European Union Hellbent on Devaluing Euro

The devaluation wars are beginning, folks - writing is on the wall, as they say. Germany is a huger exporting powerhouse, and they are none too happy about the rising costs of their exports to America.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aH5O2WnUuTEc

Euro Declines as Officials May Show Concern Over Recent Gains

By Yasuhiko Seki and Ron Harui

Oct. 19 (Bloomberg) --

The euro fell for a second day versus the dollar on concern policy makers will discuss the European currency’s recent strength when they meet today.

The European currency retreated from a 14-month high before talks by euro-area finance ministers in Luxembourg and as Asian shares extended declines in U.S. equities, curbing demand for higher-yielding assets. The pound declined for the first time in five days against the dollar after the Sunday Times said that Bank of England policy maker Adam Posen may back an extension of the bank’s asset-purchase program.

“There is emerging wariness about policy makers’ remarks on the strength of the euro,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “Along with losses in stocks, the dollar’s fall may take a temporary breather.”

The euro weakened to $1.4858 as of 11:39 a.m. in Tokyo from $1.4905 per euro in New York Oct. 16. Europe’s single currency touched $1.4968 on Oct. 15, the strongest since Aug. 13, 2008. The yen was at 90.96 versus the dollar from 90.89 in New York. Japan’s currency was at 135.12 per euro from 135.48 on Oct. 16.

Britain’s currency fell to $1.6307 from $1.6356 in New York on Oct. 16 when it touched $1.64, the best level since Sept. 23.

Stock Declines

The dollar rose against all 16 most-traded counterparts as Asian shares followed declines in the U.S. The Standard & Poor’s 500 Index dropped 0.8 percent on Oct. 16 after Bank of America Corp., the biggest U.S. lender, posted a larger- than-forecast third-quarter loss and U.S. consumer confidence declined more than economists had estimated.

The MSCI Asia Pacific Index of regional shares lost 0.7 percent today, and Japan’s Nikkei 225 Stock Average retreated 1.1 percent.

The euro weakened after Luxembourg’s Jean-Claude Juncker, who heads the so-called eurogroup and also serves as his nation’s prime minister, said last week the currency’s gains will be discussed at a gathering of euro-area finance ministers in Luxembourg today.

“We’ll tell you after the meeting if there’s something new to be said, a kind of extension to the normal poem,” Juncker said last week. “But I guess the poem will stay as the poem was,” adding that “we don’t like excessive volatility in exchange rates and disorderly movements.”

Futures traders decreased bets that the euro will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 43,367 on Oct. 13, compared with net longs of 51,045 a week earlier.

Housing Starts

Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange.

Gains in the yen and the dollar may be tempered before reports this week that economists said will show the U.S. housing market improved, damping demand for safer assets.

The National Association of Home Builders/Wells Fargo confidence index probably rose to 20 in October from 19 in September, a Bloomberg News survey of economists showed before the report is released today. Housing starts in the U.S. rose to an annual rate of 610,000 in September from 598,000 in August, according to a separate Bloomberg survey. The Commerce Department will release the report tomorrow.

Economies Improving

Bank of Japan board members said last month that the need for emergency credit-easing programs was decreasing as companies were finding it easier to raise funds, minutes of their meeting showed today. The central bank last week raised its evaluation of Japan’s economy for a second month.

“The outlook that economies around the world are recovering is fueling risk-taking sentiment,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “Given that Japanese and U.S. rates are likely to stay very low to support growth, the yen and the dollar will probably be sold as funding currencies.”

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3.25 percent in Australia, 2.5 percent in New Zealand and 1 percent in the euro zone.

In carry trades, investors borrow in a nation with low borrowing costs and buy assets in countries where returns are higher. The risk in such trades is that currency market moves will erase profits.

Pound Weakens

The pound fell from near the highest in three weeks against the dollar on renewed concern the central bank will continue adding currency into circulation. Bank of England policy maker Posen may back an extension on an asset-purchase program from the current 175 billion pounds ($286 billion) to help the economy recover from the recession, London’s Sunday Times reported, citing an interview with Posen.

“I’m not worried about overshooting inflation right now,” Posen said, according to the Sunday Times.

The Financial Times reported on Oct. 15 that Bank of England Markets Director Paul Fisher said the central bank’s bond-buying program may be paused next month so it will have the option “of doing more later.” The BOE is scheduled to hold its Monetary Policy Committee meeting on Nov. 5.

“There are renewed concerns that the BOE may expand its asset-purchase program,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. The pound “is falling because of Posen’s comments.”

Exporter Selling

The yen rose on speculation Japanese exporters took advantage of its recent weakness against the dollar and the euro to bring funds back home.

Large manufacturers expected the yen to trade at an average of 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

The Japanese currency fell to as low as 91.32 per dollar on Oct. 16, the weakest level since Sept. 25, and it declined to 136.07 per euro the same day, the lowest since Aug. 24.

“There has been constant selling of the dollar from exporters above 91 yen per dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

Japan’s current-account surplus widened in August as a rebound in global demand helped ease declines in exports, according to government data. Exports fell 37.1 percent in August from a year earlier, less than a 37.6 percent decline the previous month, the Ministry of Finance said on Oct. 8.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: October 18, 2009 22:59 EDT

 

its a race to debase

 

I want to get my money out of US dollars, but I don't know if any currency is safe right now. So my goal is to get most of my trading capital into real assets like metals, oil, agricultural commodities, etc., which should do well with the coming inflation and currency devaluations. I am buying pullbacks in commodity-based stocks, ETFs and mutual funds.

 

Looking at the EUR/PLN. Real close now.

Akuma