August 2008 - Daily Pfennig

A free, quick-reading daily e-letter on world currencies, economic trends, and the occasional baseball score.

Daily Pfennig

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  • Nowhere to hide...

    * Nowhere to hide... * Trichet sounds dovish... * US fundamentals haven't changed... * Olympics open up in China.. ** Nowhere to hide... Good day...The dollar continued to take no prisoners in its move higher. The newly strong greenback was up vs. every currency we track yesterday, and has rallied over 3% vs. the major currencies over the past week. It has been a pretty tough week for yours truly, as I have tried to make sense of this dollar rebound. Chuck can't get back to St. Louis quick enough! The dollar started its big move just after the Trichet gave his statement on his views of the European economy. The ECB left rates unchanged, but Trichet said economic growth will be 'particularly weak' through the third quarter, suggesting policy makers will be wary of raising interest rates again to curb inflation. While the ECB's decision to raise borrowing costs last month was justified by the inflation threat, risks to growth 'are materializing,' Trichet told reporters. 'Overall, downside risks prevail.'...
  • ECB to change dollar's direction?...

    * ECB to change dollar's direction?... * BOE leaves rates unchanged... * The worst is not over in US housing... * Japan's government signals expansion is over.. ** ECB to change dollar's direction?... Good day...The dollar continued its assault on the world's currencies yesterday as the dollar index moved above the 74 handle. I pulled a chart off the Bloomberg on my way out the door last night, and it showed the only major currency which was up vs. the US$ yesterday was the Swedish krona, which managed a .07% increase. This dollar rally has legs, but I still question the fundamentals behind the dollars surge. Today may be the day we see the dollar finally make a turn, as the ECB will be announcing their rate decision. It is not that I expect Trichet to raise rates, but I do expect him to sound hawkish and refocus the markets attention on Eurozone inflation and away from worries about growth. Two reports out of Germany this morning will bolster Trichet's hawkish stance. German exports rose more than economists expected in June, defying a stronger euro and pushing the trade surplus to a record. Exports increased 4.2% from may, the most since September 2006. German industrial production also increased for the first time in four months with output rising 1.7% from a year earlier. The IMF last month rose its forecast for German economic growth this year and said the global slowdown linked to the US financial crisis was less severe than it expected....
  • Fed not as hawkish as expected...

    * Fed not as hawkish as expected... * Markets now turn to ECB and BOE... * Canadian dollar slides... * Aussie hit by 1-2 punch.. ** Fed not as hawkish as expected... Good day...I want to start off today's Pfennig by apologizing for those of you who were waiting to receive their Pfennig yesterday. I sent it off at the normal time, but we had some problems with the program which sends it out, so it was delayed in getting delivered. You can always view the current Pfennig at www.dailypfennig.com where we post it first thing in the morning. That website also has archived versions of past pfennigs for your reading pleasure! They tell me the problem has been fixed, so you should get this pfennig right on time. The dollar drifted higher throughout most of the day yesterday as the markets prepared for the FOMC rate announcement. The sentiment driving the dollar higher was that the Fed would sound much more hawkish in order to keep an overall consensus among the FOMC members. Dollar bulls were expecting a signal from Bernanke that an increase in interest rates would be just around the corner. These higher interest rate expectations encouraged traders to take the dollar index back up to just under 74, a level we haven't seen in almost two months....
  • Dollar swings a mighty hammer...

    * Dollar swings a mighty hammer... * FOMC expected to sound more hawkish... * Euro Opportunity currencies rally... * RAB leaves rates unchanged, but AUD$ falls... ** Dollar swings a mighty hammer... Good day...The dollar rallied again yesterday, and shot up even more overnight as the markets prepare for the rate announcement from the Fed. Falling oil prices helped propel the greenback higher, as oil fell below $120 a barrel for the first time since May. This latest move puts the dollar index close to 74, the point at which the last dollar correction ended back in mid June. The technical guys are all waiting to see if the index can break through 74.31, a sign that further strength is possible. But I don't pretend to be a technical analyst and would much rather look at the economic fundamentals to figure the direction of the dollar....
  • A week of interest rate decisions...

    * A week of interest rate decisions... * Pound Sterling drops again... * Brazil and Mexico continue to dominate... * Gold and Silver fall... ** A week of interest rate decisions... Good day...The dollar stayed in the pretty tight range it has established over the weekend, gaining some strength over the weekend after losing some ground on Friday. Should be an exciting week as it is 'Interest Rate Decision' week as a number of central banks will be announcing their new rates. I think the rate announcements will reinforce my feelings that the world's economies are heading down divergent paths, with some economies heading down a recessionary path while others maintaining good growth rates. As expected, the US unemployment rose to the highest level in more than four years as employers cut jobs again in July. But the decrease in payrolls was slightly less than forecast, so some were saying 'it isn't as bad as we thought'....
  • US$ saved by oil...

    * US$ saved by oil... * US Recession? (not according to Paulson)... * New Zealand worst performer in July... * Big Mac Index says buy Asia... ** US$ saved by oil... Good day...And welcome to August. The markets had a little more movement yesterday as the US GDP report came in lower than expected, and had a hidden surprise for dollar bears (more on that later). In addition to the poor GDP numbers, Personal consumption dropped and the GDP Price Index also showed a decrease. The employment cost index was flat, and the weekly jobless claims were slightly higher than expected at 448k. More Americans filed initial unemployment claims last week than at any time in more than five years. The only positive piece of data released in the US yesterday was the volatile (and somewhat unreliable) Chicago Purchasing Managers number which showed an increase back above 50. With all the bad data, the dollar sold off rather sharply and the Euro jumped a full cent to trade over 1.57 for a short while. But the dollar bears didn't celebrate for long, as the dollar sharply reversed course as crude oil prices rode to its rescue. As I explained earlier in the week, the price of crude oil and the US$ have had a very tight relationship lately, with a correlation of .9. Just after the dollar fell due to the GDP releases, crude oil began a sharp $3 drop and saved the US$ from further losses. The price of oil has continued to slide, and is now down over 11% in the past month. This has helped prop the dollar up in spite of a number of poor economic reports here in the US....