Asia Rushes to Euros
"Asian central banks aren't stupid. They do not want wild swings in the value of their assets. They will look to a gradual decline of the dollar and move slowly to diversify out of their dollar holdings into other currencies, mainly the euro."
by Chris Gaffney In this issue… - More SIRT…
- EU eases budget limits
- Rush to euros by Asia
--- Advertisement --- Not sure which currency is right for you? Visit the Currencies Research Center by going to www.dailypfennig.com and clicking EverBank Home, for handy research tools. Or, give the EverBank World Currency Desk a call at 800.926.4922. --------------------- And now…today's Pfennig! Asia Rushes to Euros Good day. And welcome to spring. What a great weekend! Had a great time at the bosses house as Chuck's wife invited everyone over to help celebrate his 50th birthday Saturday night and then we had a picture perfect spring day here in St. Louis yesterday. Too bad the currency markets aren't behaving as well as the St. Louis weather. More SIRT has taken the dollar lower this morning and with no data expected until tomorrow, I expect to see more of a slight sell off today. Tomorrow, we get the FOMC rate decision and Producer Prices. We expect the Fed to keep the "measured" language in the statement this month, but many do not. Some believe the surge in oil prices, commodities, and job growth will heighten concerns about inflation and raising speculation the Fed may soon abandon the measured pace in raising interest rates and boost rates more quickly. But even if they drop "measured" from the statement, this would not necessarily mean interest rate increases would be accelerated. Changing the language would simply give Greenspan more ability to jawbone the markets. The recent rise in commodity prices has given rise to the latest round of SIRT. But I believe Greenspan will wait to see greater movement in the jobs data prior to accelerating interest rates. The European Union finance ministers gave in to German pressure and eased restrictions on budget deficits seeking to boost an economy that has lagged behind the United States. While they didn't come out and raise the 3% deficit ceiling, they have made it easier for countries to claim exemptions from the 3% limit. Finance chiefs agreed to let countries using the euro top the deficit ceiling of three percent of GDP to help boost growth in the case of "a negative growth rate" or "a protracted period of very low growth." Germany had pushed for the easing as costs of rebuilding its ex-communist East has kept its budget deficits high. I don't agree with this move and think it could have a negative impact on the Euro in the long run. While European growth has lagged behind the United States, a slow and steady growth built on solid fundamentals is much preferred to a quicker growth built on a shaky foundation. We will have to see what ECB President Jean-Claude Trichet does to limit the negative effects of this new legislation. Just last week Trichet told a European Parliament committee, "whatever happens, the ECB according to its own mandate will deliver price stability." Lets just hope Trichet can get it done! Though both the euro and pound Sterling were off over the weekend, we believe the pound will continue to out-perform the euro due, in part, to events like the one in the above paragraph. The Bank of England will also continue to raise interest rates in the face of increasing inflation pressures. With an economy in better shape than most in Europe and positive interest rate differentials, the pound will continue to be the best currency to own in Europe. A story out of Hong Kong gave additional strength to the dollar over the weekend as a top Asian banker suggested Asian central banks shouldn't rush to boost holdings of euros at the expense of the U.S. dollar. Joseph Yam, Chief Executive of Hong Kong's Monetary Authority, said "The euro may become so popular in this region, it may undermine the stability of international finance. What's important from our point of view as central bankers is that it goes in an orderly way." Asian central banks aren't stupid. They do not want wild swings in the value of their assets, much of which are in U.S. dollar. They will look to a gradual decline of the dollar and move slowly to diversify out of their dollar holdings into other currencies, mainly the euro. This is what Chuck has been saying over the last two years. A gradual move by the Asian central banks will continue to put upward pressure on the euro as the offset currency to the dollar. Again, expect a slow sell off in the dollar over the course of today as the markets await the data to be released tomorrow morning. I've got to get this out, as we will be short handed on the desk this morning with both Chuck and Ty gone. Got to get to work…. Currencies today: A$ .7867, kiwi .7374, C$ .8256, euro 1.3193, sterling 1.9009, Swiss .85, rand 6.107, krone 6.1685, forint 187.15, zloty 3.10, koruna 22.79, yen 105.33, baht 38.57, sing 1.6312, pesos 11.215, and gold… $435.40 That's it for today. Hope everyone has a great Monday!! | 
