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Schlossberg Sees `Glacial’ Revaluation of China’s Yuan: Video

Wednesday, June 23rd, 2010
Image by Getty Images via @daylife


June 22 (Bloomberg) — Boris Schlossberg, director of research at online currency trader GFT Forex in New York, talks with Bloomberg’s Rishaad Salamat about changes to China’s currency policy. China’s yuan gained the most in five years yesterday after the central bank pledged on June 19 to make the currency more flexible. Schlossberg also discusses the outlook for the U.S. economy.

June 22 (Bloomberg) — Boris Schlossberg, director of research at online currency trader GFT Forex in New York, talks with Bloomberg’s Rishaad Salamat about changes to China’s currency policy.

China’s yuan gained the most in five years yesterday after the central bank pledged on June 19 to make the currency more flexible. Schlossberg also discusses the outlook for the U.S. economy. (Source: Bloomberg)

00:00 Pace of yuan revaluation; factors behind move
02:10 Trade imbalances; global, U.S. economy

Running time 04:12

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Euro Has Biggest Weekly Gain Since May 2009 as European Debt Concern Eases

Wednesday, June 23rd, 2010
The European Central Bank. Notice a sculpture ...
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The Euro sign sculpture sits outside the European Central Bank (ECB) headquarters in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

The euro rose the most this week against the greenback in more than year as an easing in concern over Europe’s debt crisis spurred traders to end bets the shared shared currency would decline.

The euro appreciated for a second week versus the yen, the first back-to-back weekly gains since March, as increased demand at a Spanish bond sale and an agreement by European Union leaders to disclose how banks perform on stress tests damped investor worries about the region’s financial system. The dollar fell versus the yen as Japan’s ruling party announced a deficit- cutting plan and disappointing U.S. data increased speculation the Federal Reserve would keep interest rates at a record low.

“The recent news out of Europe is reassuring,” said Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto. “Europe will release the results of stress tests and give the market the clarity it looked for. The U.S. will be on hold for longer. That helped equities and boosted risk appetite.”

The euro rose 2.3 percent to $1.2388 this week, the biggest gain since the five days ended May 22, 2020, from $1.2112 on June 11. It touched $1.2417 yesterday, the highest level since May 28. Europe’s common currency rose 1.3 percent to 112.40 yen, from 111 on June 11. The dollar fell 1 percent to 90.71 yen, from 91.65 a week ago.

The common currency gained as futures traders decreased their bets that the currency will decline against the U.S. dollar to the lowest level since April, figures from the Washington-based Commodity Futures Trading Commission show.

Short Covering

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 62,360 on June 15, after dropping 44 percent from 111,945 a week earlier.

“Seventy percent of the euro’s gain was short covering,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The downside had become extreme, and sentiment was extreme. It’s slow going on the way up. I think we’ll see losses developing faster than recoveries.”

Spain sold 3 billion euros ($3.7 billion) of 10-year debt on June 17 at an average yield of 4.864 percent, less than the 5.04 percent that the bonds traded at before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid-to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18.

‘Cloud of Suspicion’

“We had the credit markets more or less stabilize,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “That’s why the euro continues to perform well.”

European Union leaders this week agreed to disclose how banks perform on stress tests, seeking to show investors the financial system can withstand financial shocks.

French Finance Minister Christine Lagarde yesterday said a European Union decision to publish the results of stress tests will “clear a cloud of suspicion that’s out there.” She made the comments while attending the St. Petersburg Forum in Russia.

The pound gained this week the most versus the greenback since the week of April 2 before of the U.K.’s announcement of budget cuts on June 22, which may help it avoid the rising bond yields afflicting Spain and Portugal.

‘Investor Enthusiasm’

Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since at least the 1970s to tame a budget deficit of 11 percent of gross domestic product last fiscal year. U.K. government bond yields have fallen 0.339 percentage point since Prime Minister David Cameron took office six weeks ago on expectations his coalition government will step up the pace of deficit reduction.

The pound climbed 1.9 percent to $1.4824 this week from $1.4552 on June 11. It fell 0.4 percent to 83.59 pence per euro.

The yen posted a second weekly gain versus the dollar after Japanese Prime Minister Naoto Kan pledged to cut the world’s largest public debt. Kan said he’d consider an opposition party proposal to raise the consumption tax.

BNY Mellon is “seeing net buying of the Japanese yen, not so much as a risk aversion play, but because of investor enthusiasm about Japan’s ruling party announcing a new plan to combat deflation, reduce the budget deficit and restore growth,” Samarjit Shankar, a managing director for the foreign- exchange group in Boston, wrote in a note to clients. BNY Mellon is the world’s largest custodial bank, with more than $20 trillion in assets under administration.

‘Likely to Decelerate’

The greenback fell against all 16 major currencies this week after the number of American’s filing for jobless benefits for the first time rose, increasing speculation that economic growth in the U.S. remains fragile.

Initial jobless claims in the U.S. increased by 12,000 to 472,000 in the week ended June 12, according to Labor Department figures. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast.

Futures trading on the CME Group Inc. exchange showed a 36 percent chance that the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its January meeting, down from 55 percent odds one month ago.

The U.S. economy will stagnate in the second half of the year as households, businesses and state and local governments trim debt, according to John Herrmann of State Street Global Markets in Boston.

“There is an incredible amount of deleveraging going on in the economy,” Herrmann, a senior fixed-income strategy, said in an interview June 17 on Bloomberg Radio with Tom Keene. “Organic growth in the economy is likely to decelerate” as government stimulus fades and temporary census workers complete their contracts, he said.

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Yen Rises Versus Major Counterparts After Unexpected U.S. Home Sales Drop

Tuesday, June 22nd, 2010
Graph showing Japanese yen and Euro exchange r...
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The yen rallied against all 16 of its most-traded counterparts after a report showed existing-home sales in the U.S. unexpectedly fell in May, spurring speculation growth may be slowing in the world’s largest economy.

The dollar advanced against all major currencies except the yen, pound and franc. The pound extended gains after Fitch Ratings said the U.K.’s emergency budget was a “strong statement of intent” to tackle public finances. The euro fell the most versus the yen in more than two weeks amid speculation European banks will struggle to raise money.

“Housing is going to continue to be a drag on the economy,” said Alan Kabbani, a senior currency trader at Wells Fargo & Co. in Charlotte, North Carolina. “The market is consolidating to see how the U.S. and the global economy will react.”

The yen gained as much as 1.2 percent against the euro, the most on an intraday basis since June 7, to 110.86 yen before trading at 111.14 at 5 p.m. in New York, up 0.9 percent. It rose 0.6 percent to 90.57 per dollar, from 91.11 yesterday.

The euro declined 0.3 percent versus the dollar to $1.2271 after strengthening yesterday to $1.2487, the highest level since May 24.

U.S. stocks tumbled after swinging earlier between gains and losses, with the Standard & Poor’s 500 Index dropping 1.6 percent. It climbed as much as 1.2 percent yesterday after China pledged to add flexibility to the yuan’s fixed exchange rate.

Euro, Stocks

The 22-day percentage correlation between the euro and the S&P 500 was 79 percent, after touching 80 percent yesterday. It was 26 percent in March. A reading of 100 would mean the pair moved in lockstep.

The U.K. will impose a levy on banks and raise the sales tax as part of what the government called its biggest peacetime deficit cut. Chancellor of the Exchequer George Osborne forecast growth will decline to 1.2 percent this year and 2.3 percent in 2011. The measures are aimed at guarding the nation’s top credit rating without strangling the economic recovery. Sterling appreciated 0.4 percent to $1.4816.

“The U.K. budget doesn’t appear to be particularly painful for the recovery,” Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “They seem to be avoiding a lot of the more painful cuts in spending, tax increases on a broader basis.”

Existing-Home Buys

Purchases of previously owned homes in the U.S., which are tabulated when a contract closes, decreased to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. The median forecast in a Bloomberg News survey was for a rise to a 6.12 million pace.

The euro extended a decline that was triggered by speculation that China’s central bank will move to limit gains in the yuan after loosening a two-year peg to the greenback.

The Chinese currency weakened the most since December 2008, falling 0.2 percent to 6.8130 per dollar.

The yen has risen 10.5 percent this year, the best performance among the Group of 10 currencies, according to the Bloomberg Correlation-Weighted Currency Indices. The euro was the worst performer, falling 9.7 percent.

Speculation that European banks will have difficulty raising money supported demand today for the yen as a refuge.

‘Funding Problems’

“Some banks have started facing increasing funding problems,” European Central Bank governing council member Christian Noyer said yesterday at a conference in Paris. “The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability.”

The euro is poised to fall to a one-week low of $1.2215 in the next two days after a “bearish engulfing” overwhelmed traders who had been buying it, according to Barclays Plc. The shared currency yesterday touched a high of $1.2487 and a low of $1.2304, surpassing both its high and low of the previous day.

The pattern is “indicative of near-term exhaustion,” MacNeil Curry, a technical analyst at Barclays in New York, said yesterday in a telephone interview. “I would be inclined to say we’re going to see new lows, but on a short-term basis, a very short-term basis like the next session or two, $1.2215 would be an initial point.”

The Swiss franc appreciated against the euro after Swiss National Bank Vice Chairman Thomas Jordan said there’s no need to intervene to stem the currency’s rise as the threat of deflation has largely disappeared. The comments came on Swiss TV’s Eco program last night. The franc traded at 1.3589 per euro, up 0.8 percent, after strengthening to a record 1.3586.

The Federal Reserve’s Federal Open Market Committee began a two-day meeting today and will release a policy statement tomorrow. It will hold the benchmark rate steady at zero to 0.25 percent, according to economists in a Bloomberg survey.

“While the FOMC is still likely to anticipate moderate growth, it may tweak several factors lower, giving a softer cast its overall assessment,” analysts including Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., wrote in a research note today.

To contact the reporters on this story: Catarina Saraiva in New York at [email protected]; Oliver Biggadike in New York at [email protected].

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