Finotec News Archive - September 09 2007

The Dollar Index Dips to a 15-yr Low on Job Cuts

Sagiv Perez
09 September 2007

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The dollar fell to a 15-year low against major currencies on Friday as data showed U.S. payrolls fell last month for the first time in four years, raising recession fears and pressure for an interest-rate cut.

Traders dumped the dollar after the government said the United States shed 4,000 net jobs last month, the first contraction since August 2003. It also reduced estimated June and July job gains. The payrolls data followed a larger-than-expected decline
in July pending home sales reported earlier this week -- more evidence that a credit crunch that began with losses on bonds tied to risky U.S. mortgages was starting to put the brakes on growth. "Today's employment report and the revisions are enough to
justify several interest rate cuts by the Federal Reserve," said David Kotok, chief investment officer at Cumberland Advisors in Vineland, New Jersey. "It is clear from this report that the U.S. employment situation is worsening."

Markets are now pricing in a 74 percent chance that the Fed slashes its 5.25 percent benchmark interest rate by half a percentage point when it meets on Sept. 18. "The Fed cannot keep ignoring the fact that the sub prime and credit crisis has indeed hit the real economy," said Kathy Lien, senior currency strategist at DailyFX.com in New York. "Americans are feeling the pain and this will translate into weak consumer spending, which will drive speculation for a possible recession," she said.

The dollar index, which measures the greenback against a basket of major currencies, tumbled to a 15-year low. . The dollar also fell 1.1 percent to 1.1890 Swiss francs
The Euro was up 0.6 percent at $1.3765, near a session peak of $1.3799, according to electronic trading platform EBS.

The low-yielding yen was the biggest beneficiary, at one point rising 1.8 percent to a three-week high of 113.28 yen per dollar as investors fled risky trades funded by borrowing the Japanese currency at low interest rates

In August, when rising defaults on subprime home loans, made to borrowers with poor credit, began causing market turmoil, the dollar initially benefited from safe-haven flows as investors fled risk for U.S. Treasuries and Americans repatriated funds. But the greenback has looked increasingly vulnerable this week as liquidity remained scarce and housing and employment data sagged. Analysts said a Fed rate cut could further weaken the dollar, and yields spreads have moved decisively in favor of the Euro in recent sessions.
ECB President Jean-Claude Trichet said in the last interest rate statement of the EZ that inflation remains a top concern, suggesting hikes may resume in the future.
With Fed rate cuts now firmly priced in, "expect the euro to retest highs near $1.3850 ahead of a rally to $1.40 and above in the coming months," said Nick Bennenbroek, chief currency strategist at Wells Fargo in New York.

Finotec Analysis Team
09 September 2007

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Today's Economic Events

Time	Event	Currency	Period	Previous	Forecast	Significance	Actual
23:50	GDP	JPY	Quarterl	0.5%	-0.7%
The data will support the current assessments that a rate hike in Japan is not likely in the near future Gross Domestic Product (GDP) measures the total value of all goods and services produced by the economy. A rising trend has a positive effect on the nation's currency. GDP is the broadest measure of activity and the primary gauge of the economy's health. To foreign investors, a strong economy is viewed favorably because it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy. The combination of these effects can have a large impact on the demand for the nation's currency.
23:50	GDP Deflator	JPY	Quarterl	-0.3%	NA
The data will support the current assessments that a rate hike in Japan is not likely in the near future the Gross Domestic Product (GDP) Deflator measures the quarterly implied rate of inflation for all economic activity. The deflator is used to calculate the difference between nominal and real GDP.
10:45	PPI Input m/m	NZD		-1.6%	NA
PPI Input The Producer Price Index (PPI) Input measures the rate of inflation (i.e., the rate of price changes) experienced by manufacturers when purchasing goods and services. A rising trend has a positive effect on the nation's currency. When manufactures pay more for goods and services, they are likely to pass the higher costs to the consumer, so PPI is thought to be a leading indicator of consumer inflation. PPI is highly regarded, and at extremes will have a market impact equal to that of its CPI counterpart.
10:45	PPI Output m/m	NZD		-0.2%	NA
PPI The Producer Price Index (PPI) Output measures the rate of inflation (i.e., the rate of price changes) experienced by manufacturers when selling goods and services. Manufacturers are unlikely to pass Output inflation to the consumer, so it has much less market impact than its PPI Input counterpart.