Wednesday September 29, 2004 - 11:00:21 GMT
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US OPEN MARKET POINTS 09-29-04
Talking Down the Dollar?
With G-7 meeting nearly upon us, the FX market has become preoccupied with US attempts to corral China to un-peg the CNY, thus in effect devaluing the dollar. Over the past week John Snow has made several comments demanding a more flexible Chinese monetary policy. With election only six weeks away, such a stance is no doubt politically popular amongst US manufacturers, but as many analysts have pointed out it is unlikely to have any practical effect on the unit. As a recognition of its new influence the G-7 members invited China to the meeting this year and while it gladly accepted the invitation, Chinese officials have remained resolute in their refusal to relax the currency peg in the near future.
Although Snow has repeatedly stated that US supports a strong dollar policy, other government officials are slowly coming to a realization that some dollar devaluation must take place in light of record Current Account deficits. Yesterday, Federal Reserve Bank of Kansas City President Thomas Hoenig said, "The fiscal deficit and the current account deficit are challenges that the United States has got to step up to." Yet neither the Europeans. nor the Japanese nor the British want to see a substantially weaker dollar any time soon. As CALYON so presciently points out in today’ s note, “For all the ECB's optimism, the Euro-zone economy can ill-afford a resurgent euro, with exports still the principal driver to growth. The ECB might welcome the disinflationary impulse from a stronger euro to a point, but finance ministers are unlikely to prove as accommodative, undermining the already fragile relationship between Europe's politicians and central bankers. In Japan, where doubts persist about the pace of economic activity, the authorities would actively work against excessive yen upside. Britain and Canada are not likely to be any more supportive of USD weakness.”
This conflict between the structural need of dollar to be devalued and the cultural and economic demands of our main trading partners to maintain greenback’s present value against their own currencies has been the central force behind the range bound, standstill trading of the past few months. How the conflict will resolve itself is anybody’s guess, but for now the grind continues.
FX Spot Overnight
- EUR trades 20 point range but slides towards 2300 as European session ends
- JPY recovers 111 on exporter offers
- GBP retraces to 8100 as UK data a bit soft
- CHF breaks above 2600 as KOF shows growth slowing
11:00GMT – (7:00 AM EST) USD Mortgage Applications Expected at , Previous 1.80%
12:30GMT – (8:30 AM EST) USD GDP (Q2 Final) Expected at 3.0%, Previous 2.8%
12:30GMT – (8:30 AM EST) USD GDP Price Deflator (Q2 Final) Expected at 3.2%, Previous 3.2%
12:30GMT – (8:30 AM EST) CAD Industrial Product Price m/m (Aug) Expected at 0.3%, Previous –0.4%
12:30GMT – (8:30 AM EST) CAD Raw Materials Price Index m/m (Aug) Expected at 2.0%, Previous 0.9%
13:00GMT – (9:00 AM EST) NZD NBNZ Business Confidence (Sep) Expected at , Previous -14.9%
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