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Wednesday, March 25, 2009

UK Brown: Deflation Is Main Concern In Short Term

The U.K. government will do whatever is necessary to revive growth, with deflation the main danger in the short term, Prime Minister Gordon Brown said Wednesday.

"I think in the short term everybody is concerned about the problems that could come from deflation," Brown said in an interview with The Wall Street Journal in New York.

Brown said his government is doing "what is necessary to resume growth in the economy," through fiscal and monetary policy and fixing the banking system.

The prime minister said he believes governments of the Group of 20 industrialized and developing nations will sign on to taking similar action at the upcoming G20 leaders' summit in London April 2.

"Nobody is suggesting that we will come to the G20 meeting and put on the table" national budget plans, he said.

"What we are suggesting is that we have, together, to look at what we have done so far cumulatively...what's the effect of quantitative easing and then say what should happen next. And I see a consensus not a disagreement on that."

Brown's government Tuesday received a warning from Bank of England Governor Mervyn King that there seems to be little room for the government to launch further fiscal stimulus efforts, on top of the GBP20 billion effort already undertaken.

Brown brushed off differences with King on the issue, saying the governor has signed on to the G20 finance ministers' communique calling for policy makers to take whatever monetary and fiscal policy action is needed to revive growth.

U.K. Chancellor of the Exchequer Alistair Darling will lay out his budget April 22. The government hasn't yet said whether it will seek to implement a second fiscal boost. Brown said that, on monetary policy, many central banks have already moved to very low interest rates and quantitative easing. He also said that, while European Central Bank interest rates are "a lot higher" than in the U.K. and the U.S., his "expectation is that they will bring them down further."

The Bank of England's benchmark interest rate stands at 0.5%, while the ECB's refinancing rate is 1.5% and the U.S. Federal Reserve's target funds rate stands close to zero.

On trade, Brown said the Doha round of talks isn't dead, despite the many deadlines that have come and gone.

He said the biggest stumbling block to an advance - differences between India and the U.S. - is "solvable" and said "people around the world are agreed" on the need for a new trade deal.

He also reiterated his view that protectionism "is the road to ruin."

Brown pointed to the absence of trade credit as one of the "big problems" for trade. The April G20 summit is expected to produce an initiative to address this.

The U.K. prime minister said that, while the short-term economic focus will be on deflation, longer-term inflationary threats like higher oil prices, once global growth resumes, will need to be dealt with.

"That is a problem we're going to have to look at again...We really have to be better at looking at how we can make agreements that can deal with the most volatile of commodities that affect the most vulnerable of people," he said.

The interview came on the second leg of a global tour by the prime minister, who took office in 2007, ahead of the April London summit.

Brown's Labour party must face an election by mid-2010 and is behind in the polls, raising the stakes for a successful outcome to the April 2 summit. Brown, who spoke at the European Parliament Tuesday, travels to Brazil and Chile later this week.

GBP/USD: Pound is back below 1.4650, its previous range

The Pound is back to its previous range, testing the 1.4650 support. It jumped to 1.4740 after Geithner affirmed he's willing to consider the Chinese plan to a global reserve currency.

Below 1.4650, next support level could be 1.4595 (Mar 19 and 20 high), and below here, intra-day low at 1.4540. On the upside, bouncing up at 1.4650, next resistance level could be 1.4720, and above there, 1.4775 (Mar 24 high).

US Markets open on strong note; Dollar tumbles after Geithner’s comments on global currency

U.S. markets have opened with increases on Wednesday on the back of unexpectedly good new home sales data, although the happening of the session has been Dollar’s dip after Geithner’s affirmed its openness towards the plan for a new global reserve currency.

Wall street gains 2.18% after the first two hours of trading, reaching its highest level in the last two weeks, with general Electric, Bank of America and Alcoa leading the gains. The Nasdaq index adds 1.93%.

Macroeconomic indicators have beaten expectations, U.S. durable goods orders have increased unexpectedly 3.4% in Feb against market expectations of a 2.0% decline, and new Home sales rose 4.7% for the first time in seven months.

Dollar picks up from session lows

Geithner’s affirmation of being open to consider Chinese and Russian proposal to create a new global reserve currency unleashed a wild sell out fever for the dollar which lost about 200 points with the majors in a matter of minutes, although currency crosses have returned close to previous levels after he made clear its commitment to maintain the Dollar as key reserve currency.

The Euro rocketed more than150 pips jumping from below 1.3500 to maximum levels around 1.3650, to return to levels around 1.3550. At the moment the Euro seems to have found support at 1.3540 level.

GBP/USD has returned below1.4650 support the previous range , giving away most of the ground gained after Geithner’ speech. The Pound rose from about 1.4620 to an intra-day high at 1.4740. At the moment the Pound drops below exponential moving averages in the hourly chart, and above intra-day low at 1.4545.

USD/JPY dropped from 98.00 to a intra-day low at 96.90, but the pair has managed to pick up and trades above 97.35 support level towards 98.00 resistance.

Dutch Government Launches EUR6 Billion Stimulus Package For Econ

The Dutch government will launch a EUR6 billion stimulus package for the economy, Prime Minister Jan Peter Balkenende said Wednesday, addressing the parliament.

"The global economic crisis is putting our society under strain. We are facing a shrinking economy, rising unemployment and a widening budget deficit", Balkenende said.

The stimulus package will enable the government to invest in jobs, education, infrastructure and energy-saving and fiscal measures, the prime minister said. The package while announcing an additional EUR1.5 billion stimulus from the Dutch provinces.

He said public finances will suffer in the coming years, pointing to the latest budget deficit forecast of 5.6% of gross domestic product in 2010, from the government's planning agency CPB.

To reduce the budget deficit, the Dutch government will launch a set of cost-saving measures for 2011 and after, including a rise of the state pension age to 67 years from 65, the prime minister said.

The Dutch economy is set to shrink by 3.5% in 2009 and by 0.25% in 2010, according to data from CPB. This would be the largest contraction in the country since 1931.

Separately, Balkenende told parliament that a "change of culture" is needed within the financial sector.

He added that the government aims to strengthen financial supervision, also on an international level, and promised "appropriate measures" for bonus structures at financial institutions that have received state-aid.

Tuesday, March 10, 2009


The pendulum of risk avoidance and risk alleviation temporarily swung back against the dollar Tuesday, setting off some profit-taking on recent safe haven-inspired dollar gains. The dollar spent much of the day on the defensive as stock markets in the U.S. and overseas rallied, but by late Tuesday had managed to claw back most of the ground lost earlier on both the euro and the yen.

Late Tuesday, the euro was at $1.2657 from $1.2602 late Monday and Y124.94 against the yen from Y124.55, according to EBS. The dollar was at Y98.74 from Y98.82 and at CHF1.1629 from CHF1.1595 Monday. The U.K. pound fell to $1.3737 from $1.3792. The driving force against the dollar throughout much of the day Tuesday was the worldwide rebound in sentiment that lifted equity markets, dampening the safe-haven demand for dollars that held sway on Monday.

The catalyst for Tuesday's equities rally was unaccustomed good news from Citigroup, one institution that has recently come to exemplify the distress of the U.S. and global banking systems. A memo from Citigroup's chief executive said the bank is currently enjoying its best quarter since the third quarter of 2007, triggering Tuesday's rebound in risk appetites.

While that initially sent the dollar to a two-week low against the euro and
also back from recent gains against other currencies, the dollar by late in the
day had bounced considerably from its intraday lows even as U.S. stocks held
onto their gains.

Currency watchers said the reversal is testament to the fragility of risk
appetite in the currency market, where the dollar is widely considered the only
reliable safe-haven currency at the moment.

Accordingly, episodes of intraday weakness such as Tuesday's are being taken
by many currency players as opportunities to buy dollars on dips at more
attractive levels. "Few people are convinced that the dollar is in any sustainable kind of downturn, and I don't think anybody really buys that today's bounce in equity
markets is durable," said senior currency strategist David Watt of RBC Capital
Markets in Toronto. "Underlying views haven't changed, and there's still a lot
of reasons for people to be wary."

Elsewhere Tuesday, Hungary's central bank indicated it has been actively
intervening in the foreign exchange market to support the Hungarian forint,
which has depreciated some 22% against the euro so far this year and last week
hit a record low. National Bank of Hungary Governor Andras Simor said in a televised interview that the central bank is ready to defend the forint by all its policy means, given that the currency has fallen to "sensitive levels."

A report Tuesday from currency strategists at Brown Brothers Harriman in New
York suggested that the currencies of Hungary, Romania, Ukraine and other East
European units are likely to remain under pressure, given the economic problems
still facing the region.


USD/CAD ending down but off intraday lows, as CAD rebounded from Mon's four-and-a-half year low in line with a bounce for global equity markets and at least a momentary comeback in risk appetites. Along with many other currencies Tue, CAD couldn't hold onto its earlier gains however, testifying to fragility of risk acceptance in a market where USD is the only safe haven currency and economic gloom is never far from the minds of traders.

Monday, March 9, 2009


Dollar comes off early highs versus yen, pound and euro into, after pound hit six-week
low of $1.3747 off the BofE's quantitative easing plans and the ongoing bailout of Lloyds TSB. The yen fell close to the four-month low struck Thursday after Japan reported the first current account deficit in 13 years. Dollar rose to Y99.19. Euro hit session low in New York of $1.2555,
but rose to $1.2625 by afternoon from $1.2641 late Friday. Dollar at Y98.83 from Y98.27 late Friday. Euro at Y124.83 from Y124.21. UK pound at $1.3829 from $1.4066 Friday. Dollar at CHF1.1590 from CHF1.1597


The dollar rose versus its major rivals Monday as global
investor sentiment sank deeper, with a decline in U.S. stocks and following a World Bank report that said global growth will contract in 2009 for the first time since World War II. The World Bank statement, released Sunday, is the latest kernel of disappointing news to lean against
investor sentiment, but the pile has been mounting for months. The upshot has been a strengthening dollar on its status as a safe haven.

The Dow Jones Industrial Average declined 80 points Monday. The U.K. pound came under particular pressure Monday, falling to a six-week low of $1.3747 off the Bank of England's quantitative easing plans and after the U.K. government announced it would take a majority
stake in Lloyds Bank through the Asset Protection Scheme. The yen also neared the four-month low it had struck versus the dollar last Thursday. The dollar rose to Y99.19, off the high of Y99.69, on data that showed Japan posting its first current-account deficit in 13 years.

The Australian dollar and Canadian dollar also tumbled against the greenback. The
Australian dollar fell to a three-session low of $0.6311 from $0.6429 late Friday. Meanwhile, the U.S. dollar advanced to a four-year high of C$1.3065 after breaking through key technical trading levels. Monday afternoon, the euro was at $1.2602 from $1.2641 late Friday. The dollar
was at Y98.82 from Y98.27 late Friday. The euro was at Y124.55 from Y124.21. The U.K. pound was at $1.3792 from $1.4066 Friday. The dollar was at CHF1.1595 from CHF1.1597.
The euro was little changed from its levels Friday. Pressure remains on the common currency from its exposure to Eastern and Central Europe. However, European Central Bank governing council member Ewald Nowotny said Monday that euro-zone accession rules will not be eased to aid Eastern and Central Europe nations.


After hovering below the C$1.3000 peak for most of the
late-morning period, USD/CAD is taking a peak above again as equity markets
prove wobbly. USD is currently around C$1.3020, still significantly below
session high at C$1.3065, according to EBS.