While you were sleeping: Dollar dips, Fed's Fisher flags exit strategy

Monday 29th June 2009

The US dollar fell after China, the biggest holder of US Treasuries, reiterated its call for a new global reserve currency and said the International Monetary Fund should manage more of the world’s foreign-exchange reserves.

The US currency fell 0.4% to $1.4051 per euro on Friday in New York and weakened to 0.9% to 95.13 yen. The euro fell 0.3% to 133.93 yen.

The greenback ended the week lower following the Federal Reserve’s statement that interest rates are likely to remain low for an extended period.

China's central bank renewed its call for a new reserve currency, saying the dominance of one currency “has intensified the concentration of risk and the spread of the crisis.” The statement in China’s annual financial stability report didn’t explicitly name the dollar.

“To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China said.

The PBOC said the IMF exercise closer supervision of the economic and financial policies of major reserve-issuing countries. PBOC Governor Zhou Xiaochuan in March had suggested the IMF’s unit of account could be a candidate for new reserve currency.

The ICE’s Dollar Index slipped 0.6% to 79.88 after the Chinese comments.

The Federal Reserve will contemplate an “exit strategy” from its stimulus measures when the time was right, according to Richard Fisher, president of the Dallas Fed.

The US economy is likely to resume growing in late 2009 though at a milder pace than was earlier hoped for, said Fisher, who isn’t a voting member of the FOMC.

"I have been forecasting a slow recovery,” Fisher said. “Not a V-shaped snapback, nor even a U-shaped one, but a very slow slog.”

Mario Draghi, chairman of the newly created Financial Stability Board, based in Basel, Switzerland, said the global economy is showing “convincing” signs of recovery though the financial system is still fragile.

America passed its first legislation imposing limits on the nation’s greenhouse gas emissions, with a narrow win for President Barack Obama in the US House, who called it “a critical transition to a clean-energy economy without untenable burdens on the American people.”

The House voted 219-212 in favour of a proposal to create a market for trading pollution permits to curb emissions. The narrow winning margin suggests further political battles over the measures.

Under the American Clean Energy and Security Ac, the US would have to reduce greenhouse-gas emissions by 17% from 2005 levels by 2020 and impose a limited number of pollution permits that could be traded or sold.

US consumer spending rose for the first time since February last month, according to the Commerce Department. Spending edged up 0.3% in May and April was revised to no change from a previously estimated decline.

Personal income rose 1.4% in May, reflecting social benefit payments from the government's economic stimulus measures. Personal savings climbed to a record annual rate of $768.8 billion, with the saving rate at 6.9%, the highest since 1993. The higher saving rate stoked concern consumer spending will be too tepid to help revive the economy.

The Reuters/University of Michigan Surveys of Consumers final index of confidence reached a higher-than-expected 70.8 this month, from 68.7 in May, equaling February 2008's reading.

The Nasdaq Composite rose 0.8% to 9877.39 on Friday after smartphone maker Palm Inc. posted a smaller-than-expected loss and reported strong demand for its new Pre phone. Palm stock jumped 16% to US$16.22.

The Dow Jones Industrial Average slipped 0.4% to 8438.39, as the price of oil dropped below US$70 a barrel, weighing on shares of oil producers.

Exxon-Mobil fell 1.2% to US$69.05 and Chevron declined 1.4% to US$65.95.

The Standard & Poor’s 500 fell 0.2% to 918.90, led by a 9% decline in KB Home to US$13.42 after the fifth-largest US homebuilder posted a bigger-than-expected quarterly loss on Friday and said year-on-year orders declined.

Crude oil declined after figures showing the US saving rate is rising damped optimism for a speedy recovery in the US economy.

Crude oil for August delivery fell 1.5% to US$69.16 a barrel on the New York Mercantile Exchange.

Copper also dipped on a more tepid outlook for the world’s biggest economy.

Copper for September delivery fell 0.3% to US$2.309 a pound on the New York Mercantile Exchange.

Gold for August delivery edged up US$1.50 at US$941 an ounce in New York.

The Bank of England on Friday said UK lenders are in better shape than they were six months ago though are still vulnerable to economic shocks.

Access to funds is becoming easier as lenders enjoy a pick-up in the value of their assets, the Bank of England said.

Shares in Europe fell, with the Dow Jones Stoxx 600 Index declining 0.1% to 204.47.

Sanofi-Aventis fell 8.1%, leading drugmakers lower and Novo Nordisk slid 3.7%.

Royal Dutch Shell Group fell 0.3% as crude oil slipped. Miner Anglo American fell 1.5% as prices of metals declined, BHP Billiton fell 0.7% and Rio Tinto declined about 1%.

UBS AG fell 5.4% after it announced plans to raise $3.5 billion in new capital and post a second-quarter loss.

The UK’s FTSE 100 fell 0.3% to 4241.01, Germany’s DAX 30 slid 0.5% to 4776.47 and France’s CAC fell 1.1% to 3129.73.

Businesswire.co.nz

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