Tuesday, June 30, 2009

U.S. Dollar in First Quarterly Loss since 2008

... U.S. dollar drops against Euro for quarter

The dollar rose versus the euro on Tuesday amid renewed risk aversion after a report showed an unexpected drop in U.S. consumer confidence in June.
The weak confidence report sent U.S. stocks lower and put a halt to an early sell-off in the greenback. Analysts also said the simultaneous end to the month, quarter and half-year led to increased volatility in foreign exchange trading, exacerbating intraday moves in currencies.
The decline in consumer confidence "was a big shocker," said Kathy Lien, a director for currency research at GFT Forex in New York. "The weaker confidence number should help the dollar recovery for the rest of the day."
The Conference Board's U.S. consumer confidence index fell in June to 49.3 from a downwardly revised 54.8 in May, the private business research group reported on Tuesday. Economists polled by Reuters had forecast a reading of 55.0.
The confidence index followed a report showing a smaller-than-expected dip in U.S. home prices in April and a report on business activity in the U.S. Midwest.
In midday trading in New York, the euro was last down 0.4 percent at $1.4010 after trading as high as $1.4152 earlier, according to Reuters data.
Despite Tuesday's gains versus the euro, the dollar was still on track for its first quarterly decline against the single currency since the first quarter of 2008.
At the same time, an index measuring the value of the greenback against a basket of major currencies declined about 6 percent for the quarter, its first quarterly drop since the first three months of 2008. The index was last up 0.5 percent at 80.235.
"The greenback has clearly become oversold," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon, in New York. "It appears that the consumer confidence report provided players with an opportunity to take profit on short dollar-positions."
Investors have sold U.S. dollars recently as stock markets and oil prices rose on an upbeat view for prospects of a global economic recovery and hurt demand for the greenback as a safe haven.
The MSCI global stocks index was on course for its best quarter since its launch in 1988, up 20.9 percent at current prices, while oil earlier hit an eight-month high of $73.38 a barrel.
"The second quarter was great for stocks and there have been signs things are getting better in the financial system," said Meg Browne, a currency strategist at Brown Brothers Harriman in New York. "Altogether, this is encouraging news and the reaction to the positive outlook in the markets has been to sell the dollar and buy foreign currencies."
Some currencies, such as the Australian dollar, soared during the second quarter. The Australian dollar gained 16.5 percent versus the U.S. dollar in the past three months, its best quarterly performance since it became freely floated in 1983. The Australian dollar was last down 0.1 percent at $0.8058.
The expectation of global economic improvement gained support from the CBOE Volatility Index, Wall Street's so-called fear gauge, which dipped to its lowest level since just before Lehman Brothers collapsed last September.
"The move back in the Vix levels pre-Lehman is a result, a by-product of the overall improvement in outlook," Browne said

Thursday, June 4, 2009

U.S. Dollar | US Dollar Way Overvalued Says Study by Peterson Institute for International Economics

U.S. Dollar

The U.S. dollar is "seriously overvalued," mostly against the Chinese renminbi and some other Asian currencies, according to a new study published on Wednesday.

The Peterson Institute for International Economics, a Washington-based think tank, said the majority of the 29 currencies it studied need to appreciate against the dollar, with a large rise especially needed by the Chinese currency.

"The principal counterpart to the overvalued dollar is the undervaluation of the Chinese renminbi, which would have needed to appreciate about 21 percent on a weighted average basis and about 40 percent against the dollar to achieve equilibrium," said the study by economists William Cline and John Williamson.

Investor flight to the dollar safe haven since last year has pushed the U.S. currency up by about 10 percent, which on top of an estimated overvaluation of about 7 percent a year ago made for an overvaluation of about 17 percent by March this year, the study said.

But the dollar slid to its low in 2009 on June 1 against the euro and a basket of currencies amid optimism the prospect of a global economic recovery boosted riskier assets.

Despite the dollar's recent slump, the study said the currency remained "substantially overvalued."

Cline and Williamson said economic imbalances caused by the deficit and overvaluation of the dollar over the surplus and undervaluation of the Chinese renminbi posed systemic threats.

"It is important that as the world emerges from the current crisis these imbalances be corrected," they said.

To rebalance the global economy, Cline and Williamson argued China should change its peg from the dollar to a basket of currencies. Alternatively, China should resume the upward crawl of the peg against the dollar.

"Unfortunately, the most recent evidence points in the other direction, as the policy over the past several months of keeping the renminbi unchanged against the dollar has remained intact, despite the dollar's reversal toward a declining trend subsequent to its peak in early March."

"China has again begun to ride the dollar down," they added.

U.S. Dollar