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SINGAPORE (Reuters) - The United States and China are debating the final wording on market-oriented currency exchange rates and combating trade protectionism that was included in a draft APEC leaders' statement, an APEC delegation official said on Sunday. Chinese President Hu Jintao has been under pressure to let the yuan currency appreciate, but in a speech at an APEC business summit on Friday he ignored the currency issue and focused on trade and investment protectionism.
From the middle of 2008 until February 2009, the dollar had been the safe haven vehicle. But in March, when risk appetite came back into the market, the safe haven trade began to slowly unwind. That means, since March, good news for the economy has meant bad news for the dollar.
You can see it in the chart below of the British pound vs. the U.S. dollar. The pound dropped sharply (U.S. dollar rose) on risk aversion as investors fled to the dollar. Now the pound is riding higher on a wave of surging risk appetite.
Within this risk environment, the relationship between financial markets and risk has been abundantly clear: When risk appetite is high … stocks, commodities, interest rates and all currencies (except for the U.S. dollar) rally. When fear creeps back in, the dollar benefits, the U.S. Treasury market benefits and almost everything else goes south.
So, when last week’s employment report showed a lower unemployment rate and fewer jobs lost, the dollar should have taken a hit. But it didn’t. Instead, it rallied!
Well, one day doesn’t make a trend.
And after the markets digested a cautiously positive statement by the Fed this week on the economy, the resulting activity in the currencies spoke clearly: For the moment, it’s still all about risk appetite.
I do, however, expect a shift in market focus to take place in the near term, to accommodate this growing sentiment of recovery. I think that global capital will begin shifting toward those economies that are relative outperformers. And for 2009 and 2010, consensus estimates have the U.S. outperforming other major developed market economies.
Last month, the IMF downgraded its forecast on the Eurozone, expecting the region’s economy to fall 4.8 percent in 2009. And for 2010, while all other economies are expected to grow, the Eurozone is expected to fall more.
Then Germany and France, the two largest economies in the Eurozone, shocked the market this week by posting actual growth for the second quarter!
On top of that, central banks are now upgrading economic forecasts for 2009, a year that was first thought to be a complete disaster. And the 2010 numbers are being boosted even more.
In fact, the European Central Bank has now revised its expectations for 2009 and 2010: Expecting just a slight contraction in 2009 and growth in 2010.
But in a period where less bad is the new good, and economies have stopped free-falling and are now showing signs of improvement, the recovery story is about sustainability, not just data points.
The last time Algeria's central bank revealed the size of its foreign exchange reserves was in December 2008, when it said they stood at $143.1 billion.
Algerian officials have repeatedly said the oil and gas producer is shielded from the turmoil on global financial markets because it has sharply reduced national debt and relies increasingly on its own revenues to fund development.
However, the fall in world energy prices has cut receipts from oil and gas sales, which account for 97 percent of Algeria's total exports.
The government last month banned domestic banks from issuing consumer loans in a drive to cut imports and boost the country's shrinking trade surplus.
Patterns in the forex markets seem to be changing: over a long period of time, whenever the crisis intensified, the dollar and the yen benefited. The more confident market participants became, the more the euro strengthened. Most other industrialised and emerging market currencies benefited from increasing risk appetite as well. As confidence grows that the economy could have bottomed out, markets are now focusing more on comparing developments in individual countries, particularly the pace of recovery in these regions, and when they could decide to end expansive monetary policies and quantitative easing measures.
After the release of the US labour market report last Friday, both the euro and the yen had suffered badly. USD-JPY rose by 2 ½ yen to 97.50, EUR-USD fell from 1.4350 to 1.4150. Then, however, in the run-up to the FOMC meeting, the US currency began to weaken again - presumably mainly because market participants were expecting the Fed to remain cautious and focus on a continuation of its present monetary policy. The Bank of England could have had an impact on market expectations too: the Inflation Report emphasized that the interest rate hikes markets had been expecting would lead to inflation undershooting the target.
The Fed, however, did not take such a decisive stand as the Bank of England. The Fed's assessment of the economic situation was slightly more positive than before: the phrase “the pace of contraction is slowing” was replaced by “economic activity is levelling out”. But the Fed still underlined the weak points, particularly private consumption and corporate investment. The announcement that the $300bn Treasury securities purchasing programme was expected to be completed according to plan by the end of October caused some confusion. Some people saw it - to some extent in contrast to the Bank of England - as the beginning of an exit from quantitative easing. The market's reaction was only short-lived, however. This decision was in fact in line with expectations.
In the second half of the week, the dollar came under fresh pressure after surprisingly good second quarter growth figures for the euro area on the one hand, and somewhat disappointing US retail sales figures on the other. According to preliminary estimates, the decline in real GDP in the eurozone slowed down from -2.5% to -0.1% quarter-on-quarter. Compared with the previous year, the decline slowed from -4.9% to -4.6%. The biggest economies in the euro area, Germany and France, have returned to positive growth rates (0.3% respectively, quarter-on-quarter). In both countries, private consumption, public spending and net exports had a positive impact, whereas corporate investment continued to fall.
Then, however, the US retail sales figures dampened the upbeat mood: instead of picking up as expected because of the US cash-for-clunkers scheme, they posted an 0.1% decline in July compared with the previous month. The 2.4% increase in car sales was not enough to push the total figure into positive territory. Sales fell in most product groups, suggesting that new cars are perhaps being purchased instead of other goods.
The sales figures from the US were not good, but not abysmal either. The market's sharp reaction could indicate that market participants are well aware of the risks to the upswing scenario - the labour market and private consumption: an upswing without private households is practically inconceivable in the US. Markets will have to keep a close eye on consumption data such as consumer confidence.
On the US side, we think it likely that the slightly favourable trend in the macroeconomic data could continue for the time being. Next week will see the release of the first August figures for the manufacturing sector, which is benefiting at present from inventory re-stocking and the car scrappage scheme. The housing market is also likely to continue to stabilise. From this point of view, EUR-USD, presently at just under 1.43, could lose some ground again. In the light of surprisingly strong GDP in Q2 and on the general assumption that the ECB is likely to be more hawkish than the Fed, the euro should remain quite well supported, however. It will presumably remain within the trading range for the time being.
| Currency | Bid | Offer | Time |
| EUR/USD | 1.41308 | 1.41326 | Mon Aug 10 19:13:04 2009 |
| USD/JPY | 96.936 | 96.953 | Mon Aug 10 19:14:58 2009 |
| GBP/USD | 1.64735 | 1.64780 | Mon Aug 10 19:12:26 2009 |
| USD/CAD | 1.08837 | 1.08897 | Mon Aug 10 19:14:37 2009 |
| USD/CHF | 1.08574 | 1.08614 | Mon Aug 10 19:14:32 2009 |
| EUR/JPY | 136.987 | 137.027 | Mon Aug 10 19:14:58 2009 |
| EUR/GBP | 0.85761 | 0.85791 | Mon Aug 10 19:13:05 2009 |
| EUR/CHF | 1.53433 | 1.53468 | Mon Aug 10 19:14:32 2009 |
| GBP/CHF | 1.78900 | 1.78980 | Mon Aug 10 19:14:32 2009 |
| GBP/JPY | 159.684 | 159.754 | Mon Aug 10 19:14:58 2009 |
NEW YORK (Dow Jones)--Crude futures ended lower Monday as the dollar rose against the euro and equities fell.
Light, sweet crude for September delivery settled down 33 cents, or 0.5%, at $70.60 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled nine cents, or 0.1% lower, at $73.50 a barrel.
The dollar advanced Monday to a one-week high against the euro. A stronger dollar makes crude more expensive for holders of other currencies. The euro was recently at $1.4116, down from $1.4219.
Crude futures have risen almost 20% since July 13 on expectations an economic recovery will galvanize oil demand. Upbeat data showing U.S. unemployment fell to a surprising 9.4% in July sent prices rising close to $73 a barrel Friday, but a rebounding dollar capped gains.
"The ongoing strength in the dollar quelled the upward momentum in the oil market," said Stephen Schork, editor of the energy newsletter The Schork Report.
Crude has been caught in a tug-of-war between bulging oil inventories and hopes of an economic rebound. Sliding equities, a barometer for the health of the economy, exerted further pressure on crude prices. The Dow Jones Industrial Average was recently down 46.53 at 9323.44.
"We'll stay in this range until will get a weather event or we get a change in supply from OPEC," said Morgan Downey, a commodities trader with Standard Chartered PLC in New York.
The National Hurricane Center is tracking a pair of storm systems, including one southwest of the southern Cape Verde Islands that could become a tropical depression in the next day or two. Another storm, with a low potential for tropical cyclone formation, was near the Windward Islands. Neither is considered to pose a serious threat to energy infrastructure, but serve as a reminder that the normal peak of hurricane season has arrived.
Meanwhile, quota compliance by Organization of Petroleum Exporting Countries is deteriorating, according to the latest Dow Jones OPEC-11 survey, falling to 73% compared with the 76% achieved in June, as producers seek to take advantage of higher oil prices.
Front-month September reformulated gasoline blendstock, or RBOB, settled up 1.93 cents, or 1%, at $2.0274 a gallon. September heating oil settled up 1.54 cents, or 0.8%, at $1.9276 a gallon.
More information on settlements and highs and lows for futures on Nymex and ICE platforms can be found by searching for the following headlines:
Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
