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04 Jan 10

FT.com / Currencies - Canadian dollar gets commodity boost

  • As oil rose above $81 per barrel and copper prices reached a 16-month high, the Norwegian krone rose 1 per cent against the US dollar to NKr5.7084.
  • “The Canadian dollar is 2010’s early star, outperforming right from the start, as oil prices continue to post gains and markets anticipate reserve central bank interest in the currency,” said Elsa Lignos at RBC Capital Markets. Among other commodity currencies, the South African rand added 1.4 per cent to R7.2906. The Australian dollar advanced 1.6 per cent to $0.9123, while the New Zealand dollar gained 1.5 per cent to $0.7340.
15 Dec 09

FT.com / Comment / Opinion - The dollar’s fall reflects a new role for reserves

  • he role of foreign exchange balances has changed from being short-term funds used to bridge export-import gaps to being long-term investment funds.
  • This system eventually proved unworkable. Countries shifted to a floating rate system in which international currency markets were, in principle, allowed to determine exchange rates. In a simplified textbook world of floating exchange rates, countries do not need reserves since fluctuations in the exchange rate would balance imports and exports.
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27 Oct 09

FT.com / UK - Dollar wobbles after Chinese comments

  • The initial dollar weakness came after the People’s Bank of China suggested that, while the dollar should remain dominant, the share of the euro and the yen should increase in its foreign exchange reserves.
  • The exact composition of China’s $2,270bn foreign exchange stockpile, the world’s largest, is a state secret, but it is estimated that it is held 60 per cent in dollars, 30 per cent in euros and the remainder in sterling and yen.
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23 Oct 09

Op-Ed Columnist - The Chinese Disconnect - NYTimes.com

  • The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market — a policy made possible by restrictions on the ability of private investors to move their money either into or out of the country.
  • In fact, the system served China well during the Asian financial crisis of the late 1990s. The crucial question, however, is whether the target value of the yuan is reasonable.
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26 Sep 09

Small Investors Make Big Bets on Currencies - WSJ.com

  • While central banks and multinational corporations account for the bulk of the nearly $4 trillion in daily world-wide currency trading,
11 Aug 09

FT.com / Currencies - Dollar stays strong even as risk shifts

  • He said investors were starting to believe that the need for a haven had diminished, as governments had made it clear that no further big financial institution would be allowed to go under. “Therefore buying of dollars is related to econ­omic issues rather than fear,” he stated.
  • Indeed, analysts said there were increased signs that yield differentials were starting to take over as a main driver of exchange rates, as the dollar rose in tandem with expectations that the Federal Reserve might exit from its zero interest rate policy sooner than expected.
26 Jul 09

FT.com / China - Beijing in uneasy embrace of the greenback

  • “The US has for now given up on pushing China on currency issues, partly because Washington has less leverage over Beijing than at any other point in recent history,” says Eswar Prasad of the Brookings Institution in Washington.
  • Inter-agency rivalry in Washington over management of the China relationship between the Treasury and the state department has also given the so-called strategic economic dialogue a broader remit.
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22 Jul 09

FT.com / Asia-Pacific - China to deploy foreign reserves

  • The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.
  • China’s outbound non-financial direct investment rose to $40.7bn last year from just $143m in 2002.
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02 Jul 09

FT.com / Markets - Insight: Risks of currency intervention

  • Currency markets are in effect returning to the era of “dirty floating” that prevailed in the 1970s and 1980s. Following the demise of the Bretton Woods system of pegged exchange rates in 1973, central banks managed their currencies through daily market interventions. This trend continued until the 1990s when major exchange rates became either irrevocably fixed, as European currencies were in the eurozone, or were allowed to float freely.

    No country likes a strong currency in a recession. But the return of dirty floating has risks for policymakers and investors.

  • First, institutions are putting their credibility at risk. The good news is that most of the world’s major central banks currently wish to suppress rather than defend their exchange rates. Fortunately, policymakers can sell unlimited amounts of domestic currency to do this. The bad news is that such interve- ntion becomes unsustainable if it conflicts with domestic monetary policy. The Swiss National Bank currently faces no trade-off here as it is selling the franc at the same time as it is pursuing quantitative easing through buying local bonds. But when the UK authorities in the late 1980s attempted to ‘shadow’ the pound against the German mark they subsequently lost control of inflation.
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24 Mar 09

FT.com / Comment / Opinion - The threat posed by ballooning Federal reserves

  • These deposits or reserves have been exploding as the Fed has made loans and purchased securities. Six months ago reserves were $8bn, in a range appropriate for its interest rate target at the time. As of last week, reserves were nearly 100 times larger at $778bn, the result of creating money to finance loans to banks, investment banks, AIG, central banks and purchases of private securities.
  • With last week’s dramatic announcement, the Fed will have to increase reserves by another $1,150bn to $3,365bn by the end of the year if the securities purchases are financed by money creation.
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20 Mar 09

Fixing the Fed

  • Washington has to fix the Federal Reserve.
    Though this is not widely understood, the central bank has lost its
    ability to govern the credit system--the nation's overall lending and
    borrowing. The Fed's control mechanisms have been severely undermined by
    a generation of deregulation and tricky innovations that have
    substantially shifted credit functions from traditional banks to lightly
    regulated financial markets. When the Fed tried to apply its old tools,
    starting in the 1980s, the credit system perversely produced opposite
    results--an explosion of debt the policy-makers could not restrain. In
    its present condition, the Fed may even make things worse.

FT.com / Markets - Wall St retreats on stimulus scepticism

  • Financials fell steeply, outweighing rises in materials and energy stocks, as investors bet the plan would not be as beneficial for banks as hoped, but would trigger a rise in commodity prices and a fall in the dollar.
  • Banking stocks had surged on Wednesday as investors bet their balance sheets would be cleared of distressed assets. But on Thursday, many were more sceptical of the move and the financial sector fell below where it had been before the Fed’s announcement.
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Dollar extends losses after post-Fed beating - MarketWatch

  • "Some of the central banks that have been reluctant to go down this path may now be less reluctant to do so," Jones said.
19 Mar 09

Fed in Bond-Buying Binge to Spur Growth - WSJ.com

  • But the value of the dollar sank, a reminder of the risk the Fed is running by printing money to give the economy a jolt.
  • ll told, the Fed will pump as much as an extra $1.15 trillion into the economy via bond purchases. The Fed will buy as much as $300 billion in long-term Treasurys in the next six months. It will increase the ceiling on purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to $1.25 trillion, up from $500 billion. The Fed also is doubling potential purchases of their debt, to $200 billion.
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