Broken News ( Daily Update )

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France's Lagarde says mkts in recovery phase after tensions of last year UPDATE

01/17/08 01:31 pm (EST)

(Updating with proposals for response to credit market crisis)

PARIS (Thomson Financial) - French Finance Minister Christine Lagarde said markets are now in a recovery phase after the tensions of last year.

"Financial markets and money markets are currently in a process of gradual recovery that we find quite satisfactory," Lagarde told a news conference following a meeting with her counterparts from Germany, Italy and the UK.

She said the European Central Bank helped to ease tensions in credit markets by its injections of liquidity at the end of 2007.

"We were delighted that in December there was liquidity made available in order to avoid the anxiety of the end of the year and it worked extremely efficiently... and we were pleased with what the ECB did," she said.

The economic fundamentals of European countries are good but the market turmoil does pose a risk to the growth outlook, she said.

"We considered together... that all of the fundamentals of the European economy are solid and that our economies are creating jobs," she said.

She told journalists after the news conference that she expects the French economy to grow around 2 pct in 2008, as in 2007.

"At the moment I'm interested in what I'm going to record for 2007 and I maintain that we will reach 2 pct, and I think it's in that range that we will be in 2008," she said.

Prime Minister Francois Fillon said on Tuesday that growth of 2.0-2.25 pct is "reachable" this year.

German Finance Minister Peer Steinbrueck said EU countries are seeing "very good economic figures" but the financial market turmoil may continue for the next few months.

EU economic and monetary affairs commissioner Joaquin Almunia said the European economy is still expected to grow around its potential rate in 2008, but the financial turmoil and the US economic slowdown may weigh on EU growth.

However, solid growth in emerging economies is continuing to support global growth and the EU is likely to avoid a pronounced slowdown, he said.

Lagarde also acknowledged that the difficulties of the US economy poses risks to the European growth outlook.

UK Chancellor of the Exchequer Alistair Darling declined to comment directly on the pound's recent fall but he said the UK's economic fundamentals are strong. He said he remains confident that the UK economy will get through its current difficulties resulting from the US subprime mortgage crisis.

The finance ministers met ahead of a meeting of the heads of state and government of the four countries in London on Jan 29.

They said they had agreed on a series of proposals to put forward to the leaders in response to the financial market crisis. These include a call for more transparency on structured financial products and for complete clarity in banks' forthcoming accounts for 2007. There is also a need for an improvement in liquidity risk management and for better coordination among banking sector supervisory authorities, they said.

The role of rating agencies in the financial turmoil also needs to be examined, they said.

"I think we all agree that the rating agencies did play a role during the summer... and clearly want some review and some supervision over rating agencies," said Lagarde.

Italy economy minister Tommaso Padoa-Schioppa said it is appropriate to have a debate on the role of rating agencies because of the important role that they played in the financial products that lie at the heart of the recent market turmoil.

Darling said it is the directors of the banks who are ultimately responsible for their investment decisions, even if rating agencies can aid these decisions.

But he added: "If somebody had asked over the last few years who exactly was in the subprime market, was it possible for people to ever meet their payments if interest rates went up, how much were the houses actually worth, then we might not be in the position we are today in the American housing market. So there are questions to be asked."

[email protected]

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Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

 

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Atlanta Fed's Lockhart: growing weakness may require lower fed funds rate

01/17/08 01:46 pm (EST)

WASHINGTON (Thomson Financial) - The onslaught of incoming pessimistic economic data means monetary policy makers at the Federal Reserve should remain ready to take action, including further rate cuts, Atlanta Federal Reserve Bank President and CEO Dennis Lockhart said today.

"I think these circumstances call for policymakers to be prepared to respond pragmatically," Lockhart said in remarks at the University of Alabama that were made available to reporters.

"In my view, pragmatism in the face of growing weakness in the general economy may very well require additional moves to lower the federal funds rate."

Lockhart, an alternate voting member of the Federal Open Market Committee (FOMC), opened the door to further rate cuts even after acknowledging that he is worried about inflation, a position that normally hints at a preference for tighter monetary policy.

"I'm troubled by the elevated level of inflation, which has been pushed up by higher energy and food prices," he said.

Lockhart said he believes inflation pressures will drop, but acknowledged that the price of goods are set in an "unpredictable geopolitical context," and that his view of inflation may be "too optimistic."

But whatever the inflation risks might be, Lockhart indicated there are real reasons to worry that the US is not yet out of a period of financial instability.

"A sober assessment of risks must take into account the possibility of protracted financial market instability together with a deep decline in house prices, volatile and high energy prices, continued dollar depreciation, and elevated inflation measures following from the recent upticks we've seen," he said.

As evidence for this point of view, he cited conversations he has had with bankers, fund managers and others in the runup to the January 30 FOMC decision on whether to cut the fed funds rate again.

"In my most recent conversations in December, they voiced serious concern about further -- and spreading -- market deterioration and potential spillover into the broad economy," he said. "From my contacts in the non-financial world, I generally get less strident impressions of current economic circumstances."

He also said he is more pessimistic on employment conditions in the US than the US government has reported.

"Analysis by my staff suggests that the employment picture for 2007 was weaker than recent statistics indicate," he said.

All of that said, Lockhart still sees a "weak first half" of 2008 for the US economy, and then gradual improvement for the rest of 2008 and into 2009.

But he did raise one key question that could change all that.

"For 2008, I believe the pivotal question -- the central uncertainty -- is the extent of current and future spillover from housing and financial markets to the general economy," he said. For signs of this, Lockhart said he is closely watching how lower home prices affect spending, and how financial market distress affects credit availability, investment, business activity and employment.

[email protected]

pik/wash/rw

COPYRIGHT

Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

 

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ECOFIN TO TALK DOWN EUR MORE TONIGHT IN PARIS?
Forex Market Commentary and Analysis (17 January 2008):

Jan 17 2008 01:01 pm
�
The euro appreciated vis-�-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4715 level and was supported around the $1.4590 level. Technically, today�s intraday low was just below the 50% retracement of the move from $1.4310 to $1.4920. More downbeat U.S. economic data were released today. First, weekly initial jobless claims fell 21,000 to 301,000 while continuing claims rose 66,000 to 2.751 million. Second, December home construction fell to its lowest level in sixteen years, off 14.2% m/m to an annualized 1.006 million units, much worse than expected. Also, December housing starts were off 38.2% y/y and for all of 2007, starts were off 24.8% from 2006�s level. Federal Reserve Chairman Bernanke testified in Congress today and reiterated the FOMC was prepared to enact �substantive� rate cuts if required to counter the risks associated with a slowing economy and dislocations in the financial markets. Bernanke also endorsed a proposed economic stimulus plan if it is enacted quickly and noted core inflation remains elevated. Similarly, Cleveland Fed President Pianalto said the U.S. economy has moved to �a slower growth track� and added she is concerned the Fed could lose the public�s confidence in maintaining price stability. Other data released in the U.S. today saw the January Philadelphia Fed�s general business conditions index fall to -20.9. The Fed�s Beige Book yesterday said economic growth moderated between November and December. In eurozone news, the euro came off yesterday on comments from ECB member Mersch who yesterday said there are �certainly downside risks� and added the ECB may �look through� oil-driven inflation. Mersch also spoke today and said the ECB recently discussed keeping rates steady and raising them only. Data released in the eurozone today saw the EMU-13 November trade surplus fall to �2.6 billion. The ECB today noted base inflation effects are likely to have a strong downward impact on inflation in 2008. Finance ministers from the U.K., Germany, France, and Italy convene in Paris tonight ahead of the G7 meeting in Tokyo on 9 February. Euro bids are cited around the US$ 1.4540 level.

�/ CNY
The yen appreciated vis-�-vis the U.S. dollar today as the greenback tested bids around the �106.60 level and was capped around the �107.85 level. Negative U.S. dollar sentiment increased demand for yen one day after the pair tested the �105 handle for the first time since May 2005. Data released in Japan overnight saw December corporate bankruptcies fall 1.7% m/m while industrial output came off 1.6% m/m in November. Traders await Bank of Japan Policy Board�s interest rate meeting next week along with the probably downgrade to GDP growth forecasts to the fiscal year to March 2008. Most traders do not expect the BoJ to change the overnight call rate from 0.50% anytime soon. The Nikkei 225 stock index gained 2.07% to close at �13,783.45. Dollar bids are cited around the �104.20 level. The euro moved lower vis-�-vis the yen as the single currency tested bids around the �156.40 level and was capped around the �157.80 level. The British pound appreciated vis-�-vis the yen as the crosses tested offers around the �212.40 level while the Swiss franc weakened vis-�-vis the yen and tested bids around the �97.00 figure. In Chinese news, December property prices in 70 major Chinese cities were up 10.5% y/y.

₤

The British pound strengthened sharply vis-�-vis the U.S. dollar today cable tested offers around the US$ 1.9790 level and was supported around the $1.9605 level. Sterling gained ground on comments from Bank of England Monetary Policy Committee member Gieve who hawkishly noted the global increase in oil and food prices will �likely raose our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high. These are testing times for the MPC.� BCC today forecast slowing economic growth and elevated inflation will be difficult for the U.K. economy. Cable bids are cited around the US$ 1.9260 level. The euro moved lower vis-�-vis the British pound as the single currency tested bids around the ₤0.7415 level and was capped around the ₤0.7480 level.
CHF
The Swiss franc appreciated vis-�-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0950 level and was capped around the CHF 1.1085 level. Data released in Switzerland today saw the January ZEW investor sentiment indicator decline to -32.7. U.S. dollar offers are cited around the CHF 1.1155 level. The euro and British pound moved higher vis-�-vis the Swiss franc as the crosses tested offers around the CHF 1.6180 and CHF 2.1810 levels, respectively.

 

[surf4sports]

EUR OFFICIALS JAWBONE EUR LOWER
Forex Market Commentary and Analysis

Jan 16 2008 11:01 am
�
The euro fell sharply vis-�-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4595 level and was capped around the $1.4860 level. Technically, today�s intraday high was just above the 23.6% retracement of the 2008 range and today�s intraday low was below the 76.4% retracement of the same range. One reason for the intraday weakness in the common currency was a comment from European Central Bank member Weber who said markets should not �overdramatize� the final EMU-13 December harmonized CPI print of 3.1%. Inflation remains well above the ECB�s ceiling target of 2.0% and his comment today was the first time in recent memory an ECB official has not been very hawkish in remarks. ECB�s Mersch followed suit with a comment that downside economic risks are increasing. Two of Germany�s Five Wise Men today warned the financial market crisis has not yet peaked. In U.S. news, many economic data were released. First, December headline CPI was up 0.3% m/m and 4.1% y/y, an acceleration from 2006�s 2.5% annualized increase. These data suggest price pressures remain elevated and the next core personal consumption expenditures print will be closely monitored to see if price pressures are still above the Fed�s perceived 2.0% comfort ceiling zone. On a core basis, December PPI was up +0.2% m/m and 2.4% y/y. Second, December industrial production was unchanged m/m and up 1.5% y/y while capacity utilization fell to 81.4%. Third, Treasury International Capital flows for November saw net capital inflations rise to US$ 149.9 billion in November from US$ 92.2 billion in October. Net foreign acquisitions of long-term U.S. securities were US$ 90.9 billion. Talk remains focused on whether or not the U.S. is in a recession or may soon enter one, and how aggressive the Fed will be at the 30 January FOMC meeting. There is still widespread speculation the Fed will announce an intermeeting cut before then but the most likely scenario involves a 50bps easing at the end of the month. Today�s Beige Book will be closely scrutinized by the markets. Euro bids are cited around the US$ 1.4540 level.


�/ CNY
The yen appreciated vis-�-vis the U.S. dollar today as the greenback tested bids around the �105.90 level and was capped around the �106.95 level. The pair fell to its lowest level since May 2005 as risk aversion continued to grow, reducing demand for short yen carry trades in which proceeds are invested in higher-yielding currencies. Many data were released in Japan overnight. First, November core private sector machinery orders fell 2.8% m/m to �1.05 trillion, the first decline in two months. The government today left its assessment of machinery orders unchanged. Second, the November current account surplus expanded 2.1% to �1.78 trillion while the trade surplus fell 9.7% to �932.7 billion. Third, the December domestic corporate goods price index rose 2.6% y/y, up from November�s 2.3% level. Most traders expect Bank of Japan�s Policy Board to keep its overnight rate unchanged at +0.50% for the next several months. Banking minister Watanabe today said many industries in Japan are �suffering due to high costs� associated with the U.S. sub-prime mortgage crisis in the U.S. The Nikkei 225 stock index lost 3.35% to close at �13,504.51. Dollar bids are cited around the �106.30 level. The euro moved lower vis-�-vis the yen as the single currency tested bids around the �156.50 level and was capped around the �158.45 level. The British pound moved higher vis-�-vis the yen as sterling tested offers around the �210.70 level while the Swiss franc moved lower vis-�-vis the yen and tested bids around the �97.05 level. The Chinese yuan appreciated vis-�-vis the U.S. dollar as the greenback closed at CNY 7.2324 in the over-the-counter market, down from CNY 7.2411, the pair�s lowest close since the yuan revaluation of July 2005. People�s Bank of China tightened monetary policy today by hiking the reserve requirement by 50bps to 15.0%, effective 25 January.

 

[surf4sports]

Atlanta Fed's Lockhart: growing weakness may require lower fed funds rate

Thu, Jan 17 2008, 18:46 GMT
http://www.afxnews.com

WASHINGTON (Thomson Financial) - The onslaught of incoming pessimistic economic data means monetary policy makers at the Federal Reserve should remain ready to take action, including further rate cuts, Atlanta Federal Reserve Bank President and CEO Dennis Lockhart said today.

"I think these circumstances call for policymakers to be prepared to respond pragmatically," Lockhart said in remarks at the University of Alabama that were made available to reporters.

"In my view, pragmatism in the face of growing weakness in the general economy may very well require additional moves to lower the federal funds rate."

Lockhart, an alternate voting member of the Federal Open Market Committee (FOMC), opened the door to further rate cuts even after acknowledging that he is worried about inflation, a position that normally hints at a preference for tighter monetary policy.

"I'm troubled by the elevated level of inflation, which has been pushed up by higher energy and food prices," he said.

Lockhart said he believes inflation pressures will drop, but acknowledged that the price of goods are set in an "unpredictable geopolitical context," and that his view of inflation may be "too optimistic."

But whatever the inflation risks might be, Lockhart indicated there are real reasons to worry that the US is not yet out of a period of financial instability.

"A sober assessment of risks must take into account the possibility of protracted financial market instability together with a deep decline in house prices, volatile and high energy prices, continued dollar depreciation, and elevated inflation measures following from the recent upticks we've seen," he said.

As evidence for this point of view, he cited conversations he has had with bankers, fund managers and others in the runup to the January 30 FOMC decision on whether to cut the fed funds rate again.

"In my most recent conversations in December, they voiced serious concern about further -- and spreading -- market deterioration and potential spillover into the broad economy," he said. "From my contacts in the non-financial world, I generally get less strident impressions of current economic circumstances."

He also said he is more pessimistic on employment conditions in the US than the US government has reported.

"Analysis by my staff suggests that the employment picture for 2007 was weaker than recent statistics indicate," he said.

All of that said, Lockhart still sees a "weak first half" of 2008 for the US economy, and then gradual improvement for the rest of 2008 and into 2009.

But he did raise one key question that could change all that.

"For 2008, I believe the pivotal question -- the central uncertainty -- is the extent of current and future spillover from housing and financial markets to the general economy," he said. For signs of this, Lockhart said he is closely watching how lower home prices affect spending, and how financial market distress affects credit availability, investment, business activity and employment.

[email protected]

pik/wash/rw

COPYRIGHT

Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

Thomson Financial News

 

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Dollar Declines Against Rivals On Bernanke Testimony

Thu, Jan 17 2008, 15:18 GMT
http://www.djnewswires.com/eu

Dollar Declines Against Rivals On Bernanke Testimony


By Riva Froymovich
Of DOW JONES NEWSWIRES




NEW YORK (Dow Jones)--The dollar immediately declined against the euro and yen on testimony from Federal Reserve Chairman Ben Bernanke before Congress Thursday.

"The dollar's declining for a lot of different pieces of news," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.

"The market is pricing in more rate cuts from the Fed," he said. "We also had very weak housing news this morning. That also weighs on the dollar."

The euro jumped to an intraday high of $1.4716 and Y157.85 after the release of Bernanke's speech. The dollar also dropped below Y107 after climbing early in the morning near its intraday high.

Thursday morning in New York, the euro was at $1.4692 from $1.4657 late Wednesday. The dollar was at Y107.11 from Y107.54. The euro was at Y157.37 from Y157.60, according to EBS. The U.K. pound was at $1.9749 from $1.9628, and the dollar was quoted at CHF1.1000 from CHF1.0996 late Wednesday.

Fed Chairman Bernanke on Thursday endorsed a "quickly" implemented fiscal stimulus package, saying it would complement the Fed's efforts to provide monetary-policy insurance against an economic downturn.

He also repeated the pledge he made last week to enact "substantive" rate cuts if needed to counter the threat to the economy posed by fragile financial markets and weakening employment.

Those remarks were widely interpreted to mean that the Fed would reduce its short-term interest-rate target, probably by half a percentage point from its current 4.25%, at the central bank's next meeting, Jan. 29-30. It has already lowered the fed funds rate 100 basis points since September.

However, he also stressed that the Fed is still keeping a close eye on core inflation, which has stepped up due to the pass-through effects of energy costs, the weakening dollar and higher prices for financial and medical services.

Earlier Thursday, the Commerce Department said home construction plunged 14.2% in December, tumbling to its lowest point in 16 years, after falling 7.9% in November. The big decline surprised Wall Street. The median forecast of economists surveyed by Dow Jones Newswires was a 5.0% drop.

-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; [email protected]

(Brian Blackstone in Washington contributed to this report.)

(END) Dow Jones Newswires

January 17, 2008 10:18 ET (15:18 GMT)


Copyright 2008 Dow Jones & Company, Inc.

Dow Jones

 

[surf4sports]

Mexico's Peso Weakens To 10.9380/Dlr After Fed Comments

Thu, Jan 17 2008, 15:29 GMT
http://www.djnewswires.com/eu

Mexico's Peso Weakens To 10.9380/Dlr After Fed Comments

MEXICO CITY (Dow Jones)--Mexico's peso opened flat and then lost ground Thursday after U.S. Federal Reserve Chairman Ben Bernanke said deeper interest rate cuts are needed in the U.S., highlighting risks of a sharp slowdown in the economy.

At 10:15 a.m. EST, the peso was quoted in Mexico City as trading at 10.9380 to the U.S. dollar, compared with MXN10.9345 at the open, the same as Wednesday's close.

Mexico, which sends more than 80% of its exports to the U.S., is vulnerable to a recession in the neighboring economy. In a note to investors, the Monex brokerage said the peso was too strong at Wednesday's close, considering the turbulence in foreign markets.

Bernanke said core inflation is on the rise in the U.S. due to higher energy prices, and that the slumping housing market will be a drag for a good part of 2008.

The local IPC stock index was trading 0.9% lower after Bernanke's comments, while the Dow Jones Industrial Average was down 0.6%.

The Bank of Mexico is expected to leave interest rates unchanged at its next policy meeting on Friday to keep inflation in check. This leaves yields on peso-denominated bonds attractive in an environment of low interest rates in the U.S. Demand for peso-denominated bonds normally firms up the local currency.

But stable to higher interest rates also makes it more expensive for companies and consumers to get loans. High interest rates could dampen economic activity this year in countries such as Mexico, Brazil and Colombia, the Royal Bank of Canada said in a research note Thursday.

-By Peter Millard, Dow Jones Newswires; 5255-5080-3454; [email protected]

(END) Dow Jones Newswires

January 17, 2008 10:29 ET (15:29 GMT)


Copyright 2008 Dow Jones & Company, Inc.

 

[surf4sports]

UPDATE: Dollar Declines Against Rivals On Bernanke Testimony

Thu, Jan 17 2008, 17:03 GMT
http://www.djnewswires.com/eu

UPDATE: Dollar Declines Against Rivals On Bernanke Testimony


(Update with analyst comments, prices and background.)




By Riva Froymovich

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The dollar has returned to early Thursday morning levels after a sharp decline against its major rivals on prepared testimony from Federal Reserve Chairman Ben Bernanke to Congress.

The U.S. currency rebounded in spurts throughout Bernanke's subsequent question-and-answer session, and returned to pre-testimony levels, which were still weaker on the day.

"The market is pricing in more rate cuts from the Fed," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.

A cut to the Fed's benchmark lending rate typically decreases the attractiveness of the dollar.

"We also had very weak housing news this morning. That also weighs on the dollar," said Gallagher.

The euro jumped to an intraday high of $1.4716 and Y157.85 immediately after the release of Bernanke's speech. The dollar also dropped below Y107 after climbing early in the morning toward its intraday high.

The greenback had already been underfoot versus the euro earlier in the day on a disappointing, although expected, financial earnings report from Merrill Lynch & Co. (MER), which had a massive fourth-quarter net loss.

Late Thursday morning in New York, the euro was at $1.4682, up slightly from $1.4657 late Wednesday. The dollar was at Y107.02, down from Y107.54. The euro was at Y157.12, down from Y157.60, according to EBS. The U.K. pound was at $1.9745, up from $1.9628; and the dollar was quoted at CHF1.0995, little changed from CHF1.0996 late Wednesday.

Bernanke repeated the pledge he made last week to enact "substantive" rate cuts if needed to counter the threat to the economy posed by fragile financial markets and weakening employment.

Those remarks were widely interpreted to mean that the Fed would reduce its short-term interest-rate target, probably by a half-percentage point from its current 4.25%, at the central bank's next meeting on Jan. 29-30. It has already lowered the federal-funds rate 100 basis points since September.

"There is inherently nothing new" in Bernanke's comments, which is why the dollar returned to previous levels over the course of his testimony, said Geoffrey Yu, foreign exchange strategist at UBS in Zurich.

Bernanke's remarks that the Fed isn't concerned with a major moral hazard reaffirm that the Fed, said Yu, "will move rates as much as they believe is necessary and is allowed for the market without precipitating a new housing bubble."

The Fed chairman also endorsed a "quickly" implemented fiscal stimulus package, saying it would complement the Fed's efforts to provide monetary-policy insurance against an economic downturn.

"He's being very cautious about this stimulus package, but at the same time being very forthright about the condition of the U.S. economy," Yu said.

It is unclear what kind of response the dollar might have to a stimulus package, because the specifics of such a package are still being determined and it would have a lagging effect on the economy, analysts said.

"The issue is what U.S. consumers are going to do with the money," said Yu. "Is the American consumer lowering its propensity to consume?"

U.S. President George W. Bush also concluded Thursday that the U.S. economy needs a short-term boost, the White House said. Previously, the White House had said Bush was considering stimulus options, but hadn't made a decision about whether a package was needed.

During the question-and-answer session before the House Budget Committee, Bernanke also noted that growth in Europe and Asia won't be as deeply affected as in the U.S. That signals ongoing dollar weakness, considering the Fed's expected rate cut.

At the same time, European Central Bank President Jean-Claude Trichet made comments in Frankfurt.

"Trichet has been trying to limit the damage caused by (ECB governing council member Yves Mersch)," said Yu.

On Wednesday, Mersch, a usually hawkish official, acknowledged that euro-zone growth might have to be downgraded from 2.0% this year. Markets saw this as evidence that the ECB may not be in rate-hiking mode after all.

The U.K. pound also pushed north to new intraday highs during Bernanke's testimony, following a pattern that began before the speech, to top out at $1.9789.

UBS initiated a long sterling trade recommendation Thursday.

"Sterling has been tremendously oversold on consecutive record lows against the euro," said Yu. "A lot of bad news has already been priced into the pound."

Earlier Thursday, the Commerce Department said home construction plunged 14.2% in December, tumbling to its lowest point in 16 years, after falling 7.9% in November. The big decline surprised Wall Street. The median forecast of economists surveyed by Dow Jones Newswires was a 5.0% drop.

Additionally, Canada's dollar just pushed toward a fresh four-month low Thursday as prices for crude oil, a big Canadian export, move lower on a weak Philadelphia Fed manufacturing report. Recently, the dollar hit an intraday high of C$1.0307.

-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; [email protected]

(Brian Blackstone in Washington contributed to this report.)

(END) Dow Jones Newswires

January 17, 2008 12:03 ET (17:03 GMT)


Copyright 2008 Dow Jones & Company, Inc.

 

[surf4sports]

Forex - Dollar weakens after further bad news on US economy, Bernanke comments

Thu, Jan 17 2008, 17:10 GMT
http://www.afxnews.com

LONDON (Thomson Financial) - The dollar was weaker after a string of weak data, including a woeful Philly Fed survey, and dovish comments from Federal Reserve chairman Ben Bernanke.

In a testimony before US lawmakers, Bernanke said "downside risks to growth have become more pronounced", that "additional policy easing may well be necessary", and that rate cuts may have to be "substantive". He also expressed support from additional fiscal stimulus for the government.

Bernanke's cautious view on growth was supported by a massive and unexpected slump in the Philadelphia Fed manufacturing activity index, which tumbled to -20.9 in January from -1.6 in December, way below forecasts for -1.3.

All this gives further confirmation that the Federal Reserve will deliver a 50 basis point interest rate cut later this month, with further large cuts to come.

"In short, the Fed will cut rates by a bigger 50 basis points at its meeting that concludes on Jan 30 and will cut rates again after that if the economic data continues to head south," said Paul Ashworth, economist at Capital Economics.

Earlier in the day, US housing starts data were also very weak, dropping 14.2 pct in December, though these were partially offset by strong jobless claims data.

The euro's gains against the dollar were limited, however, partly because earlier comments by European Central Bank official Yves Mersch were interpreted as suggesting euro zone rates may be set to fall, and partly because investors feel the dollar already has a substantial amount of bad news priced in.

"Euro/dollar is looking a little stuck in the 1.45-1.50 range," said Steve Barrow at Bear Stearns.

He said the euro seemed to respond more to the Mersch comments than to the raft of bad news out of the US - the Bernanke comments, poor data and further news of huge write-offs from a major US financial institution, this time from Merrill Lynch.

Mersch stressed that the downside risks to growth have increased and said the ECB could "look through" temporary high levels of inflation, though he later backtracked, suggesting an interest rate cut was not being considered.

Meanwhile, the pound gained, reaching a nine-day high against the euro and the dollar after earlier relatively hawkish comments from Bank of England Monetary Policy Committee member John Gieve.

Gieve warned of a "sharp rise" in inflation in the UK over the coming months which is complicating the job of rate-setters at a time when the credit crunch has diminished growth prospects.

"These are likely to raise our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high," he said.

Gieve was one of only two MPC members to vote for a rate cut in November. The comments, however, are unlikely to alter expectations that the Bank of England will cut interest rates next month.

"Gieve's comments seemed to help sterling," Bear Stearn's Barrow said, adding that news that Scottish and Newcastle are in talks with Carlsberg A/S and Heineken NV on a possible takeover for the UK brewer has also helped the pound gain against the euro.

London 1643 GMT London 0840 GMT

US dollar

yen 107.01 down from 107.73

sfr 1.0992 down from 1.1082

Euro

usd 1.4684 up from 1.4590

yen 157.13 down from 157.31

sfr 1.6142 down from 1.6171

stg 0.7435 up from 0.7430

Sterling

usd 1.9744 up from 1.9638

yen 211.23 down from 211.74

sfr 2.1703 down from 2.1760

Australian dollar

usd 0.8820 up from 0.8819

stg 0.4466 down from 0.4488

yen 94.41 down from 95.09

[email protected]

jkm/lam

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Dollar slips against euro, pound

Thu, Jan 17 2008, 19:11 GMT
http://www.afxnews.com

NEW YORK (AP) - The dollar edged down against most major currencies Thursday after President Bush and U.S. Federal Reserve Chairman Ben Bernanke said they supported an economic stimulus package to avert recession.

The dollar slipped against the 15-nation euro, which bought $1.4675 in New York trading compared with $1.4661 late Wednesday. The British pound rose to $1.9766 from $1.9642.

Bernanke didn't recommend specific provisions or endorse a specific plan, but spoke to the general concept of an economic rescue package. It is likely that any package will include tax rebates.

Although politicians differ over what provisions should be part of any economic stimulus package, there's widespread agreement that tax rebates similar to the $300-$600 checks provided in 2001 are likely to be part of the measure. The country last suffered a recession in 2001.

Any such package also must be temporary to avoid making a big boost to the federal government's budget deficits and adding to the country's long-term fiscal burdens.

David Solin, a partner at Foreign Exchange Analytics in Essex, Conn., said the announcement will not have devastating implications for the U.S. dollar.

"What Bernanke has done is just repeat what he has said before about the idea of taking substantial action if need be," Solin said. "There has not been any kind of huge reaction in the dollar, and we don't expect there will be much of an impact."

However, Solin said if the short-term package turns out to be disappointing, the dollar could drop to new lows over the next few months.

The dollar traded as low as 106.58 Japanese yen before recovering to 107.05 yen -- still below the 107.60 yen it bought late Wednesday. The U.S. currency also fell to 1.1001 Swiss francs, compared with 1.1010 francs, and rose to 1.0266 Canadian dollars from 1.0234.

Bernanke addressed the U.S. Congress' House Budget committee about the economy, with analysts and markets looking for insights into what might be done to help blunt the ill effects of a deep housing slump and credit crisis.

The big worry is that those problems will force consumers to clamp down on spending and businesses to cap hiring.

Those economic woes have prompted Wall Street to clamor for additional Federal Reserve interest rate cuts. The U.S. central bank has cut rates three times to 4.25 percent and signaled that more may be in the offing.

In contrast, the European Central Bank has kept open the option of raising its rates -- currently at 4 percent -- to curb the threat of rising inflation.

Lower interest rates can jump-start a country's economy but may weigh on its currency as traders transfer funds to countries where they can earn higher returns.

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