Dollar Gains as Obama expresses Optimism

The dollar strengthened against the euro after President Barack Obama expressed optimism that the U.S. will emerge from its recession “stronger than before.”

The greenback gained for a third day versus the yen as well in forex trading as Obama said the world’s largest economy “will recover” and the tools to revive growth were within reach. Japan’s currency fell for a sixth day against the euro, the longest stretch since April, after the Ministry of Finance said the trade deficit widened in January to the most since at least 1986. The dollar rose to $1.2816 per euro as of 1:40 p.m. in Tokyo from $1.2846 late yesterday in New York. The greenback climbed to 97.10 yen from 96.64 yen.

“The markets like the fact that Obama’s trying to tighten things up and striking an optimistic tone…that would be supportive of the dollar.”Obama, delivering his first address to a joint session of Congress, also said the credit crisis paralyzing the banking system must be fixed or “our recovery will be choked off before it even begins.”

”AIG is already seeking additional funds from the Government before its report due on nest Monday.

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AIG Seeking More Government Aid

Preparing to announce a mammoth fourth-quarter loss, the largest in U.S. corporate history, troubled insurer American International Group, Inc) is reportedly seeking additional funds from the government. The company is in discussions with the government to secure more funds so that it can keep operating after next Monday, when the nearly $60 billion loss is announced.

The huge loss, stemming mainly from write-downs on assets including commercial real estate, is likely to lead to downgrades in its insurance and credit ratings, which will force AIG to raise collateral that it does not have. Also, if AIG's book value falls below a certain level, which is very much likely, it will trigger default in some of its debt instruments.

AIG, which until last September was the world's largest insurer, was saved from going bankrupt, after receiving an initial $85 billion U.S. government bailout package. The Federal Reserve and Treasury have already provided over $150 billion of aid to AIG and the federal government now owns 79.9% of the company. Not helping AIG in its crisis could unfold a chain of events that could lead to problems for several financial institutions, which still rely on AIG to insure them against losses on loans and other debt.

However, helping AIG this time around is a little tricky, as the government's stake cannot exceed the current limit. The situation creates an opportunity for officials to find a new way by which value can be transferred to the U.S. in lieu of AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.

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China & U.S. can lead world to recovery says Clinton; Obama vows to spend stimulus money wisely

U.S. Secretary of State Hillary Clinton said on Saturday the United States and China could help the world recover from economic crisis by working together, adding that Washington appreciated Beijing's confidence in U.S. government debt.

"I appreciate greatly the Chinese government's continuing confidence in United States Treasuries. I think that's a well grounded confidence," Clinton said at a news conference with Chinese Foreign Minister Yang Jiechi.

China invests the bulk of its reserves in liquid debt, notably U.S. Treasury bonds. Beijing is wary of taking excessive risks after suffering heavy book losses on stakes in financial firms such as Blackstone and Morgan Stanley.

On Friday, Clinton said Washington would press China on human rights but added that this would not keep them from working together on a range of issues such as the financial crisis. The United States has long accused China of human rights abuses and pressed Beijing to grant greater autonomy to Tibet. Clinton will also meet President Hu Jintao and Premier Wen Jiabao on Saturday.

Meanwhile U.S. President Barack Obama vowed strict oversight Friday of his $787 billion stimulus plan, pushing back against Republicans who have labeled the centerpiece of his economic agenda fiscally irresponsible.

Obama said he would name a team of managers to ensure that billions of dollars slated for infrastructure projects would be spent wisely. "The American people are watching. They need this plan to work. And they expect to see the money they worked so hard to earn spent in its intended purpose without waste, inefficiency, or fraud." Obama said at a gathering at the White House. The signing this week of the bill -- the most expensive in history -- marked a big victory for Obama and his Democratic allies in Congress.

Compiled news from the Reuters.

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Russians Retrench as Crisis Evokes Memories of 1998 --Déjà vu?

It took Marina Zaporozhtseva a decade to save for a new car after Russia’s last economic crisis. Scared of living through a repeat, she’s hanging on to her money.

Back in 1998, when the country let the ruble plunge, defaulted on debt and millions of people’s savings were wiped out, the Moscow accountant couldn’t find a job and had to work as a cook to make ends meet. “Now, once again, there are nightmares at work,” said Zaporozhtseva, 46. “I have to think over every little purchase because I’m not sure if I’ll have a job tomorrow.”

Staggering growth in Russia:
Russia has lurched into reverse after 10 years of uninterrupted growth driven by revenue from oil, gas, metals and consumer spending. The government expects the economy to shrink 2.2 percent this year after expanding about 7 percent a year since 1999. Already, household incomes have sunk with the 35 percent plunge in the ruble against the dollar since Aug. 1 and inflation surged to 13.4 percent in January because of the cost of imported goods.

Russian President Medvedev said on Feb. 15 that lower global demand for commodities like oil and gas, which constitute Russia’s main source of export, unemployment has risen and become the “biggest problem” and the “biggest pain,”. According to the head of research at a Moscow-based investment bank Russia has been hit twice as hard- first through the tremendous drop in commodity prices, and second by the global financial crisis.

Retail sales Diminish:
The jobless rate in Russia rose to 8.1 percent in January, the highest since March 2005.
For those who have jobs, the average monthly wage fell 4.6 percent in December from a year before to 17,112 rubles ($470), the first contraction since October 1999.That 'fueled' slow growth in retail sales to the slowest pace in nine years.

Soaring Interest Rates:
The Russian central bank has raised its benchmark repurchase rate four times since November, to 12 percent. Car loan rates have almost doubled to as much as 21 percent in ruble terms, compared with 12 percent to 13 percent “before the crisis,” or between January and May last year. Russia’s peers including Brazil, India and China, have cut borrowing costs.

Irina Pivovarova, 25, a manager at an aviation company, said she decided against buying an apartment for 3.8 million rubles after VTB Bank decreased the amount of mortgage she had applied for and said it would raise rates. “I couldn’t get that much money anywhere,” she said. Tatyana Volkova, 26, an advertising specialist, also pulled out of purchasing a home for 4.5 million rubles ...

Living through it:
Yet the weaker ruble is pushing some Russians towards shopping rather than saving, meaning consumer spending is growing at a reduced pace rather than falling like in countries in Western Europe. Volkova ended up buying a car instead of an apartment because “you can’t keep rubles now,” she said.

For people like Zaporozhtseva, the fear is there might be no escape from the sudden reversal in Russian fortunes. Unlike the previous years, she has no vacation plans and is wary of her travails a decade ago.

“Obviously the current crisis is reminding me of the one in 1998,” said Zaporozhtseva. “It’s just that we’ve lived through so many economic shocks we’re used to them by now.”

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Euro witnesses Gain, USD plummets against Canadian Dollar

Euro sees rise:

The euro rose from near a three- month low against the dollar since yesterday on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to take action to help avert the financial turmoil in the region. Optimism about the stabilization of the European financial system is being seen as helpful to halt the recent steep decline of the euro.

The euro climbed to $1.2589 as of 12:57 p.m. in Tokyo from $1.2530 late in New York yesterday, when it touched $1.2513, the lowest level since Nov. 21.

Europe’s single currency advanced to 117.94 yen from 117.50 yen. The dollar traded at 93.69 yen from 93.79 yen yesterday, when it reached 93.96, the highest level since Jan. 7. The Bank of Japan may today unveil details of a plan to buy corporate debt and extend lending programs in place to prevent a shortage of credit from deepening the nation’s recession, according to a Bloomberg survey.

Bank Results can affect Euro adversely:

Gains in the euro may be tempered by concern European companies will report steeper-than-expected losses stemming from the global financial turmoil.

USD near Peak Versus Canada’s Currency:

Demand for the dollar was tempered by speculation the U.S.’s largest automakers will fail unless they get increased government aid. General Motors Corp. and Chrysler have a 70 percent likelihood of filing for bankruptcy.They are seeking as much as $21.6 billion in additional federal assistance.The Canadian dollar is being seen as emerging with a cyclical growth profile that is as good as or better than that of the U.S. dollar.

U.S. Data:

The Labor Department’s report on producer prices, scheduled for today, may show wholesale prices fell 2.5 percent last month from a year earlier, according to a Bloomberg survey, signaling the world’s largest economy may be heading for a period of sustained deflation. Federal Reserve policy makers lowered their projections for economic growth this year, with most seeing a contraction of 0.5 percent to 1.3 percent, according to minutes of the Federal Open Market Committee meeting Jan. 27-28 released yesterday.

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FOREX-Daily Market Digest

Yen sees gain:
The yen gained in currency trading for a third day against the euro on speculation European banks will reveal increasing losses due to the financial crisis in the region.

Yen strengthened versus 13 of the 16 most-active currencies on concern stock declines will spur investors to sell higher-yielding assets they bought with funds from Japan. The euro traded near a 10-week low against the dollar. The Risk-averse sentiment is being seen as likely to persist. “The yen may be bought.” Traders noted demand for the yen increased after Asian equities fell. The Nikkei 225 Stock Average slipped 1.4 percent and the MSCI Asia- Pacific Index of regional shares weakened 1 percent, prompting investors to reduce holdings of higher-yielding assets.

AUD weakens:
Australia’s currency may slide to as low as 50 U.S. cents as the global recession can drive down commodity prices. The central bank may lower borrowing costs to a record. The global economic collapse, the weakness of commodity prices, the prospect of Australian interest rates going to 2 percent or less and a severe domestic recession suggest the Australian dollar could weaken sharply, accordingly to analysts.

BSE and NSE move upwards:
Indian shares turned positive after opening 1.1 percent lower on Wednesday as investors hunted for bargains in the battered market that had fallen 6.2 percent in the previous two days. Technically, the market had become oversold-so now it is rebounding, remarked an analyst here in Mumbai. By 10:05 a.m. (0435 GMT), the 30-share BSE index was up 0.38 percent at 9,069.26 points, with 21 components rising. The 50-share NSE index was up 0.47 percent at 2,783.60.

Current recession one of the worse:
Alan Greenspan, the former U.S. Federal Reserve Chairman on Tuesday said the current global recession will be the longest and deepest since the 1930s and more government rescue funds will be needed to stabilize the U.S. financial system. In a speech to the Economic Club of New York Greenspan said The U.S. Treasury's Troubled Asset Relief Program (TARP) designed to help bail out banks has been partially successful and that additional funds will be required to stabilize the American banking system and restore normal lending.

News compiled from the Reuters and Bloomberg.

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FOREX-Euro falls to 2-mth low vs. US dollar on rates,Yen deterioates

Euro Worsens Against Dollar,Yen:
The euro fell to a 10-week low against the dollar adding to concern financial turmoil in the region is worsening. The euro also weakened against 14 of the 16 major currencies on speculation its recent declines triggered the execution of automatic sell orders. Meanwhile the yen here also dropped to a five- week low from yesterday against the dollar after Japan’s Finance Minister said today he would resign after budget bills are passed in the nation’s parliament.


Report pushes euro further down:
The Moody’s research and risk analysis report aided push euro down below 1.27 and accelerated dollar gains across the board. The euro needs to find support at $1.2330, the weakest since April 2006, which it touched in October, according to analysts. The euro’s decline against the dollar and the yen accelerated after stop losses on investors’ long positions on the currency were activated.

Traders said a sudden bout of heavy selling had forced the euro lower, triggering a series of sell orders and sending it down about 1 percent to $1.2665, it’s lowest since early December U.S. markets were closed for a holiday on Monday, when the euro lost about half a percent against the dollar and 0.8 percent against the yen as European equities fell and concerns about western banks' exposure to problems in Eastern Europe weighed.

Japan’s Concern:
Japan’s Finance Minister’s resignation spurred growing concern over the world’s second-largest economy .The market sentiment is to short the dollar and long the yen, so there’s a bias to buy back the U.S. currency and sell Japan’s, with forecast predicting the yen may fall to 93 per dollar today. Japan’s benchmark index Nikkei fell to its lowest in more than two months as the stronger yen hurt exporters and investors await the U.S. automakers' plans. According to a Reuter’s poll, Confidence among Japanese manufacturers remained mired near record lows, as exports and output dived amid the global slump and deepening recession at home.

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FOREX-Top Headlines on Monday Morning

Yen Rises, South Korean Won drops to two month low:
The yen climbed to 91.65 against the dollar as of 2 p.m. in Tokyo from 91.93 late in New York on Feb. 13 in forex trading. It advanced to 116.92 per euro from 118.37. Japan’s currency gained 1.2 percent to 59.63 versus Australia’s dollar and rose 1.1 percent to 47.50 against New Zealand’s dollar. The U.S. dollar gained to $1.2756 per euro from $1.2862 in New York last week, and climbed to 1.1668 Swiss francs from 1.1590. The British pound fell 1 percent to $1.4214 and weakened 0.2 percent to 89.75 pence per euro.

The yen snapped two days of losses against the dollar from the Friday session last week.

South Korea’s won shed 11 percent this year, the biggest drop among the 10 most-traded Asian currencies outside Japan, on concern that a deepening global economic slump will discourage investors from buying emerging-market assets.
A forecast revealed the Korean economy will shrink 6 percent this year as the world recession takes a bigger toll on over-leveraged households and smaller companies than during the 1998 Asian crisis.

Geithner Pressed By G-7 to Push Ahead With Bank Bailout Plan:
Finance chiefs from the Group of Seven nations joined the chorus of U.S. investors and lawmakers pushing Treasury Secretary Timothy Geithner to move faster to fix the banking system. The G-7 repeated its traditional message that “excess volatility” and “disorderly movements” in exchange rates must be avoided. The group accounts for about two-thirds of the world economy composing of the U.S., Japan, Germany, U.K., Italy, Canada and France. The yen rose against the euro and the dollar after finance ministers from the Group of Seven nations said the “severe” global slump will persist for most of 2009 and Japan’s economy shrank by the most since 1974, spurring investors to sell riskier assets.

White House dampens stimulus expectations:
President Barack Obama's aides warned Americans on Sunday not to expect instant miracles from the $787 billion economic stimulus bill he will sign this week, but said it would help eventually. "The acceleration in job loss probably means that this economy is going to get worse before it gets better," he said. The Republicans kept up their criticism on the bill saying it is incredibly expensive. “It has hundreds of billions of dollars in projects which will not yield in jobs," said John McCain, whom Obama defeated in last year's presidential election.

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Congress dispatches Stimulus Package to Obama

An economic stimulus package worth $787 billion is headed to President Barack Obama’s desk after Congress passed the plan that Democrats say is critical to helping pull the U.S. economy out of recession. The Senate late yesterday voted 60 to 38 to approve the package of tax cuts and more than a half-trillion dollar in new federal spending. The votes give Obama the first major legislative victory of his presidency.


Democrats predict the plan will save or create 3.5 million jobs. Its costliest item is a $400 payroll tax cut for individuals and $800 for couples. Retirees, disabled veterans and others who don’t pay payroll taxes will get a $250 payment. Democrats released the text of the plan late the night before the vote, prompting complaints from Republicans they didn’t have enough time to review the legislation before voting on it. “It is over a thousand pages- it’s physically impossible for any member to have read this bill.” said a representative from Georgia Republican. Republicans argued that the bill contains too much government spending and, because of that, won’t do enough to boost the economy. The New Hampshire Republican senator Judd Gregg, who withdrew this week as Obama’s commerce secretary nominee, voted against the plan saying the “so-called stimulus plan has become sidetracked by misplaced spending and a lack of attention to the true problems facing the nation.”


The stimulus plan provides a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband, Pell college tuition grants, high-speed rail projects and scores of other programs. It raises the nation’s debt limit to about $12 trillion.

The nonpartisan Congressional Budget Office said the stimulus package will cost $787 billion, rather than $789 billion lawmakers estimated earlier this week. The plan will pump $185 billion into the economy this year and $399 billion next year, the agency said. A Wisconsin Democrat said as he urged passage of the bill, “The other tool normally available to us is monetary policy in the form of low interest rates through actions of the Federal Reserve. We’ve already fired that bullet - - the only bullet left is fiscal policy.”

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FOREX and Other Headlines on Friday Morning

Yen Falls on hope Risk Appetite Will Revive:
The yen dropped against the euro and the U.S. dollar as optimism about government efforts to revive global growth improved investors’ appetite for riskier assets, pushing up Asian stocks and Forex market for the first time this week. The yen also weakened against the Australian and New Zealand dollars after Australia’s Senate approved a 42 billion AUD ($28 billion) stimulus package aimed at ensuring the economy doesn’t enter its first recession in 18 years. The greenback fell for the first time in four days on speculation a U.S. report will show that confidence among consumers declined in February, adding to signs the recession in the world’s largest economy is worsening.

G7 Meeting:
Finance ministers and central bankers from the Group of Seven major industrial nations meet in Rome here today and tomorrow. They plan to discuss exchange-rate developments.

Indian shares rise:
Indian shares rose 1.8 percent on Friday as investors speculated on a fiscal stimulus package in an interim general budget on Monday and supported by firmer Asian markets. Traders said expectations an interim railway budget, scheduled to be presented to Parliament at 11 a.m. (0530 GMT), would propose lower freight rates also underpinned sentiment.

Stimulus Aims Two-Phase Jolt at U.S. With Tax Cuts, Spending:
The stimulus plan emerging from Congress may jolt the U.S. economy in successive waves: relief to cash-strapped consumers, businesses and states, then a job- creating lift from spending on roads, utilities and public transit. Economic activity begins to tick up in third quarter of 2009, but the biggest effect of the stimulus bill is being expected in 2010.The hope is, with the stimulus, that we actually stop losing jobs by the end of this year, marked an analyst. The stimulus bill contains about $54 billion to help states with expenses. The plan has more than $60 billion to increase unemployment benefits and a boost to food-stamp programs, housing assistance programs and other aid for the hardest-hit Americans.

Obama Pays Tribute to Abraham Lincoln:
The United States on Thursday 12th February, marked Lincoln's 200th birthday with ceremonies at the US Capitol in Washington and at historical sites across the country, including his presidential library in Springfield, Illinois and the Gettysburg battlefield in Pennsylvania. President Barack Obama often invokes the name and symbols of the assassinated president who ended slavery and brought the U.S. through the Civil War. Both men rose from the Illinois state legislature to the highest office in the land and both built reputations as skilled political orators.

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