish than the negative underlying message," said analysts at Action Economics.

After rising more than 100 points earlier on, and detouring into negative territory, the Dow Jones Industrial Average was up 135.79 points to 12,516, with 24 of its 30 components posting gains.

The recent volatility in the stock market is likely to continue, with 150-point swings in the Dow likely, said Paul Nolte, director of investments at Hindsdale Associates.

"We've seen credit spreads widen out in the last few weeks; as long as they continue to widen, markets are still at risk because it indicates people are not interested in taking risk," said Nolte.

Energy, financials lead benchmark to higher close

The benchmark S&P/TSX Composite Index rose 76.38 points, or 0.6%, to 13,585.93.

On the Toronto Stock Exchange, advancers led decliners 819 to 754.

Seven of the TSX's 10 component sector gauges finished in positive territory, with the financial sector and the energy gauge both adding about 1%.

Royal Bank of Canada ended 0.2% higher, reversing earlier sharp losses. The country's largest bank announced an all-stock takeover offer for independent fund manager Phillips, Hager & North Investment Management Ltd.

Bank of Montreal (CA:BMO: news, chart, profile) rose 1.2% and Canadian Imperial Bank of Commerce (CA:CM: news, chart, profile) rose 2.8%.

The late recovery in financial issues came after CNBC reported that a plan by several big banks to bail out struggling U.S. bond insurer Ambac Financial could be unveiled on Monday or Tuesday.

Crude-oil futures ended Friday's volatile session modestly higher, with the front-month benchmark contract ending near $99 a barrel. See Futures Movers.

EnCana Corp. (CA:ECA: news, chart, profile) , the nation's second-largest energy producer by revenue, rose 1.1%.

Oil and gas industry helicopter operator CHC Helicopter Corp. (CA:FLY.A: news, chart, profile) surged 38.3% on news that it will be acquired by U.S. private-equity firm First Reserve Corp. in a deal reportedly valued at C$1.5 billion ($1.48 billion).

Uranium One Inc. (CA:UUU: news, chart, profile) was the most actively traded issue by volume for a second straight day, shedding 13.1% after a 17.4% drop Thursday, when it cut its 2008 production forecast.

FOREX-Strong services PMI sends euro to 2-week high vs dlr

LONDON, Feb 22 (Reuters) - The euro hit a two-week high versus the dollar on Friday as stronger than expected euro zone service sector data contrasted with regional U.S. factory activity putting on its weakest show since the last recession.

The euro zone services PMI rose to 52.3 in February from 50.6 the previous month, moving away from the 50 watermark between contraction and growth and further dampening expectations of near-term interest rate cuts.

That was in stark contrast to Thursday's Philadelphia Fed's business index which fell to minus 24 in February, showing the deepest contraction in activity since 2001 and much worse than forecasts for minus 11. [ID:nN21572086]

U.S. markets are now fully pricing in a 50 basis point cut at the Federal Reserve's next meeting in March to 2.50 percent and factor in a small chance of an even bigger 75 basis points.

That would add to an unusually aggressive 125 basis points of cuts in January as the Fed tries to fend off a recession in the world's biggest economy. FEDWATCH

"It is a weak dollar story more than anything else. As you saw yesterday the Philly Fed was really what hurt the dollar," said Niels Christensen, FX strategist at Nordea in Copenhagen.

The euro rose to a two-week high of $1.4850 , from around $1.4815 before the PMI data.

Asian stocks gain with Wall Street on hopes for Ambac bailout

25 February 2008

Asian stocks end mostly higher Monday, tracking late-day gains on Wall Street Friday on a report that a rescue package for struggling bond insurer Ambac Financial could be announced this week.

The Dow Jones Industrial Average reversed early losses to close up about 97 points after cable news channel CNBC reported that a bailout for Ambac could come Monday or Tuesday.

'It always helps to see the US market go up,' said Andrew Sekely, head of Australian equities at Intersuisse.

Financial stocks rose across the region and pulled benchmarks higher. The Nikkei led the advance, closing up 3.1 percent at 13,914.57. The Topix rose 2.6 percent to 1,355.54.

'Although [the Ambac bailout] will not resolve the whole problem of monoline bond insurers, it will at least ease some concerns, as one negative factor may disappear,' said Soichiro Monji, chief strategist at Daiwa SB Investments.

Forex - Dollar up on talk of Ambac rescue; Australian dollar enjoys solid gains

CNNMoney.com (February 25, 2008: 04:39 AM EST)

LONDON, Feb. 25, 2008 (Thomson Financial delivered by Newstex) -- The dollar remained well-supported against major currencies, boosted by reports of a rescue plan for troubled bond insurer Ambac Financial Group (NYSE:AKT) (NYSE:AKF) (NYSE:AFK) (NYSE:ABK) , while a pick-up in risk appetite gave a significant boost to the high-yielding Australian dollar.

Market sentiment has been bolstered by a report late Friday of the rescue for Ambac, which had risked losing its AAA credit rating due to losses on securities linked to unpaid housing mortgages.

'News that Ambac looks likely to receive a bail-out has done something to build confidence and the greenback has posted some gains as a result,' said Gary Thomson, head of sales trading at CMC Markets.

Meanwhile, Asian equities were boosted overnight by a newspaper report suggesting that China's new sovereign wealth fund plans to buy up Japanese stocks.

The pick-up in risk appetite meanwhile has given a further boost to the high-yielding Australian dollar, which hit a fresh three and a half month high against its US counterpart of 0.9264 usd.

The Australian currency has benefited from sharp rises in the gold price, a buoyant economy and the Reserve Bank of Australia's recent interest rate hike.

'With gains of 2 pct so far this month taking it to year-to-date highs, the Aussie looks well-positioned to challenge last October's 24-year high against the US dollar and some positive Australian lead economic indicators on Wednesday would certainly help in that respect,' said Neil Mellor at the Bank of New York Mellon. (NYSE:BK)

Elsewhere, the pound was on the weak side after the latest Hometrack survey showed UK house prices fell for the fifth consecutive month and as investors awaited mortgage lending data from the British Bankers' Association this morning.

Later today, attention will turn to the release of US existing home sales data this afternoon and a speech tonight by European Central Bank president Jean-Claude Trichet.

Forex - US dollar rebounds vs euro, yen on hopes for Ambac bailout

Forbes Magazine (25 February 2008)

HONG KONG (Thomson Financial) - The US dollar rebounded against the euro and yen in afternoon trading in Asia on Monday, buoyed

by speculation of a rescue plan for troubled bond insurer Ambac Financial Group

Ambac risked losing its AAA credit rating due to losses on securities linked to unpaid housing mortgages. The insurer may announce this week a rescue package that includes a fresh capital infusion arranged by a group of lenders.

'The dollar got some boost from the report late Friday about the rescue package for Ambac. It's one less thing to be nervous about and provides a relief for the troubled credit market,' said David Cohen, director of Asian economic forecasting at Action Economics.

At 1.00 pm (0500 GMT), the euro was down at 1.4812 dollars from 1.4834 dollars in Sydney this morning. One dollar was buying 107.38 yen, up from 107.20 yen.

'The dollar's strength is a late reaction on Ambac,' said Tim Condon, research head at ING Financial Markets. 'It's also a reflection of the growing risk appetite of investors.'

Investors were encouraged to borrow from Japan, where the 0.5 percent benchmark rate is the lowest among developed countries, and invest the proceeds in higher-yielding securities including stocks elsewhere, weakening the yen.

Asian stock markets including Japan, Hong Kong and South Korea were mostly higher this

morning, tracking gains on Wall Street Friday.

Over the next few weeks, the dollar will continue to remain under pressure on speculation that

the Federal Reserve will further trim its key interest rates while the European Central Bank is likely to keep rates unchanged in the first half of 2008.

'The pressure on the dollar will not go away. There are views that the US is on the brink of a recession. But we have yet to get a confirmation on that,' said Action Economics' Cohen.

The Fed may cut rates by 50 basis points when policy makers meet on March 18, Cohen said. The Fed has slashed rates by a cumulative 225 basis points since September.

In the meantime, the market will be keeping an eye on US economic data releases that this week include last month's consumer spending and home sales, both new and existing.

The Fed last week cut its 2008 growth forecast for the US economy to 1.3-2.0 percent from as much as 2.5 percent, while raising its inflation estimates.

The ECB followed the Fed in reducing its growth estimate and raising its inflation expectations.

Inflation in the 15-member euro zone area may rise to an average of 2.6 percent this year from a previous estimate of 2.1 percent, raising speculation that the ECB won't cut rates soon to boost the region's economy.

News- Hedge Funds

Hedge Funds Feel New Heat

The Wall Street Journal (23-02-2008)

The past decade has been the era of the hedge fund, as investors snapped them up for their track record of beating the market with often highly complex trades.

But now, as the credit crunch upends financial markets, that very complexity is coming back to bite some of them.

In the past year, shares of Fortress Investment Group LLC -- which became the symbol of hedge-fund success when it went public last February -- are down 50% as investors wring their hands about the value of its real-estate, debt and other holdings. A Fortress official declined to comment.

A pair of $2 billion funds run by AQR Capital Management Inc. are down about 15% this year. And yesterday Citigroup announced a bailout of an in-house hedge-fund group clobbered in part by bad bets on highly complex mortgage-related securities. (See related article.)

Last month alone, so-called "quantitative" hedge funds (which make investments based on sophisticated mathematical formulas) fell 6% as a group, according to data-tracker Hedge Fund Research Inc.

Financial instruments in Forex trading

Spot

A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.

Forward

One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.

Future

Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Swap

The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

Option

A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

Exchange Traded Fund

Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakness versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.

Foreign exchange market

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. This is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.
The average daily trade in the global forex and related markets currently is over 3 trillion US$.
Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams.the chart you can see the evolution of forex trade since 1989 to date. The small volume from 2001 is mainly because the US economy going down and the 9/11 attacks.
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001.

The forex history

The Forex Trading is being called "today's exciting new investment opportunity for the savvy investor".
Maybe you ask why?
The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was availabl only to banks and large multinational corporations. Since then, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.