Monday, August 11, 2008

1) Dollar roars to five-month high

Economic weakness and rising inflation in Europe sends U.S. dollar soaring against foreign currencies.

Last Updated: August 8, 2008: 10:59 AM EDT

NEW YORK (AP) -- The dollar soared against the euro after the European Central Bank left its key interest rate on hold amid worries about the Continent's economy and convinced markets no more increases are likely soon - if at all.

The euro sank to $1.5009 early in New York from $1.5328 late Thursday. It is the highest point for the dollar since late February. The pound, meanwhile, sank to $1.9155 from $1.9436, its lowest point since November 2006.

It is a rapid recovery from July 15, when the euro hit a record against the dollar at $1.6038.

On Thursday, the European Central Bank and Bank of England left their key interest rates unchanged at 4.25% and 5%, respectively. ECB President Jean-Claude Trichet issued a warning on inflation and said economic growth figures for the second and third quarters of 2008 would be much weaker than in the early part of the year. He signaled that an interest-rate increase to counter inflation might not be forthcoming.

Higher interest rates can buck up a currency, as investors transfer assets where they can get better yields, while lower interest rates can weaken a currency.

"The market realized there would be no more rate hikes" by the ECB, said Ashraf Laidi, currency strategist at CMC Markets. "It's really a culmination of the market's realization that selling the euro against the dollar is the most rewarding action right now in light of prolonged economic deterioration from Europe."

Earlier in the week, the Federal Reserve maintained the benchmark federal funds rate at 2%.

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Comments by ECB President Jean-Claude Trichet after Thursday's decision "confirmed that the window of opportunity for further rate hikes has been slammed shut by the cold blast of negative data releases that swept through the euro zone in the last few weeks," said Marco Annunziata, an economist at UniCredit in London.

Recent economic indicators from major euro zone economies such as Germany, France and Italy have painted a gloomy picture.

The ECB last month moved to cool inflation by raising borrowing costs for the first time in a year, by a quarter percentage point to 4.25%, while the Bank of England has left rates unchanged since April, when it reduced its benchmark figure by a quarter of a percentage point to 5%.

The dollar also strengthened against the Japanese currency to ¥110.25 Japanese yen from ¥109.45.

In the U.S., workers' productivity slowed slightly in the second quarter to an annual rate of 2.2% from 2.6% earlier this year. Growth in wages and benefits also sagged, but the report failed to dampen the dollar's rally.

Crude oil futures, meanwhile, again dropped below $118 a barrel, and oil-producing countries' currencies sold off.

The Canadian dollar, which leapt higher last fall on the back of surging oil and other commodities, is back down again to 12-month lows against the U.S. dollar, while the Australian dollar is back to mid-January levels.

The dollar rose to 1.0681 Canadian dollars from 1.0517, and gained to 1.0832 Swiss francs from 1.0625 francs.

2) Commentary by David Zwebner, CEO of CommStock Trading 

U.S. Economy
The U.S. dollar continued its climb today, even with increasing concerns about Russia's invasion of Georgia. The September U.S. dollar index closed up .305 at 76.315, the highest close in five months.

Grains
The USDA said that last week's export inspections of:
Corn totaled 35.8 million bushels, down 20% from a year ago.
Soybeans totaled 10.1 million bushels, up 96% from a year ago.
Wheat totaled 30.8 million bushels, up 10% from a year ago.
November soybeans closed up 15.5 cents at $11.96.

Tomorrow, the USDA will release its monthly supply and demand estimates, including the results of its survey taken in Iowa, Illinois, and Missouri which will show the extent of crop damage from floods earlier this summer. December corn ended down 1.25 cents at $5.17.

December wheat closed up 28.25 cents at $8.185, blamed on short-covering ahead of tomorrow's USDA report.

After the close, the USDA said that:
67% of the corn crop was rated good to excellent, up from 66% a week ago.
63% of the soybean crop was rated good to excellent, the same as a week ago.
53% of the spring wheat crop was rated good to excellent, down from 56% a week ago and 16% of it was harvested.
92% of the winter wheat crop was harvested.
45% of the cotton crop was rated good to excellent, down from 47% a week ago.

Orange juice
The Florida Department of Citrus said that inventories of frozen orange juice concentrate totaled 126.4 million gallons on August 2nd, up 77% from a year ago. November orange juice ended down .0060 at $1.0200.

After the close, the USDA's Florida Weather Crop Report said that "overall, conditions were good in well managed groves and the outlook was good for the next season."

Energies
In spite of concerns about Russia invasion of Georgian provinces, October crude oil closed down .74 at $114.66. China's Customs Office said that crude oil imports were down 7% in July to the lowest level in seven months.

Metals
All the bullish arguments for gold depend on a weak U.S. dollar, but the dollar quit cooperating. December gold closed down $36.50 at $828.30, the lowest close this year.

Currencies
The U.K.'s Office for National Statistics said that its index of producer prices was up 10.2% in July from a year ago, the biggest annual gain since records began in 1986. The September British pound closed down .0074 at a new contract low of $1.9072.

Canada's Mortgage and Housing Corporation said that housing starts were at an annual rate of 186,500 units in July, down 14% from June's pace and much weaker than expected.

David Zwebner, CEO
CommStock Trading Ltd.
Tel: +972-(0)2 624-4963
Fax: +972-(0)2 624-4876
www.ecommstock.com

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