Latest news on European Mid Morning Update 13th March 2008
| Central bankers get agitated as Dollar-Yen reaches a 12 year low There have been no releases from Europe
January February March
President Bush says he favors a strong Dollar and both Finance Minister Nukaga and his vice minister Shinohara repeated with agitation their concern over the “excessive” strengthening of the Yen which is threatening to blow away the growth seen over the past few years. Intervention has not been mentioned. The last time the Bank of Japan intervened was back in December 2003 and January 2004 when the Dollar weakened below 110 and finally came to a halt a year later after some intervention inspired recovery. However, it has been pointed out that at the time ministry officials stepped up rhetoric before the intervention began. Intervention has been out of favor by Central bank officials for more than a decade and by the Bank of Japan since January 2004 in exchange for a preference to see exchange rate levels set by the market. However, in the current circumstances there is the possibility that central banks will see excessive moves as an additional risk within already turbulent markets that could cause the problems to deepen. But as the market has recognized the liquidity injection as being insufficient to counter the core problems in the U.S. economy the same can be said of foreign exchange intervention. There is normally only a temporary stalling of excessive market sentiment. So what gains would such action bring? Time. The WSJ is reporting that Paulson will be unveiling the government’s broad plan for avoiding the credit crunch from recurring. This is said to cover all areas of the credit market, from mortgage brokers to Wall Street firms, credit-rating firms and also regulators. In addition Paulson is mindful that no further burden be imposed on implementation. Yesterday saw NABE maintain that “net exports will keep the U.S. economy out of recession in 2008.” They expect exports to grow by 7% this year and should contribute 47% growth to GDP which they estimate at 1.1% in 2008. This is split between a stagnant H1 and growth of 2.3% in H2. They also expect unemployment to hit 5.7%. That means 3-4 months before we can begin to see some signs of recovery as the fiscal stimulation package and the mortgage relief plan bring some modest recovery in numbers. Intervention, by no means desired by central banks, may well be a useful tool to gain time for a U.S. recovery…
USDJPY EURUSD USDCHF GBPUSD Spt: 99.40-85 1.5500-20 1.0054-79 2.0249-75 See Also
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