Dollar Rally Fizzles Out

Good day… And a Marvelous Monday to you! I hope your weekend was grand. Yesterday was Chamber of Commerce weather here in St. Louis. Saturday was yucky, but then I got to go to the Bob Costas Benefit for Cardinal Glennon Children’s Hospital/Bob Costas Cancer Center… A great night! I got to see Chuck Berry perform live for the first time… What a treat! This will be shorter than normal today, as there’s just not a whole lot to talk about!

OK… Friday we had no data to review, so the currencies were on their own… And as I signed off on Friday, the euro (EUR) was getting sold, and I told you that European Central Bank (ECB) member, Juncker had tried to shake things up with a comment about G-7. Well, the dollar held the hammer for most of the morning, but then a funny thing happened on the way to the forum: the euro turned on a dime, and began rallying, and did so for the rest of the day. The rally carried through in the overnight market last night… So, after all the gnashing of teeth, and hand wringing over whether the weak dollar trend was over, we’re just about back to where we were last Thursday… With the euro pushing the envelope of 1.59.

I saw nothing that turned the euro around… But I’ll say this… It certainly looks as though, someone with some brains, decided that the dollar had moved enough! And once the euro buying began, it was a steady climb back to 1.58, and in the overnight market to 1.5870. Overnight though, we did have ECB member Liebscher making some very hawkish statements, which has helped the euro this morning.

Liebscher said that he “sees no room to lower interest rates”… And that he “sees some indication of second-round effects”. He’s talking about inflation here folks. It sure would be nice to see our Central Bankers concerned with the inflation that is eating us alive!

No help from the IMF for the euro though. The IMF reported that they believe the euro to be “overvalued”. The IMF is also trying their hand at ECB policy, by telling the ECB that they can afford to cut interest rates as growth slows… I would love for an ECB member to speak up and tell the IMF to take their opinions and… Well, just take them and leave… Don’t go away mad, just go away!

Like the IMF has a better understanding of what’s going on in the Eurozone than the ECB… Geez Louise!

OK… Enough of that! Onto other things!

The Bank of England (BOE) announced a new plan to boost lending this morning. Believe or not, it mirrors the Fed’s plan to take securities (read mortgage backed bonds) of any rating as collateral. The BOE will allow banks to temporarily swap their mortgage-backed and other securities for U.K. Treasury bills, to ease the current credit crunch. The central bank said that the swaps will last for one year, but be renewable for up to three years and that the risk of losses on the securities will remain with the banks.

Well… At least they’re trying something, eh? The news moved pound sterling (GBP) a bit higher, but not much.

The U.S. stock market rally on Friday, led to more carry trades being put on the books, and that means weakness for Japanese yen (JPY), and Swiss francs (CHF)… Swiss francs though, seem to be able to keep on terra firma better than yen. On the flip side of the coin, Aussie (AUD) and kiwi (NZD) are really puttin’ on the Ritz, with some nice moves higher.

Did you see that famous, and well respected investment analyst, Dennis Gartman, is “abandoning ship” on his outlook for gold? It was reported on the Bloomie this morning that Mr. Gartman, wrote in his newsletter this morning, “We are abandoning our long held bullish outlook on gold this morning.” Hmmmm…

Talk about a two-way market! We’ve got Jimmy Rogers, Jim Sinclair, and other notables holding onto their beliefs that gold will continue to be strong, and now Dennis Gartman is on the other side of that trade.

Pretty interesting times, eh?

Well… I saw a snippet go across the screen that I couldn’t find later… But it was talking about the Swiss National Bank (SNB) increasing their yen holding and selling dollars. At least they got the memo! But seriously, the holdings of Treasuries around the world have been cut back since last August, when the mortgage meltdown became a major problem for bond holders… Can you blame holders of Treasuries for reducing those holdings?

I’m not announcing a fire sale here… These are minor moves so far.

The price of oil spiked again, this time to $117… OUCH! That’s just crazy stuff! But think about it for a minute… The total cost to drive your car has more than doubled in the past two years… And food? Oh my gosh! The prices on food are just ridiculous – which to me means that the “normal consumers” are going to be spending all their money on food and gas, instead of things they don’t need at Wal-Mart, and other stores. The economy is circling the bowl.

Currencies today 4/21/08: A$ .9415, kiwi .7925, C$ .9930, euro 1.59, sterling 1.9850, Swiss .9925, ISK 75.05, rand 7.7925, krone 5, SEK 5.90, forint 158.90, zloty 2.1525, koruna 15.80, yen 103.20, baht 31.51, sing 1.3530, HKD 7.7965, INR 39.96, China 6.9995, pesos 10.46, BRL 1.6690, Oil $116.15, Silver $17.88, and Gold… $920.04

That’s it for today… Today is our accountant extraordinaire, Mary Owens’ birthday… And, my good friend, Paul turns 50 today! It was an ugly weekend for my beloved Cardinals… But, they’re off to a good start despite the ugly weekend! I tried to do some yard work yesterday, but I just can’t do it any longer. Good thing my little buddy, Alex, will be ready to go to work on the yard this year! I’ve always thought about making a shirt that says on the front… I fought the lawn… And on the back… And the lawn won! My oldest son Andrew and his friend Rachel are doing much better after last week’s accident. Good to see them moving around better! Time to hit the send button. So… I hope you have a Marvelous Monday, and Wonderful Week!

Chuck Butler
April 21, 2008