While you were sleeping: Greenback weakens, oil, gold climb

Friday 20th March 2009

The US dollar extended its slide against the euro, yen and most major currencies amid speculation the Federal Reserve's quantitative easing, buying up to US$300 billion of Treasuries and as much as US$1.45 trillion of mortgage-backed securities, will sap returns from American assets.

The US dollar weakened to $1.3676 per euro from $1.3474 yesterday and some strategists predicted it may sink to as weak as $1.40. The greenback fell to 94.36 yen from 96.22. The euro fell to 129.05 yen. The dollar fell more than 2% against a weighted basket of six major currencies.

Traders said the flood of dollars from the Fed may weaken the buying power of the American currency.

The Reuters/Jefferies CRB Index of 19 raw materials climbed more than 5%.

Gold had the biggest gain in six months on the fed's plan, amid speculation US inflation will rebound as the central bank prints money, lifting the appeal of the precious metal.

Gold futures for April delivery jumped 7.8% to US$958.80 an ounce on the New York Mercantile Exchange.

Copper rose to a four-month high. Copper futures for May delivery jumped 5.3% to US$1.8075 a pound in New York.

Crude oil edged close to US$50 a barrel on speculation the Fed's money flood will revive the world's biggest economy and demand for fuel. Crude oil for April delivery rose as much as 3.5% to US$49.83 a barrel on the New York Mercantile Exchange.

The Conference Board's index of leading indicators, which provides a window into the US economy over the next three-to-six months, fell a smaller-than-expected 0.4% last month. Separately, a Federal Reserve report showed manufacturing in the Philadelphia area revived to -35 this month, from -41.3 in February, the 15th month in 16 that manufacturing has contracted.

Shares on Wall Street snapped three days of gains, led by a decline in financials, on concern the Fed has limited scope to lift the US economy by printing dollars.

Citigroup fell 14% to US$2.54, leading the Dow Jones Industrial Average lower. Bank of America dropped 9.9% to US$6.91 and JPMorgan Chase fell about 8% to US$24.95.

General Motors gained 8.7% to US$2.87 after the Treasury Department said it would guarantee payments to autoparts companies to ensure they're paid, no matter what happens to automakers. The aid amounts to as much as US$5 billion, according to a Treasury statement.

Autoparts companies last months sought US$18.5 billion to help avoid failures in the industry.

The Dow fell 1.2% to 7400.80 and the Standard & Poor's 500 declined 1.3% to 784.04. The Nasdaq Composite slipped 0.5% to 1483.48.

The US House made good on its threats to prevent companies receiving federal aid from doling out large lumps of cash to employees and executives after public outrage over American International Group. The House voted to impose a 90% tax on employee bonuses at AIG and other companies who have received more than US$5 billion of aid.

The vote was won by 328-93, underlining the determination of Democrats and Republicans to crack down on bonus payments made with taxpayer funds.

The 90% tax will be applied to people with total income of more than US$250,000 with bonus payments made since the start of the year.

In Europe, the Dow Jones Stoxx 600 Index rose 0.7% to 171.87, led by a 22% gain for the UK's Legal & General. Barclays climbed 17%.

The UK's FTSE 100 rose 0.3% and Germany's DAX 30 1.2%. France's CAC 40 rose 0.6%.

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