G7 Warns of Volatility

For the last few months, EU politicians have whined about the appreciating Euro. Aside from some token comments by the European Central Bank, however, the world failed to pay heed. That changed last week, when the G7 formally and harshly warned that volatility in forex markets risks harming the global economy. But talk is cheap, and the real question is whether it will be backed up by action. Most analysts reckon that it will be difficult and would take time for the governments of the EU, US, and Japan, at the very least, to put together a coordinated plan of intervention. Besides, the window has probably closed on action by Central Banks, which have conducted monetary policy irrespective of currency valuations. Reuters reports:

The U.S. Federal Reserve Board [is] nearing the end of its interest rate-cutting cycle, the European Central Bank [is] likely to reduce rates before the end of the year, and things might not get much worse for the U.S. economy. That suggests the dollar may recover in the coming months, with or without official intervention.

Iran Ahmadinejad:Crude Oil At $115/Bbl Too Low -Report

(Updates with more Ahmadinejad quotes; adds details, background)

TEHRAN (AP)--Iran's hard-line President Mahmoud Ahmadinejad was quoted Saturday as saying crude oil prices at $115 a barrel are too low, and that oil must "discover its real value."

Oil prices have hit all-time highs above $115 a barrel in recent weeks, amid reports that oil and gasoline stocks in the U.S. were lower than expected and as the dollar sinks to record lows.

"The oil price of $115 a barrel in today's global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value," the Web site of Iran's state-run television quoted Ahmadinejad as saying.

The Iranian president made the remarks during a visit to an oil and gas exhibition in Tehran late Friday.

Crude oil futures surged to a new trading record of$117 a barrel Friday following an attack on a key pipeline in Nigeria. The rise capped a week of record highs fueled by supply woes and the dollar's weakness relative to other major currencies.

Ahmadinejad said despite the surge in oil prices, the economic value of crude oil is currently less than what it was in 1980.

"While the price of other commodities (has) increased, the economic value of the current oil price is even less than 1980," he said.

Ahmadinejad accused Western industrialized nations of "selfishness" in their quest for cheaper oil.

"When they get hold of oil, they assume that oil is a free commodity and belongs to them and has wrongly been placed in other territories... This is the spirit of selfishness and arrogance," Ahmadinejad was quoted as saying.

A host of supply and demand concerns in the U.S. and abroad, along with the dollar's weakness, have bolstered oil prices, even as record retail gasoline prices in the U.S. appear to be dampening demand.

A stronger dollar makes commodities such as oil less attractive to investors as a hedge against inflation, and it makes oil more expensive to investors overseas. Analysts believe the weaker dollar is the primary reason oil has soared well past $100 a barrel this year. But the effect tends to reverse when the greenback gains ground.

Ahmadinejad called the U.S. currency "a handful of paper" without any global support.

Iran has stopped using the U.S. dollar in its oil transactions with the outside world, switching to other non-dollar currencies such as euro.

"The dollar is not money any longer but a handful of paper distributed in the world without commodity support," the Web site quoted Ahmadinejad as saying.

Turkmens Scramble To Sell Dollars As Devaluation Fears Grow -AFP

Turkmens Scramble To Sell Dollars As Devaluation Fears Grow -AFP

ASHGABAT, Turkmenistan (AFP)--Turkmens are lining up to sell their dollars in the gas-rich Central Asian state as rumors fly of a possible devaluation.

Hundreds waited in the rain Friday to cash in their dollars before the feared devaluation, from the current fixed rate of 20,000 manats to the dollar.

"There are rumors everywhere. One person says that the new course will be TMM6,250, another TMM16,000, others say TMM12,000 (to the dollar). People are hurrying to sell their dollars," said Svetlana, 30, who asked for her last name not to be used.

The scenes are signs of change - tough changes for many - in the energy-rich former Soviet state.

Exchanges have limited the amount that each person can change, but Turkmens have worked out how to get around the limitations.

Known for its secrecy, the Turkmen government has said nothing about the currency fears, and local media, controlled by the state, has remained equally silent.

"It is all speculation," said an employee of the state bank.

Until January, the official dollar rate was TMM5,200 a dollar - a rate unchanged for 10 years, most of them under the reclusive leader Niyazov who closed the country off from the world.

New President Gurbanguly Berdymukhamedov, who took over in December 2006 after Niyazov's death, fixed the rate at TMM20,000 to the dollar at the beginning of the year as he begins to implement reforms.

But by Friday, the manat had sunk to TMM17,500/dollar on the black market.

The queues to sell dollars show how ordinary Turkmens are wary about the economic changes in the country under the new regime.

In February, gasoline prices soared eight times higher, having previously remained unchanged since 1993. The government only gave 24 hours notice before the price increase, causing huge queues at gasoline stations throughout the country.

(END) Dow Jones Newswires

April 19, 2008 06:06 ET (10:06 GMT)

Euro Rallies Shy of $1.60

The dollar struggled against the euro, falling to a new all-time low just shy of the psychologically key 1.60-level at 1.5982. Despite jawboning from a Eurozone official, the greenback came under renewed pressure following the release of a sharply weaker than expected Philadelphia Fed manufacturing index.

The reports from the US largely reaffirmed the gloomy outlook looming over the economy. Weekly jobless claims edged higher to 372k, versus 357k the prior week. The March leading indicators index reversed a 0.3% decline in February, improving to 0.1%. The key highlight though, was a disappointing Philadelphia Fed manufacturing survey, which deteriorated by more than anticipated at minus 24.9 versus calls for an improvement to minus 15 from minus 17.4 in February – its lowest level since February 2001. The employment index also worsened, falling to minus 11.1 from minus 4.7, levels not seen since 2003.

Fed speakers offered a gloomy assessment of the economy, with San Francisco Fed President Yellen said the outlook was unusually uncertain and “growth has slowed to a crawl at best”. Further, Yellen said she could not rule out the possibility of a recession. Philadelphia Fed President Plosser echoed a similar sentiment, saying that while the economy may not be in recession, it certainly “feels pretty bad”. Meanwhile, Fed Governor Mishkin said that the FOMC still has room to lower the Fed Funds rate as needed.

Oil Slips Below $106

Friday, March 28, 2008 3:58:54 PM - Crude oil closed below $106 as concerns of supply disruption by violence in Iraq have eased. Light sweet crude for May delivery closed at $105.62, down $1.96. Crude dropped as low as $104.71 in mid-morning trading.

Oil climbed to a 10-day high on Thursday after a bomb blast caused an explosion at a pipeline in the southern Iraq city of Basra. Reports surfaced of a second bombing later in the day, sending prices higher again.

Crude also rallied on Wednesday following the release of the weekly inventory report that showed stockpiles unexpectedly remained the same. The report from the Energy Information Administration showed that crude oil inventories were unchanged at 311.8 million barrels. Analysts had been expecting crude oil inventories to increase by about 1.7 million barrels.

Crude oil approached its 10-day and 20-day moving averages with the slide. Stochastics and the RSI showed neutral levels for May crude. If prices turn higher, the next upward target is the high crossing of March 18 at $108.90. That came on the April contract's final day before expiring.

On the economic front Friday morning, the Department of Commerce released its report on personal income and spending in the month of February, showing that personal income increased by more than economists had been expecting. The report showed that personal income rose 0.5 percent in February compared to a 0.3 percent increase in January. The increase exceeded the estimates of economists, who had expected personal income to increase by 0.3 percent.

Also, the University of Michigan released its consumer sentiment index for March. The index edged lower to 69.5 in March from 70.8 in February, which was down from January.


Dollar Stable Versus Other Majors After Consumer Spending, Inflation Data [EUR/USD]

Friday, March 28, 2008 3:17:40 PM - The dollar gained on the sterling but saw little movement versus the euro and sterling on Friday in New York. The buck was stable as concerns about the mindset of the US consumer were offset by the release of relatively tame inflation data.

Data from the Commerce Department revealed that personal income increased by more than economists had been expecting, but consumer spending grew an an anemic 0.1 percent, confirming fears that the US consumer are feeling the pinch of problems in the housing and credit markets.

The report also showed that the Commerce Department's closely watched reading on core consumer prices edged up 0.1 percent in February after increasing by 0.2 percent in each of the four previous months.

The dollar extended its gains from the previous session amid more signals that the UK economy has weakened significantly. The buck rose to 1.9920, up a cent from its early levels. Traders reacted to data showing that UK economic growth slowed more than estimated from the prior year in the fourth quarter of 2007.

The Office for National Statistics announced that the annual economic growth for the fourth quarter slowed to 2.8% from 3.1% in the third quarter. The growth for the fourth quarter was revised down from 2.9% initially estimated.

The dollar moved roughly sideways versus the euro, trading between 1.5750 and 1.5850 for most of the day. The dollar stayed near its record low of 1.59 from earlier in the month.

The consumer price index for Germany in March 2008 is expected to rise by 3.1% from March 2007, according to data release by Destatis on Friday. Compared with the previous month, the index is up 0.5%. Annual CPI was a bit higher than expected, with analysts having predicted a 2.9 percent increase.

March's preliminary CPI number came in much higher than the 2.0% maximum rate established by the ECB's margin for price stability. Earlier this week, ECB President Jean-Claude Trichet amped up his hawkish rhetoric, saying that euro zone inflation is expected to remain significantly above 2 percent for most of 2008.

The greenback bounced back and forth around the century mark versus the yen on Friday, slipping to 99.40 in late afternoon dealing. The pair has seen little movement over the past 2 weeks, with the dollar attempting to stabilize after dropping to a 12-year low of 95.70 on March 15.

In Japan, core consumer prices, excluding fruit, fish and vegetables, increased 1% year-on-year in February, adding to the Bank of Japan's concerns about controlling inflation. The overall CPI rose 1% in February, also rising for the fifth straight month. February marked the fifth consecutive month for CPI growth. January's gain was 0.8%. Most economists predicted the February increase would be 0.9%.

Euro Could Replace Dollar

Two American economists recently conducted a computer simulation to determine how the role of the US Dollar as the world's reserve currency will evolve over the next decade. Their hypothesis- that the Dollar's preeminence would be maintained- was contradicted by the simulation leading them to conclude that the Euro will overtake the Dollar within the next 10-15 years. This may be hard for many analysts to stomach, since the Dollar's share in global currency reserves is 66%, compared to the Euro's 25%. In addition, the Dollar has held its title for nearly 150 years, and it's difficult to fathom its being replaced.

However, two factors have emerged within the last 10 years, lending support to the argument. First, the US twin deficits have exploded; the current account deficit approximates $800 Billion and the national debt is estimated at $9.4 Trillion. Second, prior to the inception of the Euro, there didn't exist a credible alternative to the Dollar. The Deutsch Mark and Japanese Yen initially seemed like potential candidates, but the German currency was folded into the Euro, and the Japanese economy has soured and taken over by deflation. Then there are peripheral factors, like US monetary policy, which is facilitating inflation and eroding the Dollar. There are also signs that a neo-imperialist foreign policy has overstretched the US, and foreign Central Banks are becoming nervous. The Financial Times reports:

Many developing countries will find it harder to maintain their dollar pegs. They may be reluctant to drop them now but there will come a point when the rise in inflationary pressures becomes unbearable.

Mid-Day Report: Dollar Steady after PCE, Sterling at New Record Low against Euro

Dollar remains steady in a generally quiet market after the release of Feb Personal income and spending report. While personal income rose more than expected by 0.5%, spending growth slowed sharply to a 17 month low of 0.1%. Both the headline and core PCE deflator rose 0.1% mom. Headline PCE deflator slowed slightly from 3.5% yoy to 3.4% yoy while core PCE deflator was unchanged at 2.0%. Note that real spending, thus, was unchanged in Feb and is taken by some economists as another sign of a recession.

Sterling remains the main focus of today after a series of weaker than expected economic data. Gfk consumer confidence slumped to a 15 year low of -19 in Mar. Nationwide house price dropped more than expected by -0.6% mom in Mar, slowing the yoy rate sharply from 2.7% to 1.1%. Q6 GDP growth was revised lower rom 2.9% yoy to 2.8%. Though current account deficit was narrower than expected at -8.46b. Sterling weakens sharply across the board and hit new record low against Euro at 0.7929.