Yesterday, the US Senate passed legislation that allows US companies to seek duties to compensate against countries with “misaligned currencies.” US Senator Chuck Schumer stated, ““To those who say it’ll cause a trade war, we are in a trade war…We have our clocks cleaned every day and lose jobs every day because of unfair Chinese practices. To those who say China will retaliate, China has got far more to lose in this than we do.”
Instead of evaluating whether a currency was manipulated, the US Treasury is now charged with the task of identifying “misaligned” currencies. Then, the bill says … …READ MORE
Tag Archives: US dollar
Senate wants to devalue
Breaking the financial Hippocratic Oath
Yesterday, the Federal Open Market Committee met to discuss monetary policy for the United States. For weeks, many strategist/analysts/economists/politicians have questioned the efficacy of the central bank acting to “twist” the yield curve. I’ve written recently (See BU 9.20 and conference calls) that lower interest rates (and job plans) have very little impact due to the balance sheet problem in the country. The transmission mechanism of lower interest rates is broken and not feeding through into the economy. Therefore, any additional action by the Federal Reserve will have little positive impact on the economy and has the downside risk of … …READ MORE
Lots of Negatives for US dollar
Tuesday Bullets:
· Headlines: “CHINA FX OFFICIAL WARNS OF RISKS IN “EXCESSIVE” HOLDINGS OF US DOLLAR ASSETS” and “CHINA FX OFFICIAL SAYS US DOLLAR WILL CONTINUE TO WEAKEN AGAINST OTHER MAJOR CURRENCIES.”
· On Greek debt, ECB’s Trichet states that while he’s against imposing losses on creditors, he indicated he’d approve of financial institutions maintaining their level of outstanding credit. “That is not a default,” he said at an event in Montreal late yesterday. “That is something the ECB would consider appropriate.”
· April German manufacturing orders better than expected at +2.8% vse +2.0%.
· April Euroland retail sales better … …READ MORE
Money in Motion Trade
Friday on Money in Motion, we indicated that we still liked the US dollar lower, but thought we’d see a rally this week. We’re getting one right now as the Australian dollar, the British pound and the Euro are all lower. We discussed trades on the Euro, the Aussie dollar and the Canadian dollar. On all three, we were attempting to sell the US dollar and buy the currencies on a rally in the US dollar. The idea is to go with the trend, but try to get in at cheaper levels and avoid getting blown out on a pullback.… …READ MORE
Waiting for Superman Bernanke
The focus of the week will be on earnings and the Fed with the currency markets taking a back seat. So far, the earnings have been robust with 79% of those reporting beating the analysts’ expectations. Today, we had Ford out and they beat. As far as the Fed is concerned, we all have our questions we want answered. Aside from my jokes, Ben Bernanke will be forced to answer the inflation questions over energy and food. In conjunction with inflation, he will also be asked about what levers the Fed will pull first and the sequence. Since the Fed … …READ MORE
US dollar Devaluation Has Begun
Wednesday’s Bullets:
• The Bank of Thailand (central bank) raised its benchmark overnight repo rate 25 basis points to 2.75% for the third time this year.
• The Riksbank (central bank Sweden) raised its benchmark overnight repo rate 25 basis points to 1.75% for the sixth time since July.
• The Bank of Korea (central bank) said it will “consistently” push to raise its key interest rate in future to curb growing inflation expectations.
• An advisor to the People’s Bank of China (central bank) said China could move to raise benchmark interest rates further, arguing that real interest rates … …READ MORE
Media Appearances Today
Today at 9:50 AM ET, I’ll be appearing on CNBC’s Squawk on the Street discussing the potential for a major US dollar devaluation.
Today from 9-10 AM CT, I’ll be appearing on National Public Radio Chicago’s 848 discussing the S&P US outlook downgrade.… …READ MORE
Fed Shirts vs Skins
There appears to be a jump ball for the direction of the Federal Reserve and monetary policy as FOMC voting and non-voting members spoke last week. It will continue this week as we have several speakers including Chairman Ben Bernanke ready to take a shot and score points for their view. An intriguing game of Dove shirts (Dudley) vs Hawk skins (Fisher) is playing out.
It’s interesting to see the recent commentary has shifted from caution and keeping the full QE2 to what instruments should the Fed use when it decides to reverse its easy money policy. While no one … …READ MORE
Fed Talk=$ Rally?
On March 25th, Philadelphia Fed President Plosser surprised the markets by laying out a strategy for withdrawing the massive monetary stimulus pumped in over the last 4 years and stated that an improving economy means policy makers should consider how to exit. He stated that the Fed should sell assets from its balance sheet and raise interest rates at the same time.
On March 26th, St. Louis Fed President Bullard stated that the FOMC should review QE2 to see if it could be completed early as the economy may not need it as it has rebounded. He went on to … …READ MORE
Posted in Front Page Also tagged Bullard, Evans, Federal Reserve, interest rates, Plosser, Rosengren 1 Comment
AM Market Modus Operandi
The market narrative for currencies is now centered on the growing chasm between the Federal Reserve easy policy and the rest of the world’s tightening policy or soon to be tightening policy. Emerging markets have been at the forefront of raising interest rates to combat inflation generated via food or commodities. The change to the markets is the introduction of energy inflation via the spike in oil and the language coming from the ECB about heading off the tertiary effect to consumer’s perceptions to inflation. In turn, this has led to European interest rate spreads to US widening and supporting … …READ MORE
