Category: U.S. Dollar

Trump’s dollar paradox promises roller-coaster ride for currencies


Reuters/Jamie McGeever/02-02-17

If visibility and predictability are two foundations upon which stable financial markets are built, comments from the White House this week on the U.S. dollar suggest investors should brace for increased foreign exchange volatility.

President Donald Trump and his top trade adviser waded into the debate over the currency’s strength and the damage they say it is doing to U.S. competitiveness, drawing rebuffs from Germany and Japan and casting doubt over the strength of global cooperation on foreign exchange policy.

On the one hand, this should come as little surprise. A key pillar of Trump’s election campaign was to reinvigorate U.S. manufacturing and bring back what he sees as lost jobs. A weaker dollar would be instrumental to achieving that goal.

PG View: If policymakers are successful in reversing the multi-year uptrend in the dollar, gold should benefit. The problem is that most other countries are actively trying to devalue their currencies as well.

Posted in U.S. Dollar |

Strong dollar may prove Donald Trump’s match

FT/Robin Wigglesworth/01-23-17

Richard Nixon’s Treasury Secretary John Connally once told foreign counterparts that the US dollar is “our currency, but your problem” — a blunt observation that has often rung true. Under President Donald Trump it may no longer be so simple.

…Restoring US manufacturing and improving the trade balance are central to Mr Trump’s plans, and it is clear the administration is concerned over damage a stronger greenback can wreak. The president had already questioned the US government’s longstanding policy to at least voice support for a “strong” dollar, but this week he went further.

Posted in U.S. Dollar |

Trump team questions the almighty dollar

FT/Sam Fleming and Shawn Donnan/01-17-17
Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies.

On Monday the president-elect appeared to break from the longstanding “strong dollar” policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. “It’s killing us,” he said in an interview with the Wall Street Journal.

PG View: Let’s be honest, our so-called “strong dollar” policy has been a farce. The greenback is in long-term secular decline, like pretty much every other fiat currency. Only within the last several years has the dollar really appreciated; largely as a result of divergent monetary policy. Those gains are eroding the competitiveness of U.S. corporations, which will likely put trade policy high on the Trump administration’s agenda. Speaking in Davos, an advisor to the President-elect, suggest Mr. Trump is likely to tear-up the rulebook on trade.

Posted in Currency Wars, Politics, U.S. Dollar |

Trump comments on ‘too strong’ dollar send shivers through stock market

MarketWatch/Mark DeCambre/01-17-17

In a Friday interview with The Wall Street Journal, Trump said the U.S. currency, which touched a more-than 14-year high about two weeks ago, has gotten “too strong,” especially considering the China’s yuan is “dropping like a rock.” “Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” he told WSJ.

Trump’s remarks about the dollar underscore the soon-to-be president’s unconventional political style, and could threaten to roil stocks, which have enjoyed a healthy run higher in recent months. Sitting presidents rarely offer their direct view on the strength or weakness in U.S. currency for fear of influencing the market.

PG View: Today’s weakness in the dollar has pushed gold to an 8-week high and silver is back above $17 for the first time in 5-weeks.

Posted in Markets, U.S. Dollar |

Fiat Money Quantity breaks $15 trillion

24hGold/Alasdair Macleod/01-06-17

“The fiat money quantity has now breached the $15 trillion level, standing at $15,108bn on November 1st 2016, the last calculable date. This is now $6.3 trillion above the pre-Lehman crisis trend-line, exceeding it by 72%. Instead of the Lehman rescue being a temporary fix, the increase in the quantity of fiat money has continued to grow over eight years later.”

PG View: The proliferation of paper — paper in the form of debt and paper in the form of fiat currency — is one of the primary driving forces behind gold price appreciation over time. I concur with Mr. MacLeod when he says, “gold must be regarded as significantly undervalued relative to fiat dollars.”

Posted in Central Banks, Currency Wars, Debt, U.S. Dollar |

Euro Tests Fresh 14-Year Low as Investors Measure Geopolitical Risks

TheStreet/Martin Baccardax/12-20-16

“The euro tested fresh 14-year lows against the U.S. dollar Tuesday as investors reacted to a trio of terrorist incidents around the region yesterday that have rattled confidence and raised questions about geopolitical risks in the months ahead.”

PG View: There’s a lot more going on in Europe than the recent attacks. The attempt to rescue Monte dei Paschi via a private deal looks to be falling apart. If that happens, the Italian government will have to step in to bailout the world’s oldest surviving bank and Italy’s 3rd largest lender. That will likely mean the bank’s creditors will likely experience considerable losses. The risks to the broader Italian, European and global banking systems are considerable. And that’s not to mention the current political turmoil in Italy that may at some point lead to a referendum on exiting the EU.

Posted in all posts, Europe, Geopolitical Risks, U.S. Dollar |

The Japanese yen is tumbling


BusinessInsider/Elena Holodny/12-20-16

The Japanese yen is tumbling after the Bank of Japan kept policy on hold, as virtually all analysts were expecting.

At its Tuesday meeting, the BOJ said it would continue to purchase Japanese government bonds at an annual pace of about 80 trillion yen to maintain a 10-year JGB yield of about 0%.

Interest rates were also left unchanged at -0.1%.

PG View: While this decision was widely anticipated, and Kuroda seemed a little more upbeat on the economy, it seems unlikely the BoJ will take it’s foot off the gas any time soon. This is helping to push the dollar higher and weighing on gold in the process.

Posted in Central Banks, Monetary Policy, Negative interest rates, QE, U.S. Dollar |

China’s yuan is set for its biggest annual decline in more than 20 years, Goldman warns


Bloomberg/12-19-16

“China’s capital outflows are accelerating and the central bank is selling larger amounts of foreign exchange, Goldman Sachs Group Inc warned as the yuan headed for its biggest annual decline in more than 20 years.”

PG View: As the yuan is driven lower, it is exacerbating the problems arising from recent dollar strength. This is only going to escalate president-elect Trump’s contentions that China is a currency manipulator, strengthening the case for his threat to impose import duties. That in turn could start a trade war. China has already been selling Treasuries and dollars in an alleged effort to shore up the yuan, to the point where China is no longer the top holder of U.S. government debt. That honor goes to Japan, which hasn’t held that dubious title for any sustained period since the financial crisis.

Posted in all posts, Debt, Economy, U.S. Dollar |

Dollar rises to 13-year high, gold sinks to 10-month low after Fed rate hike

Mint/Cecile Gutscher & Charlotte Ryan/12-15-16

“The greenback extended its advance against major and emerging-market peers after the Federal Reserve’s first interest-rate hike of 2016 came with a signal of three increases next year. Gold tumbled 2.6% to a 10-month low.”

PG View: We have made note of the resilience of gold relative to the recent dollar strength on numerous occasions. The last time the dollar index was at this level, gold was under $350.

Posted in Gold News, Gold Views, U.S. Dollar |

Dollar gains after Fed raises rates, signals faster rate hike pace

14-Dec (Reuters) — The U.S. dollar hit its highest level against the yen in 10 months and gained against other major currencies on Wednesday after the Federal Reserve raised interest rates for the first time this year and signaled a faster pace of increases in 2017.

…”The rise in the dollar is really being driven by the shift from two to three hikes next year, which obviously isn’t priced by the market,” said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York.

“The overall tone of the statement is generally still somewhat cautious,” Gordon added. He cited the Fed’s reference to risks to the economic outlook as having been roughly balanced, as well as discussion of the shortfall in inflation, as examples.

[source]

PG View: At some point the strength in the dollar has the potential to completely derail the recovery. That, along with surging rates, makes it increasingly more difficult to manage our massive debt load.

Posted in U.S. Dollar |

Brexit surge for sterling turns back dollar rally

01-Dec (Reuters) — A perceived crack in Britain’s “hard Brexit” line on leaving the European Union dominated trading on major currency markets on Thursday, driving the pound 1 percent higher and helping spur a retreat in broader measures of the dollar’s strength.

Sterling surged 1.2 percent to a three-week high of $1.2663, also hitting an almost three-month high of 83.95 pence per euro after Brexit minister David Davis said Britain would consider paying into the EU budget for market access.

[source]

Posted in U.S. Dollar |

Dollar Pushes to New Highs—With New Risks


18-Nov (WSJ) — The dollar extended its powerful rally Friday, a move that poses new risks to budding optimism about the economy following the U.S. election.

The U.S. currency moved closer to parity with the euro and higher against the yen. In recent days, the dollar has pushed exchange rates lower for emerging markets around the world.

The dollar is rising fast as investors bet that fiscal spending and tax cuts proposed by President-elect Donald Trump will spur U.S. economic growth, and the rising probability that the Federal Reserve will raise interest rates next month. Federal Reserve Chairwoman Janet Yellen said on Thursday that the Fed could act “relatively soon.”

The gains make foreign goods and travel cheaper for U.S. consumers and could give a boost to exports from Japan and Europe. But they also are reigniting fears that the dollar’s strength could slow U.S. corporate profit growth and intensify capital flight from the developing world, which would complicate the prospects for an economic rebound.

The fast move has set off reactions by monetary officials around the world. Indonesia’s central bank has intervened by selling dollars in hopes of slowing the rupiah’s slide. Malaysia, faced with a deep drop in the ringgit, cracked down on trading in the futures market in an effort to damp speculation on the currency. China intervened as well, setting the yuan for several days but using state-owned banks to prevent the currency from falling too far.

Mexico’s central bank raised interest rates on Thursday as the country grapples with a weaker peso and uncertainty over the future of its relationship with its largest trading partner.

“The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars, “ said Jonathan Lewis, chief investment officer at Fiera Capital Inc. “That’s pretty significant.”

[source]

PG View: And a rate hike in December — with a hint of more to come — will only further buoy the dollar.

Posted in U.S. Dollar |

Three ways to make sense of the dollar in uncertain times

15-Nov (FT) — The only reliable guide to the dollar’s value in the wake of Donald Trump’s electoral victory is the wisdom of legendary investor Bernard Baruch about the stock market: it will fluctuate. If the prospects for the US economy have never been so uncertain, then the prospects for the dollar similarly have never been so uncertain.

Still, we can attempt to make sense of this scenario from three angles. A first is from the vantage point of US fiscal and monetary policies. One thing we know is that a more expansionary fiscal policy is coming. It may take the form of tax cuts for the wealthy and tax credits for investors; or it may be a more balanced programme, including a significant rise in infrastructure spending.

Either way, growth and inflation are likely to accelerate, and the US Federal Reserve will respond by raising interest rates sooner and faster. We know from the Reagan era that a mix of loose fiscal and tight monetary policies makes for a strong dollar. No surprise, then, that investors are bidding up the greenback.

But we also know that doubts about debt sustainability can lead those investors to think twice. Large, unfunded tax cuts will heighten their doubts. Questions about fiscal sustainability will be particularly troubling to investors in US Treasury bonds, given Mr Trump’s offhand comments about renegotiating the debt.

Thus the macroeconomic policy mix should be dollar supportive in the short run but dollar subversive in the longer term.

[source]

PG View: Regarding the safe-haven status of the dollar, Professor Eichengreen writes, “A currency is regarded as a haven only if the country issuing it is geopolitically secure. It must have a strong military but it also must have strong alliances.”

Or you could just buy gold.

Posted in U.S. Dollar |

Dollar Posts Longest Losing Streak Since July on Election Angst

03-Nov (Bloomberg) — The dollar weakened for a fifth day, its longest stretch of losses in four months, and a gauge of currency volatility rose to near the highest in two months amid mounting anxiety over the outcome of the U.S. presidential election.

A JPMorgan Chase & Co. index of global currency swings rose to 10.39 Wednesday, the highest level since Sept. 14, as the race for the White House between Democratic nominee Hillary Clinton and Republican candidate Donald Trump tightened less than a week before Americans head to the polls. The greenback fell Thursday against the British pound, which surged the most since August after a U.K. court ruled the government must hold a vote in Parliament before starting the two-year countdown to Brexit.

“Politics is clearly asserting itself as the biggest driver in global markets,” said Alan Ruskin, global co-head of foreign-exchange research in New York at Deutsche Bank AG. Traders are either “selling the dollar or taking back long dollar exposure. It’s extraordinary how much the narrative has shifted.”

[source]

PG View: But, but U.S. interest rates are surely going higher before the end of the year . . . aren’t they?

Posted in U.S. Dollar |

Dollar Reaches Highest Since March as Fed Rate-Hike Wagers Climb

25-Oct (Bloomberg) — The dollar rose to a seven-month high as traders ratcheted up bets on a Federal Reserve interest-rate increase by year-end.

The greenback appreciated against its major counterparts for the fourth straight day and extended its October gains. The probability of a Fed interest-rate increase by December rose to 74 percent, the highest since June, futures data compiled by Bloomberg show.

The advance suggests that currency traders have yet to fully price in the prospect of higher U.S. rates in coming months, signaling that the dollar may have room to extend gains that began in August amid evidence of faster economic growth and accelerating inflation. Chicago Fed President Charles Evans said Monday that if the economy continues to grow in line with his forecast, it may be appropriate to raise rates three times by the end of 2017.

“It’s a fairly straightforward Fed-expectations move,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

This Harvard Economist Is Trying to Kill Cash

07-Sep (Bloomberg) — Kenneth Rogoff has an interesting résumé: international grandmaster of chess, former chief economist of the International Monetary Fund, professor at Harvard University. And he is now—unofficially—the No. 1 enemy of cash.

“I’ll admit, it’s a very quirky topic,” Rogoff said at a press lunch on Tuesday put together by the publisher of his new book, The Curse of Cash. But he insists that a country without most cash is an idea whose time has come.

Law-abiding citizens rarely have need for $100 bills, yet there are 34 of them in circulation for every woman, man, and child in the U.S. That suggests the bills are circulating mainly in the underground economy. If the biggest bill were worth $10, rather than $100, delivering someone a million bucks under the table would require a 220-pound chest rather than a 22-pound briefcase. Forcing people to use smaller bills, Rogoff argues, might make crime more conspicuous and less convenient.

Rogoff also contends that suppressing cash would make it easier for the Federal Reserve and other central banks to boost economic growth by pushing interest rates into negative territory. That’s the strange world where you pay to keep money in the bank and get paid to borrow it. The theory is that negative rates will induce people to save less and spend more, which will revive growth. Savers won’t tolerate negative interest rates on their savings as long as cash is an alternative. Why not simply withdraw stacks of $100 bills and keep the cash in a mattress or a safe?

Rogoff says he doesn’t want to get rid of cash all at once. First, he would phase out 100s, then 50s, then 20s, leaving smaller bills in circulation for the foreseeable future. “I want to have a less-cash society, not a cashless society,” he said.

[source]

PG View: So in this scenario, where would one store some of their wealth if they were disinclined to have it all in the banking system? In gold of course.

If you haven’t done so already, I encourage you to read Jim Rickards’ The New Case for Gold.

Posted in all posts, U.S. Dollar |

Gold has retraced half of today’s intraday retreat, dollar rebound falters as markets discounts Dudley’s hawkish bluster.

Posted in Central Banks, Gold News, Monetary Policy, U.S. Dollar |

Dollar drops as Fed rate rise prospects reassessed

10-Aug (Reuters) — The dollar fell against a basket of currencies on Wednesday as investors re-evaluated whether the Federal Reserve will raise interest rates this year, which also sent the higher-yielding Australian dollar to its loftiest level since late April.

The U.S. dollar sagged against the euro and the yen after downbeat productivity data sapped some of the momentum it had gained from last week’s robust jobs report.

U.S. Treasury yields fell after the productivity report suggested the economy may not be growing as quickly as anticipated, prompting investors to cut long-term inflation expectations. According to CME’s Fedwatch, investors have trimmed chances of a rate rise in December 2016.

The dollar was down 0.6 percent at 101.28 yen, having gone as high as 102.66 on Monday on the strong non-farm payrolls data. The euro rose 0.5 percent to $1.1173, touching a 5-day high of $1.1184.

The dollar index dropped 0.6 percent to 95.577.

“The release of the third consecutive decline in quarterly U.S. productivity – the worst run since at least 1980 – does not bode well for the prospects for the dollar,” Morgan Stanley head of currency strategy, Hans Redeker, said.

[source]

PG View: The dollar has retraced all of its post jobs report gains. Odds of a September rate hike are back down at 12%.

Posted in U.S. Dollar |

Why gold’s bond with the dollar has broken


20-Jul (MarketWatch) — Think of it as the breakup. Gold’s historical relationship with the U.S. dollar has been going through a bit of a separation.

The precious yellow metal often trades inversely with the ICE U.S. Dollar Index a gauge of the dollar’s strength against a basket of six rival currencies, as moves in the U.S. unit can influence the attractiveness of gold to holders of other currencies. In other words, gold tends to rise when the dollar weakens.

However, that normally tight relationship has been under some serious stress, lately.

Some market participants point to global central-bank monetary policies and the U.K.’s decision to exit the European Union for the shift in the relationship, which has seen gold, at times, swing higher or lower, despite moves in the buck.

“You can trace the shift to positive correlation between gold and the [dollar] back to the Brexit vote,” Paul Wong, senior portfolio manager at Sprott Asset Management, told MarketWatch.

…“Since the Brexit result, the correlation has been rising to [new] multiyear highs,” said Wong. “Historically the negative correlation between gold and USD was very pronounced—the only time positive correlation occurred was during times of extreme financial stress when both assets were considered to be safe havens.”

That was the case during the financial crisis of 2008, when gold and U.S. dollar traded “hand in hand,” said Nico Pantelis, head of research at Secular Investor.

“Today, the U.S. dollar is trading relatively high, but gold is getting a [bid] as investors are buying gold again in large amounts,” he said. “So today, the price of gold is trading as a function of demand, like it normally should.”

[source]

PG View: Today the old inverse correlation seems to have returned. We’ll see if it lasts . . .

Posted in Gold News, Gold Views, U.S. Dollar |

Dollar Holds Key to Whether Fed Has Scope to Raise Rates in June

19-May (Bloomberg) — As soon as the Federal Reserve released meeting minutes describing a weaker dollar, the currency surged to a seven-week high.

That’s the dilemma facing U.S. central bankers, who are weighing economic data to determine when next to raise interest rates. The Fed’s signals of a potential June move may backfire if the resurgent greenback undermines growth and weighs on stocks and oil prices, ultimately eroding the case to boost borrowing costs.

The dollar’s surge since mid-2014 hurt the outlook for growth and inflation, and contributed to the Fed delaying to December its liftoff from near zero, according to strategists. Officials from Janet Yellen to Stanley Fischer have warned that the dollar’s appreciation will limit the pace of tightening.

“The Fed’s in a bind,” said Douglas Borthwick, the New York-based head of currencies at Chapdelaine & Co., a unit of the British interdealer brokerage Tullet Prebon Plc. “The Fed can’t raise rates because it means a stronger dollar, and it means deflationary pressure in the world. The Fed’s under pressure to talk a mighty game, but it can’t actually do a lot.”

…“The Fed’s very thought of a June increase — much less the signals it may have been trying to convey to decrease the risk of complacency — could reverse some of the very trends they liked so much,” said Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

Dollar’s Post-Fed Rate Increase Slump Shows History Is Repeating

20-Apr (Bloomberg) — When it comes to the dollar’s slump this year, history is repeating itself.

The greenback has fallen 4.2 percent against the euro this year and it’s likely to keep plunging until at least the end of the quarter, according to SEB AB, Sweden’s fourth largest lender. That’s because the U.S. currency tends to weaken during the months soon after the Federal Reserve commences raising interest rates, as the central bank did in December.

“We really don’t see any positive driver for the dollar right now,” Richard Falkenhall, a currency strategist at SEB, said by phone from Stockholm. “t’s really hard to come up with a story where you could expect the dollar to recover.”

Strategists have lowered their outlooks for the currency, while hedge funds all-but abandoned net bullish bets this year after Fed Chair Janet Yellen signaled the central bank would act “cautiously” as it looks to raise rates. That’s capped a 20 percent surge during the past two years on expectations that the Fed would tighten monetary policy in contrast to easing by its biggest counterparts in Japan and Europe.

[source]

PG View: It also goes to show that months of headlines touting the demise of gold in the face of tighter policy was all a bunch of hooey!

Posted in Central Banks, Monetary Policy, U.S. Dollar |

R.I.P. Dollar Rally as Dovish Fed Spurs Worst Slump Since 2011


18-Mar (Bloomberg) — The dollar headed for its steepest three-week slide in more than four years as an increasingly cautious Federal Reserve spurred analysts and investors to reassess forecasts for the greenback.

A Bloomberg index tracking the U.S. currency against 10 major peers climbed from an eight-month low reached Friday, two days after Fed officials unexpectedly cut projections for interest-rate increases to two this year from the four they estimated in December. Macquarie Bank Ltd. and Morgan Stanley, two of the world’s top 10 currency forecasters, are highlighting the risk of more dollar weakness.

“The fact that they didn’t raise rates and wound back expectations for future increases in 2016 has obviously hurt the U.S. dollar,” said Derek Mumford, a director at Rochford Capital Pty in Sydney. “That can continue in the very near term.”

…“The Fed has become much more dovish — the market realizing maybe the Fed being a little bit more behind the curve,” Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS Group AG’s wealth-management unit in Hong Kong, said Friday in a Bloomberg Television interview. “That’s simply not good for the dollar, and so we have this generic dollar weakness right now which will not disappear in the very short term.”

[source]

PG View: As we’ve been saying for some time now, the relative strength of the dollar is killing U.S. exporters and weighing on the economy as a whole. With other central banks aggressively easing, there was really no reason for the Fed to continue down the “normalization” path. Policy was simply becoming too divergent. In holding steady, the Fed is being plenty hawkish . . .

Posted in U.S. Dollar |

Dollar falls against euro on worries over U.S. labor market

03-Mar (Reuters) — The U.S. dollar was set to post its biggest one-day percentage decline against the euro in more than three weeks on Thursday after data showing a decline in U.S. service sector employment added to worries over Friday’s monthly U.S. jobs data.

The euro gained more than 0.5 percent against the greenback to a session high of $1.0938, rebounding from a more than one-month low of $1.0823 Wednesday and putting the dollar on track for its biggest daily percentage loss against the euro since Feb. 9.

The Institute for Supply Management (ISM) said its employment index fell to 49.7 in February from 52.1 a month earlier, marking the first fall in service-sector employment since February 2014.

Traders had already bought euros and sold dollars ahead of the ISM data to brace for a potentially weaker-than-expected U.S. Feb. non-farm payrolls figure on Friday. Economists polled by Reuters expect U.S. employers to have added 190,000 jobs last month.

The data intensified concerns about the U.S. labor market and further dampened expectations that the Federal Reserve would hike interest rates any time soon, analysts said. Fed hikes are expected to boost the dollar by driving investment flows into the United States.

“The data this morning was weak enough to add a touch of concern to the market,” said Jason Leinwand, managing director at Riverside Risk Advisors in New York. “The market is definitely leaning away more and more from the prospects of a Fed hike this year.”

[source]

Posted in Economy, U.S. Dollar |

The Political War on Cash

17-Feb (WSJ) — These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

[source]

PG View: Governments don’t want you hoarding cash outside the banking system, even if you may have to pay for the privilege of putting into the bank. You should acquiesce to that wish by choosing to save in gold.

Posted in U.S. Dollar |

Dollar, stocks plunge sparks scramble for safety

11-Feb (Reuters — The dollar hit a 16-month low against the yen on Thursday and headed for its worst week since the Lehman crisis as investors scrambled for relative safety, buying up gold and top-rated bonds and dumping stocks.

Investors were spooked by worries over the direction of the global economy and by cautious comments from the head of the U.S. Federal Reserve that were taken to mean no near-term interest rate hikes.

…”What this shows is that the risk-off mode has come back very quickly and that the worst may still be to come in these markets,” said Rabobank European strategist Emile Cardon.

“What is different to previous times is that the bad news in now coming from everywhere, China, Portugal the U.S. the commodity sector the banking sector. It’s like several smaller crises could combine into one big crisis.”

[source]

Posted in Gold News, Markets, U.S. Dollar |

No traction for dollar after Fed rates collapse

04-Feb (Reuters) — The dollar was back on the defensive in morning trade in Europe after a collapse in expectations of a further rise in U.S. interest rates this year drove its biggest daily fall in over two months on Wednesday.

Against a basket of currencies, the greenback fell another 0.82 percent to 96.49, having earlier hit its lowest since early November. The euro hit a 15-week high of $1.1233, extending its gains from the dollar’s sell-off a day earlier.

The triggers then were a weak batch of U.S. sentiment data and New York Fed President William Dudley’s warning that a weakening outlook for the global economy would have to be taken into account for upcoming rate decisions.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

China lets yuan fall faster, share trading suspended as prices tumble

yuan2
07-Jan (Reuters) — China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared the Asian giant could trigger competitive devaluations from its peers.

China’s stock markets were suspended for the day less than half an hour after the open as a new circuit-breaking mechanism was tripped for the second time this week.

The People’s Bank of China again surprised markets by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar, the lowest since March 2011.

That tracked record losses in the more open offshore market in the currency and was the biggest daily fall since last August, when an abrupt near 2 percent devaluation of the currency also roiled markets.

Dealers, however, said the PBOC had intervened later to reverse a more than 1 percent fall in offshore rates for the yuan after they hit a record low of 6.7600 per dollar.

[source]

Posted in Currency Wars, Markets, U.S. Dollar |

What if everyone’s wrong about the dollar?

06-Aug (BusinessInsider) — One of the biggest stories in global markets continues to be the epic rise of the US dollar against the world’s big currencies.

While it’s good news for importers, it’s bad news for exporters. It’s also rough on the US-based multinational companies that do a lot of business overseas. This is why the strong dollar is the No. 1 thing S&P 500 companies have been complaining about.

With the Federal Reserve on the verge of tightening monetary policy with higher interest rates, many economists think the dollar has room to go higher.

“Optimism on the dollar is widespread, and our house view is for further dollar strength,” Credit Suisse’s Andrew Garthwaite said in a new note to clients. He noted that a recent Credit Suisse survey revealed that 70% of investor clients expect the dollar to continue appreciating over the next 12 months.

But what if the consensus is wrong?

In his note — titled “Where could the consensus be wrong?” — Garthwaite identifies reasons why the dollar’s rally may be near its end.

Among other things, he found that history is not on the consensus’ side.

“The dollar has historically fallen after the first Fed rate hike; indeed, the first rate hike on the last 5 tightening cycles was associated with a dollar weakening by around 10% over the following 3 months,” he said.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

Dollar hits three-month high on rate view, pans gold

20-Jul (Reuters) — The dollar jumped to three-month highs on Monday, extending its recent gains as expectations of rising U.S. interest rates gathered pace, while gold prices plunged to their lowest in more than five years.

The greenback posted its best weekly performance in about two months last week, after Federal Reserve Chair Janet Yellen reiterated that U.S. interest rates will probably rise later in the year. Data on Friday showing a pickup in U.S. consumer prices and housing starts also helped the rally.

The strength of the dollar weighed on gold, which plunged as much as 4 percent. Platinum fell as much as 5 percent to its lowest since February 2009.

…Gold dived, touching a five-year low as the U.S. interest rate outlook and its consequences for the dollar led sellers in China dumped the metal.

“The Asian market missed the action on Friday when U.S. players were already attempting a break of $1,130, a major support level, and has pushed prices much lower today,” ABN Amro analyst Georgette Boele said.

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Posted in Gold News, Gold Views, U.S. Dollar |

U.S. Denies Obama Told G-7 Leaders Strong Dollar Poses Problem

08-Jun (Bloomberg) — The U.S. denied that President Barack Obama told fellow Group of Seven leaders the strong dollar is a problem, saying that he made a different point about the need to promote growth including by means of monetary policy.

“The president did not state that the strong dollar was a problem,” the White House said in a statement Monday. “He made a point that he has made previously a number of times: that global demand is too weak and that G-7 countries need to use all policy instruments, including fiscal policy as well as structural reforms and monetary policy, to promote growth.”

Earlier on Monday, a French government official with knowledge of the G-7 discussions at Schloss Elmau in southern Germany said that geopolitical risks including Greece create volatility on financial markets, affecting interest rates and currencies. In that context, Obama had said that the strong dollar posed a problem, according to the official, who asked not to be named because the discussions were private.

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Posted in U.S. Dollar |