U.S. Dollar Drops Against Euro Again

The euro extended gains against the U.S. dollar on Friday after euro zone leaders came to an agreement on a competitiveness pact.

The euro hit $1.39 EUR=, up 0.8 percent on the day, according to Reuters data. Short covering played a major role in strengthening the euro zone single currency throughout the majority of the session, according to strategists.

The euro zone leaders reached a deal to establish higher retirement ages, more flexible labor markets and debt and deficit limits for euro zone countries.

The deal is expected to be officially adopted at a full 27-nation European Union summit on March 24-25.

Euro Rises Against Greenback on Interest Rate Differentials

The dollar fell broadly Thursday as traders opted for the safety of the Swiss franc and Japan's yen amid ongoing turmoil in the Middle East and North Africa.

Meanwhile, expectations for widening interest-rate differentials pushed the euro to a three-week high against the dollar.

The dollar sank to a record low against the franc of CHF0.9234 as violence increased in Libya and fears increased that unrest in the Middle East could spread to more oil-producing nations like Iran and Saudi Arabia.

"We continue to focus on the issues in the Middle East," said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York. "Even though we've seen a bit of stabilization in oil prices, in the currencies market, [investors] still favor safe havens."

The franc has become the most popular safe-haven option during times of geopolitical risk. It also rallied against the euro Thursday. The yen also was bid higher against the dollar and euro thanks to its perceived safety.

Oil prices climbed above $100 a barrel early in the global day on the New York Mercantile Exchange, leading to the dollar's record weakness against the franc. But even as oil prices have backed off that lofty level, currency investors continued to favor safety.

The situation in the Middle East appears to be far from stabilizing, so the flight to safety is likely to continue, analysts said.





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US Dollar Wavers on Surging Oil Prices, Weakens Against Swiss Franc

The dollar nursed heavy losses early in Asia on Friday, hovering above a record low versus the Swiss franc as investors sought safety in other currencies on fears the unrest in Libya will spread to other oil producers.

But a sharp retreat in oil prices from 2-1/2 year highs, sparked by an unsubstantiated rumour Mummar Gaddafi had been shot and Saudi Arabia's assurances it can counter Libyan supply disruption, could offer the dollar a brief respite.

"That safe-haven trade of going long Swiss may just turn around a little bit," a trader at a U.S. investment bank said.

Higher oil prices are seen as having a bigger impact on the U.S. economy given it's reliance on consumer spending to drive growth.

The dollar last traded at 0.9250 Swiss francs , having hit an all-time low of 0.9234 francs on trading platform EBS overnight. It has fallen nearly 4.8 percent against the franc in the last two weeks, its worst showing since June.




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Peter Schiff Says Run from U.S. Dollar

The payroll report on Friday confirmed what many of us knew, that the outrageous monetary and fiscal stimulus has failed, and that sends a signal to all of us that we should flee the U.S. dollar, says Peter Schiff.

Rather then following in the footsteps of other countries, which have been removing stimulus, the U.S. is actually planning on increasing “quantitative easing,” which is just a fancy phrase for printing money to acquire government debt.

That will bring even more pressure on the dollar, and drive its value down even more. The U.S. Dollar Index has dropped eight weeks in a row, and will probably continue to do so in light of the misguided government policies.

If quantitative easing resumes, which at this point appears inevitable, some believe it will kill the dollar as we know it. One of those is St. Louis Federal Reserve President James Bullard.

Central Banks Fleeing U.S. Dollar

Banks are fleeing the U.S. dollar at an unprecedented rate as 63 percent of new cash is going into the euro and yen rather than the dollar over the last three months.

A decade ago the U.S. dollar accounted for about 66 percent of investment for the new cash in banks, while today it stands at only 37 percent.

Overall the greenback is only 62 percent of the currency reserve at central banks, the lowest level ever that has been recorded, according to the International Monetary Fund.

The obvious reason is it's losing it's value at an unprecedented rate, as it's down 10 percent over the last 90 days alone, generating interest in abandoning the U.S. dollar as the reserve currency and looking at alternatives, although that would take time to happen.

In the short term, money will continue to flow away from the dollar as the extraordinary run of the printing presses of the Federal Reserve and the outrageous Obama administration bailouts continue to hammer the U.S. dollar into the ground.

Government, central banks and investors are getting more concerned about the U.S. dollar going forward, as the almost non-existent return isn't worth the money they've invested in it to cover the growing U.S. government debt.

"He's (Bernanke) in a crisis worse than the meltdown ever was," said Peter Schiff, president of Euro Pacific Capital. "I fear that he could be the Fed chairman who brought down the whole thing."

With the horrific decision by the Obama administration to bail out everything, it has left no viable options on the table, because if the Federal Reserve raises interest rates, it'll smother any economic growth and clobber the housing market, which would slump back into a horrid situation it hasn't even escaped at this time.

On the other hand if he keeps things like they are, inflation could go as high as into the triple digits, collapsing the economy into something we would no longer recognize.

As Schiff and others have rightly concluded, "The stimulus is what's toxic -- we're poisoning ourselves and the global economy with it." Unfortunately no one that has power to make monetary decisions has the political and personal will to step in and stop the monetary madness of the Obama administration and the Federal Reserve.

Will Weak Dollar Destroy Wal-Mart?

Peter Schiff made an interesting correlation between the weak U.S dollar, the Chinese and the future of Wal-Mart (NYSE:WMT).

Schiff asserts that the days of Wal-Mart being able to buy up cheap products from the Chinese like they've done in the past are over, he even said Wal-Mart could become the next Saks Fifth Avenue, meaning their prices will only rise, taking away their unique competitive advantage.

Of course if that were to become a reality, Wal-Mart would struggle, so would their competitors who rely on Chinese products as well.

Wal-Mart could of course go to other countries providing cheaper prices like China currently does and take advantage of that, but it would take a lot of workers to make up the difference, seeming to imply they would have to enlist a number of countries to meet the low price demand behind the reason people shop Wal-Mart in the first place.

If Wal-Marts' competitors are better positioned than they are in getting their products from other countries, then this really could make things interesting, and bring the price differences between them and their competitors much closer.

Maybe this one of the reasons Wal-Mart has been working hard at attempting to bring in higher end clothing to the stores, other than attempting to reach people at higher income levels.

US Dollar Play | US Multinationals

Many investors concerned over the unknown risks of investing outside the U.S. instead will focus on U.S. multinational companies which have a significant percentage of their business outside the U.S.

Some large institutions are looking for U.S. multinationals that do over 50 percent of their business outside the U.S. which are large and obvious companies like General Electrice (GE) and Waters Corp. (WAT), among many others.

What should be looked for is companies with history and proven track records, most of which have been performing pretty well considering the difficult economic circumstances we're in.

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

U.S. Dollar Drops against Euro, British Pound

The U.S. dollar fluctuated against other major currencies Friday, dropping against the euro and British pouond after data showed that U.S. non-farm payrolls fell in January by the largest amount in 34 years, while the market turned its attention to President Barack Obama's misguided fiscal stimulus package and bank-rescue plan.
The dollar index, which measures the U.S. unit against a trade-weighted basket of six major currencies, was at 85.78 in recent action, compared with 85.73 in North American trading late Thursday.
The greenback rose 0.6% against the Japanese yen to 91.68 yen, but fell against the euro and the British pound.
The euro rose 0.6% to $1.2862 and the British pound gained 0.7% to $1.4726.
"The dollar's rally against the Japanese yen suggests that traders believe the bad number will probably push the Obama administration to act quickly on passing the stimulus plan," said Kathy Lien, director of currency research at GFT.
'These numbers are dreadful but does it matter? No. All the prior labor market indicators, notably the claims data gave a feeling of foreboding before these numbers. The data broadly delivered.'

— Alan Ruskin, RBS Greenwich Capital
The Labor Department reported Friday that non-farm payrolls fell by a seasonally adjusted 598,000 in January after a revised loss of 577,000 in December, the government said. It's the largest payroll loss since December 1974.
The unemployment rate soared to 7.6%, compared with 7.2% in December. It's the highest unemployment rate since September 1992.
"These numbers are dreadful but does it matter? No," said Alan Ruskin of RBS Greenwich Capital in a note. "All the prior labor market indicators, notably the claims data, gave a feeling of foreboding before these numbers. The data broadly delivered."
About 3.6 million jobs have been lost since the recession began just over a year ago, representing about 2.6% of employment. About half of the jobs disappeared in the three months following the Sept. 14 collapse of Lehman Brothers Holding Inc. (LEH) .
On Wall Street, U.S. stocks surged, with the Dow Jones Industrial Average rising 151 points, or 1.9%, to 8,214.
"Global markets further stabilize as the escalating superlatives in the U.S. unemployment gloom increase the likelihood that the Senate will pass the $920 billion fiscal stimulus package as early as today," said Ashraf Laidi, chief market strategist at CMC Markets.
Stabilizing risk appetite has weighed on the U.S. dollar, the Swiss franc, the Japanese yen, and the Canadian dollar, while the biggest gainers have been the Australian dollar, the New Zealand dollar and the British pound, Laidi said.
Eyes on Washington
The Senate could vote on a huge economic stimulus plan on Friday if a bipartisan group of senators can reach an agreement on a compromise that would trim the size of the tax and spending bill, Senate Majority Leader Harry Reid said Thursday evening. See full story.
"Despite the staggering job losses, the markets are not terribly focused on the non-farm payrolls numbers today," Lien said. "Traders are hopeful about developments in Washington including a possible Senate vote today and a bank rescue package on Monday."
The Obama administration on Monday will release its "comprehensive plan" to revitalize the financial markets, which is expected to include a new strategy to deal with banks' bad assets and a new program to help troubled homeowners avoid foreclosure.
Secretary Timothy Geithner will unveil the plan in a speech on how Treasury will employ the second half of a $700 billion bank bailout package as well as other new programs to shock the financial markets out of the recession. Read more.
"From a risk appetite perspective, the market is unwilling to sell risk trades ahead of Geithner providing clarity on his plans for the U.S. financial sector," Ruskin said. "Currencies like the yen will fail to get any lift before then, while it will offer the emerging world some near-term protection."
Canadian dollar under pressure
The U.S. dollar was last up 0.8% against the Canadian dollar after surging to an intraday high of C$1.2539.
The loonie is "the worst performing currency after Canada's December payrolls fell by a record 129,000," Laidi said.
Employment fell by 129,000 in January, pushing the unemployment rate up 0.6 percentage points to 7.2%, Statistics Canada reported Friday.
This drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s, according to Statistics Canada.
Elsewhere in the currency markets, the British pound surged 0.7% against the greenback after hitting an intraday high of $1.4766.
Sterling also rallied in the previous session after the Bank of England cut its key interest rate to 1%. But data also came out from the lender Halifax, showing the first monthly house price rise in 11 months.
"Markets will not be confident that rates have reached their lowest point, but there will be speculation over a period of stability," said analysts at Sucden Financial.
The British pound also has been a beneficiary from growing global risk appetite. As one of the countries seen suffering the most from the credit crunch, the pound tends to rise when fears over the global economy abate, while the euro may also experience a similar move.

Majority of Major Hedge Fund Managers Remain Bearish on U.S. Dollar

The majority of major hedge fund managers are increasingly bearish on the U.S. dollar, and aren't too optimistic about U.S. Treasury bonds or equities either, according to a Greenwich Alternative Investments survey.

Of the hedge fund managers queried, 62 percent said they were bearish concerning how the U.S. dollar would perform in January. That's the highest percentage of bearish responses to the survey since March 2007. It's an 8 percent jump from just December's numbers.

For equities, bearishness rose by 16 percent, as only 46 percent were bullish on how U.S. equities would perform during January 2009, a significant drop from December's 62 percent bullishness.

As for the 10-year Treasury bonds, they remained unchanged, as 54 percent of managers remained bearish, the same as December. What did increase were those who were neutral, as respondents increased to 31 percent in that category, up from the 15 percent neutrals in December. That means only about 15 percent of respondents remained bullish on January 10-year Treasury bonds.