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.
Wednesday, February 27, 2008
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.
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