Saturday, April 28, 2007

Dollar Drops to All-Time Low Against Euro as U.S. Growth Slows

The dollar declined to a record low against the euro as a slowdown in the world's largest economy reduces the allure of U.S. assets among global investors.

A Federal Reserve index measuring the dollar against other major currencies sank this week to the weakest level in the index's 36-year history. The yen fell to an all-time low against the euro as falling consumer prices in Japan damped bets on increased borrowing costs.

``We're continuing to see weak macroeconomic numbers in the U.S. pan out,'' said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. ``That is clearly weighing on the dollar.''
The dollar fell 0.45 percent this week to $1.3652 per euro. It reached $1.3681 yesterday, eclipsing the previous record low of $1.3666, which was touched April 25 and first set Dec. 30, 2004. The euro debuted in January 1999 at about $1.17.
The U.S. currency slumped yesterday after the Commerce Department reported that gross domestic product grew at an annual rate of 1.3 percent in January through March, after a 2.5 percent fourth-quarter gain.

``The market is negative for the dollar now, and this report pushed people to jump to sell the dollar,'' said Robert Fullem, vice president of U.S. corporate currency sales in New York at Bank of Tokyo-Mitsubishi UFJ Ltd.
Fullem predicted the dollar will fall to $1.3750 per euro over the next month.
Dollar's Decline
The dollar has fallen 16 percent against the euro since it began trading in 1999. The U.S. currency has declined 20 percent versus the pound, 36 percent against the Australian currency, 40 percent versus the New Zealand currency and 38 percent against its Canadian counterpart over the same period.

The Federal Reserve's U.S. Trade Weighted Major Currency Index weakened to an all-time low of 78.99 on April 25 and is down 1.8 percent this year.
``We are in a dollar bear market,'' said Brian Garvey, senior currency strategist in Boston at State Street Global Markets.

The current account, a broad definition of trade that includes investment income and transfers, posted a record deficit of $856.7 billion last year.

``The main trend is averse to the dollar,'' said Paul A. Samuelson, professor emeritus of economics at the Massachusetts Institute of Technology and a Nobel Prize winner in economics. ``With the U.S. in moderate slowdown, that's not encouraging foreign savers at the old dollar exchange rate.''
The May Factor. To sell in May and return after October is a good rule of the thumb, especially for "long only" players( Futures & Options). In a revealing study: an investor who placed US$10,000 in the Dow average at the end of April each year since 1950 and sold at the end of October would have a net loss of US$272, while someone doing the opposite would have gained an astounding US$534,323.There is a familiar saying in capital markets "Sell in May and go away", made popular by author Jeffrey Hirsch who publishes the Stock Trader's Almanac. It doesn't help that most of the major corrections have taken place between May and October.
A factor which has not been cited for the May-October effect is bonuses/holidays. In order to put in the good figures for year end purposes, there has always been a covergence of interests for players involved to have a solid last quarter so that bonuses in the new year will be good. Plus, you have extended holidays with the last 2 weeks of December and the first week of January - hence you need the cash and peace of mind to have some fun. Generally nothing untoward will happen during end-December / early-January because of that.... a kind of financial detente. (Sources :
Trade Idea: .... we must be flexible along the market trend, if the market insist trending upward to 1350 then.... Never bang against the TRAIN...

1 comment:

David Wozney said...

A "Federal Reserve Note" is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.