Today’s FX View from IB:
It’s taken a few weeks of chest-beating and no doubt some sleepless nights, but finally Dubai World got some relief today following the news from the state of Abu Dhabi that it would provide $10 billion to help alleviate the commitments of the expansionist state of Dubai. The news helped spur a global relief rally for stocks with Dubai’s local benchmark index feeling the most powerful rally in 14 months and slashing in half a 19% loss since news broke in late November. The dollar lost ground immediately as investors saw one less reason to seek its refuge as a new trading week began.
U.S. dollar – The dollar is also suffering at the hands of this morning’s announcement from Citigroup that it has reached agreement with the U.S. government to repay its TARP money. The agreement would lift the stigma from Citigroup, the last remaining big bank to repay the government. So long as it remains beneath the aid blanket it can’t independently set executive pay.
Euro – The euro rose to $1.4646 as New York traders began to arrive at their offices faced with precious little other information to fuel a move. Comments overnight from Bank of Finland and ECB council member, Erkki Liikanen helped clarify where the central bank sees investors who have now had time to adjust to the recent change from fixed to adjustable repo rates. Rather than this signaling any change for overall monetary policy, Mr. Liikanen said that investors “understood” that minor changes in its liquidity measures had nothing to do with its monetary stance. There was no change in attitude and therefore no change on policy. He also underscored the message that the shorter fixed rate tenders will likely continue for as long as necessary in order to nurture recovery.
The euro slipped a little to a stronger yen to ¥129.64, while it rose against the pound to buy 90.10 pence.
Aussie dollar – The lackluster nature of the final full trading week of the year is evidenced by the fact that the Aussie dollar can’t muster a relief rally today. While the Abu Dhabi payment reduced a larger loss for the dollar earlier, it still can’t manage a sustainable rebound against the U.S. dollar where it currently buys 91.09 U.S cents.
Japanese yen – The quarterly tankan survey of larger corporations’ business confidence edged further ahead, but remained indicative of ongoing slow recovery. Nevertheless it did spur gains for the yen, which rose to ¥88.46 to the dollar.
British pound – The Bank of England’s Quarterly Bulletin reported a relatively upbeat view of the economy, noting that unemployment could have been far worse given the slump in output that accompanied the recession. Meanwhile the ultra-low interest rate environment has helped ease the cost of servicing consumer borrowings. The report said that its own survey in conjunction with a private sector company concluded that most households were managing to keep up their repayments without problem. Meanwhile there was positive news emanating from the recession as far as potential inflation. The rapid rise in job losses meant that wage settlements remained subdued and in some cases were frozen. An emergent and real threat at the time of the report’s compilation was the blow-up over Dubai’s indebtedness and its need to seek a repayment reschedule.
The pound firmed against the dollar to buy $1.6263, but was lower against the yen at ¥143.86.
Canadian dollar – Like the Australian dollar, the Canadian dollar is benefiting today from a likely boost in risk appetite. Or at least both commodity currencies are suffering from a delayed reaction up until now. The Canadian dollar buys exactly 94 U.S. cents this morning.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.