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EUR/USD Daily Outlook 11-6-8

Wed, 11 Jun 2008 06:29:46 EST

EUR/USD Daily Outlook 11-6-8 - by Denese

Yesterday Federal Chairman Bernanke said that downside growth risks had diminished and left the interest rates at 3.0%. The US Commerce Department said exports showed the biggest gain in four years, thanks to the weak dollar, which makes American products more competitive abroad.

The EUR/USD remained stable though ahead of G8 talks and rumours of rate increases in the EUR. The EUR/USD traded up to 1.5487 before consolidating between 1.5475/85 in extremely dull Asian trading. Model fund
buying underpinned the EUR/USD as did hawkish comments from the ECB"s Liikanen who said that the ECB must act decisively if price expectations rose.

UK Employment data was lower than expected, but had little effect on the Euro.

Events in the US today that could influence the dollar price
       07:00 MBA refinancing index for Jun 07 week
       10:35 EIA petroleum inventories for Jun 07 week
       11:30 FRB Kohn (voter) at FRB Boston's research conference
       12:15 Fed Gov Kroszner on consumer credit in Cleveland, Ohio
       13:00 FRB St Louis' Bullard (non-voter) speaks an event in St Louis
       14:00 Fed's Beige Book a survey of regional economic performance

FXCM Analysts are targeting 1.5365, but I would keep the stops quite tight.

EUR/USD Daily Outlook

Tue, 10 Jun 2008 05:43:02 EST

EUR/USD Daily Outlook - by Denese

USD

Pending home sales index, a gauge looking two months ahead, has jumped 6.3% from last month and is at it’s highest level in six months. There have been massive price declines in some areas and bargain hunters are beginning to pick up some of the fallout. Despite the rise, the index is down 13.1% from last year. However the forecast of existing home sales is that it will slow to $5.4million before rising in 2009. Last year the average was $5.65million.

Higher home affordability should help to clear the inventory of unsold homes which is at a high of 11.2 months supply, but countering the lower home prices are the weakening employment figures and higher inflation created primarily by the increased oil price.

Bernanke"s speech at 00:15 GMT resulted in the USD rising. He emphasized inflation concerns and played down growth worries and helped send 2-year Treasury yields above 2.95%.

Events scheduled for today:

07:30 NFIB Index

07:45 ICSC Weekly Chain Store Sales for Jun 07 week

08:00 FRB Boston's Rosengren (non-voter) on inflation in Chatham; MA

08:00 FRB Dallas' Fisher (vtr) on globalization and Monetary Policy; NY

08:55 Redbook Retail Sales index for Jun 07 week

10:00 FRB Philadelphia's semi-annual Livingston Survey

10:00 Apr Job Openings and Labor Turnover Survey (JOLTS)

11:30 Treasury auctions $22 bln 5-day CMBs; settle Jun 11

13:00 Treasury auctions 4-week bills; settle Jun 12

18:00 Bernanke on inflation & monetary policy at Boston's research conf

EUR

Swedish figures have shown high inflation and low growth which seem to be the current pattern out of the Euro zone at present. High Fuel costs were quoted as the major cause for the inflation increases.

On Jun 6 The ECB decided to keep rates on hold at 4.00% again but at the press conference Trichet hinted that there were some in the governing council who were considering a rate hike, perhaps even by “a small amount" in July to counter rising inflation pressures. There is a little scepticism that the data coming out of the EU will support such a decision.

No Major events are on the cards today.

The following data is due for release:

GMT	Country	Data Due	IFR Estimate A=Actual
6:45	FRA	Ind. Production	1.4 A
6:45	FRA	Ind. Production	2.1 A
7:30	SEK	CPI	0.4 A
7:30	SEK	CPI	4.0 A
7:30	SEK	CPIX	0.4 A
7:30	SEK	CPIX	2.9 A
7:30	SEK	Ind. Production	-0.3 A
07:30	SEK	Ind. Production	0.2 A
08:00	ITA	Ind. Production	-0.3
08:00	ITA	Ind. Production	-1.1
08:00	NOR	CPI	0.4
08:00	NOR	CPI	3.6
08:00	NOR	PPI	5.1
08:00	NOR	PPI	26.8
08:30	GBP	Ind. Production	0.1
08:30	GBP	Ind. Production-	0.2
08:30	GBP	Manuf. Productio	0.0
08:30	GBP	Manuf. Productio	0.1
09:00	ITA	GDP Final	0.4
09:00	ITA	GDP Final	0.2

EUR/USD

If today’s data holds up the hawkish comments on interest will help the Euro rally.

Reference: www.FXCM.com

BBA LIBOR Revision Results

Sat, 31 May 2008 05:01:01 EST

BBA LIBOR Revision Results - by Denese

Well, the published results of the revision were an anti-climax. The BBA decision was not to change any of the panel banks, not to include any more banks, in fact to make no changes whatever except to provide an assurance that it would “strengthen its oversight “, but it gave no indication of what measures it would be able to put into place to achieve this. The statement on Friday followed a meeting of the association's independent Foreign Exchange and Money Markets Committee after a review conducted by John Ewan, who directs the setting of BBA Libor. A BBA spokesman could not expand on how the committee might strengthen its oversight or when such measures would be announced. Details would be released “in due course”.

For a background on what the BBA LIBOR Rate is and how it is derived read the previous article.

Fidelio Tata, derivatives strategist at RBS Greenwich Capital, said the BBA "would rather do nothing rather than make a change and find out later it was the wrong change".

There is of course a great deal of criticism around this seeming lack of action but it has certainly taken the focus off the rate. This could either be because there really is no inconsistency and the volatility is a measure of the difficult times or it has been deemed prudent to take the focus off an issue which could add to the volatility. The idiom “no news is good news” is certainly in effect. The criticism is a small price to pay.

T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, was concerned that the issue has received as much interest as it has. He said: “I would have preferred that the issue had been handled more discretely because it caused some disruption to an already dislocated market, but now that we are having the discussion, the best thing they could have done is to make it anonymous for banks to quote a rate.”

Currently each bank’s rate quote is published on the Website of the Association which although wonderfully transparent can be dangerous for the banks. As Julia Werdigier of the New York Times remarked, “anyone can see which bank would have to pay most to borrow from rivals potentially threatening the bank’s reputation.”

According to JPMorgan Chase, in the first four months of 2007, the difference between the highest and lowest rates for three-month Libor rates on dollar loans did not exceed 2 basis points, whereas In the same period this year, it was as wide as 17 basis points.

The credit crisis exposed Libor's flaws, according to Peter Hahn, a research fellow for Cass Business School and a former managing director at Citigroup, because the association identifies its contributors, giving lenders an incentive to underestimate borrowing costs.

The rate is what it is: the rate that those chosen 16 banks are borrowing money at amongst themselves. It is that and only that, and as such does not need to be changed, but this quoted rate is used to calculate rates on at least $350 trillion of derivatives and corporate bonds as well as six million U.S. mortgages. Financial products worth about $150 trillion are indexed to Libor. If the BBA wishes to retain this esteemed role, then it needs to review more seriously otherwise the industry must derive another benchmark on which to base the price of its products.

Changes that market participants speculated on and would have liked to have seen included:

increasing the number of banks in the BBA's daily survey;
using a median rather than a trimmed mean to calculate the Libor rate; including more U.S. banks on the rate-fixing panel;
altering the survey question to shift the definition of the rate;
changing the time of the fix from 11 a.m. London time to better align it with the U.S. market;
creating an indexed-like Euribor for the dollar.

"This is even a smaller band aid than expected. ... It's frustrating to see people who don't understand how bad the situation is," said Christopher Low, chief economist at FTN Financial in New York.

John Zhu and Edward Hadas argued on Breakingviews.com that major changes to Libor are not needed. Let’s hope that this seeming complacency of the BBA is a display of confidence in their rate and that we are not “in due course” going to find that it was an attempt to keep the market stable for as long as possible under more serious circumstances.

In the meantime the industry needs to do its own review of the effectiveness of this rate as a measure for the $150 trillion worth of financial products around the world -- everything from auto loans to corporate debt – that are indexed to Libor and come up with their own alternatives, perhaps incorporating the LIBOR rate amongst other indicators.

Credit Crunch 2 – the sequel

Fri, 30 May 2008 03:41:23 EST

Credit Crunch 2 – the sequel - by Denese

We’ve seen the movie – will the sequel be released?

The credit crunch has seemed to be consolidating and the fall-out has been gathered and swept up, but is this the end or are we to be subjected to the horror’s sequel.

Current volatlity in the currency markets certainly indicates that the dust hasn't entirely settled.The credit market is still decidedly jittery. According to a report by the Telegraph, the price of credit default swaps, effectively insurance on those institutions failing to pay out on their own bonds has risen dramatically over the past few days, which indicates that default at some level is expected.

As Bear Stearns tumbled downhill to its sale to JPMorgan Chase in March, the cost of protecting its debt, through a credit default swap, began to rise rapidly as investors feared that the Bear would not be good for the money promised on its bonds.

Is this current rise indicative of other bank vulnerability?

Inter-bank lending rates across Europe have also jumped sharply while we eagerly await the results today of the BBA investigation into the BBA LIBOR rates. It was feared that some of the 16 banks responsible for setting the rate on a daily basis were understating the cost of their international borrowings to avoid the spotlight. The results of this investigation will be published today.

As the housing market falls, squeezing personal loan capacity and commodity prices rise, increasing the cost of living, the man in the street becomes hard pressed to honour his current debt levels. Add job losses to the equation and the pack of cards tumble and the queen of hearts squeals “off with their heads!” We could well see a wave of personal loan defaults other than those already seen in the US sub-prime housing market, in personal debt such as credit cards, personal loans, as well as mortgage debt in the ‘prime’ market’.

There is also additional fear that the defaulters will spread to the corporate market, which until now has been exemplary under the circumstances. Rating agencies have been very generous with their ratings in times of plenty which encouraged banks to lend freely to companies they might previously have avoided and would avoid today if given the option. They saw good sub-prime borrowers fall into default – and are hoping not to see a repeat performance on the “prime” stage.

The sequel could be the Horror Movie of all time as the Fed exits as the hero and savior as its ammunition is spent. It has poured hundreds of billions of dollars of liquidity into the system. It has cut the interest rates, it bailed out Bear Stearns. Short of printing dollars and creating an inflation nightmare, it has a limit to the rescues it can perform.

As Tony Bonsignore remarked yesterday in his Morning Line: ”All of which is quietly terrifying the banks into an existential crisis; at some point soon they might be left on their own to deal with the consequences of their actions. Just imagine that. “

Dollar Data Due In – Tuesday 27th May 2008

Tue, 27 May 2008 06:28:44 EST

Dollar Data Due In – Tuesday 27th May 2008 - by Denese

The weekend has been quiet with the Memorial Day holiday in the US, but we could see some volatility today with the data that is due in. The expectation is that the data is going to confirm the seriousness of US economic conditions with no expectations of a bright number here or there to put a light at the end of the tunnel.

The volatility is already apparent in Eerly morning trading which has seen the dollar strengthen against the franc and the euro after hitting lows of 1.0226 and 1.5819 at 2:00 am then jumping to 4-day highs of 1.0290 against the franc and 1.5738 per euro in about an hour. The dollar is now trading at 1.5753 against the euro and 1.0275 against the franc, compared to yesterday's close of 1.5772 and 1.0248, respectively.

Time	Data Due	Expectation
9:00 EDT	S&P/Case-Schiller index of home prices	likely to fall sharply for the fifth consecutive quarter in Q1
10:00 EDT	new home sales	expected to fall 0.6 percent to 523K
	Conference Board’s consumer confidence index	forecasted to fall to a nearly 15-year low of 60.0 from 62.3

Factors affecting these poor expectations have been the rocketing food and energy prices. Oil has continued to climb rising by more than $1 a barrel in early European trade. Investors are increasingly concerned that soaring energy costs will weigh on economic growth,

The collapse of the US housing sector is serious. Discussions in the Japanese parliament earlier today revealed concern over the U.S. economy due to unstable housing and financial markets.

"The biggest uncertainty is whether the housing market will show signs of a recovery," Shirakawa told a financial committee in the upper house of parliament. In addition

tightening credit conditions have sparked widespread pessimism throughout the financial markets.

Labour markets are following suit and have started to deteriorate shown by the slow gains in the unemployment rate in recent months, and things are only expected to get worse.

A local perspective comes from a consumer blog where Patrick Killelea reports that “Salaries cannot cover current house prices. This means house prices must keep falling or salaries must rise much faster. You probably noticed that your salary is not rising much, and that inflation in food, energy, and medical care has been much higher than the government reports. This leaves less money available to pay for housing. A safe mortgage is a maximum of 3 times the buyer's yearly income, but most mortgages are well beyond that. Anyone who buys now will suffer losses immediately, and for the next several years at least, as prices keep falling.”

Purchases of new homes probably dropped 1.1 percent in April to an annual pace of 520,000, the fewest since September 1991, according to the median forecast in a Bloomberg News survey. A separate report may show a measure of consumer confidence fell this month to the lowest since 1993. The figures are due at 10 a.m. in Washington.

``The housing crisis still weighs on the market,'' Joerg de Vries-Hippen, who oversees about $26 billion as chief investment officer for European stocks at Allianz Global Investors in Frankfurt, said in a Bloomberg Television interview. ``After the long weekend, investors come back and adjust their portfolios.''

30th May Results of BBA LIBOR Investigation

Mon, 26 May 2008 04:28:41 EST

30th May Results of BBA LIBOR Investigation - by Denese

Introduction

The British Bankers’ Association’s (BBA) Libor rate is under review.

BBA LIBOR was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other.

16 contributor panel banks meet every morning and provide the rates at which they borrow 10 world currencies and 15 lending periods ranging from overnight to one year.

The middle 50 per cent of these rates are taken to calculate an average, which, at 11am every morning is released to Reuters and which then become that day’s BBA LIBOR rate.

The global credit problems have had repercussions on various markets, and particularly on the carry trade markets in foreign Exchange, but the most direct result was the surge in borrowing costs. When Libor rates did not appear to be accurately reflecting these rate hikes, the BBA became concerned and has decided to review the system that sets Libor.

Julia Werdigier of the New York Times reported that “a troubling question is swirling around this elite banking club: Have some of its members been lying about one of the world’s most important interest rates?”

The findings of this review, in which the group is talking to regulators, central banks, brokerage firms, hedge funds, stock exchanges, derivative exchanges and fund managers about possible changes, are set to be released on 30^th May and they pose serious event risk for currency traders. “The money markets are stressed at the moment, and Libor reflects this,” said John Ewan, the association’s director responsible for Libor. “Naturally we wish to ensure that the rates are as accurate a reflection of prevailing market conditions as possible,” he said.

How important is the BBA LIBOR Rate?

The Overnight BBA LIBOR rates act as a barometer of risk in the financial markets.

It is among the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages and therefore affects the rates banks charge on things like home mortgages, student loans and corporate I.O.U.’s.

“It’s a real cornerstone of the financial markets,” Jason Simpson, a strategist at ABN Amro in London, said of BBA Libor.

Commenting on today’s movements in interbank lending rates, Angela Knight, Chief Executive of the British Bankers' Association, said:

“The full name of the service is BBA LIBOR. The term LIBOR is often used to describe this industry standard, but as individual banks may calculate their own Libor rates, the term BBA LIBOR should be used to distinguish them. The Daily BBA LIBOR rates are published by Reuters and are available also through Thomson Financial, Telekurs, Blomberg, Infotec, IDC, Quick, Class Editori and Proquote, as well as other information providers. Because BBA LIBOR rates are calculated daily from the rates at which banks agree to lend each other money, it is a more accurate barometer of how global markets are reacting to market conditions”

BBA LIBOR is now used to calculate the interest rates for a range of financial instruments and derivatives based on the BBA LIBOR rates are now traded on exchanges such as LIFFE, the Chicago Mercantile Exchange (CME) and SIMEX. Independent research shows that financial products worth a total of around $150 trillion are indexed to BBA LIBOR.

BBA LIBOR under scrutiny

Libor is going through its worst credibility crisis since its creation in 1986, when British banks asked the association to come up with a benchmark rate to price syndicated loans and derivatives. At a time many banks are struggling, it is not entirely surprising that interbank lending rates are behaving unusually.

Rates are quoted by 16 banks from seven countries, including the United States, Switzerland and Germany, for 15 different borrowing periods ranging from a day to a year in 10 different currencies. The banks are asked at which rate each could borrow a “reasonable amount.” The association then eliminates the four highest and lowest rates and averages the remaining ones to determine various Libor rates.

The association’s system for setting Libor has worked for the last 22 years. But under the current stressful credit conditions which came to the fore last August, many banks, concerned about their own financial positions, were no longer willing to lend money to one another. As a result, Libor shot up, even as central banks like the Federal Reserve tried to drive borrowing costs lower.

Some banks on which the calculation of Libor depends, include Credit Suisse, UBS, HSBC, and Deutsche Bank among others - however, the rates being incurred by banks may actually be higher than Libor suggests, as they under report borrowing costs in the fear of appearing desperate for funding.

The system may not have sufficient checks and balances to prevent banks from manipulating Libor to their advantage. Banks could quote lower rates to allay concern about their finances or reduce their borrowing costs during a time of financial stress.

“There are definitely incentives for banks to push the rate lower,” said Sean Maloney, a bond analyst at Nomura in London. “They would get the rate down while still charging their customers more.”

The result of any underreporting would be that trillions of dollars worth of financial instruments that rely on Libor may be priced incorrectly. US Federal Reserve officials have been in contact with the BBA regarding the issue.

Considerations under Review

The BBA is currently conducting a review that could ultimately lead to changes in the way the rate is defined and set, as the first results of the review are due on May 30.

Because most of the surveyed banks are based in Europe and surveyed in London before the US markets open, the US figures may not be an accurate reflection. As a result, there is speculation that the BBA will expand the list to include more US-based institutions, or that they will move to calculate the rate again later in the day.

In order to deal with the issue of confidence in individual financial institutions, another possible change would be to get a quote on what rate the bank is lending to other banks, rather than asking what it costs for the surveyed banks to borrow.

US-based Index planned

Various solutions have been presented, including scrapping Libor altogether and creating a brand new benchmark rate. However, nothing has been decided upon. Any major changes could spark significant volatility in the global financial markets and trigger major moves in carry trades like EUR/JPY and GBP/JPY.

London bond broker ICAP announced plans last week to launch a US-based index on dollar-denominated interbank borrowing rates, which would be called the New York Funding Rate (NYFR).

The benchmark would be based on an anonymous daily poll of 40 banks, including foreign banks that have US offices, and exclude the top six and bottom six quotes. Instead of asking the banks at what rates they would be likely to borrow, they will be asked to estimate the rate at which they are likely to obtain funding. The anonymity factor is considered to be crucial, as individual banks would no longer have to worry about their status. The Bear Stearns predicament has left a bad taste. There is no set date for launch quite yet, though it could be as soon as this week.

Some bankers have urged the industry to create a New York equivalent of Libor, called Nybor, although adding more American banks might provide a better reading for the cost of borrowing in dollars, Terry Belton, an analyst at JPMorgan Chase, said. “Right now, the group that determines dollar rates is skewed toward European banks.”

NYSE Euronext's Liffe derivatives market - best known for Euribor - will start trading futures contracts in June based on Eonia, the euro overnight interbank average, and on Sonia, the sterling overnight interbank average. However, Garry Jones, an executive director at Liffe, said that the new contracts are intended to be “complementary” with Libor and are not designed to replace the rate.

Expected Review Results

The BBA is unlikely to recommend sweeping changes, as the group is aware that this could destabilize already-fragile sentiment in the credit markets.

Drastic changes might do more harm than good, said Mark Durling of the London-based asset manager Brewin Dolphin. “There is a lot of criticism about Libor, but to change the mechanism that has been working for years is unwise,” he said.

According to Terry Balkas of FXCM, “Trends for carry trades such as EUR/JPY and GBP/JPY are inherently dependent upon risk sentiment in the markets, as traders that utilize the pairs are usually looking to benefit from the yield benefits that come along with buying the pairs. As a result, it is no surprise that when investors become risk averse and the equity markets tumble, the Japanese yen tends to skyrocket across the majors. As Technical Strategist Jamie Saettele discusses in his most recent technical analysis of the yen crosses, there is substantial downside potential for pairs like EUR/JPY and GBP/JPY. Furthermore, a piece of news such as the announcement of a change in the way Libor is calculated, or worse, signs that investors will stop using the benchmark interest rate altogether and will switch to an alternative like the New York Funding Rate could trigger significant volatility in the markets. As a result, yen traders should keep an eye on the news wires, as the search for a “new Libor” could be the biggest event risk in near-term”

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Is the Dollar Out Of the “Woods”?

Tue, 01 Apr 2008 12:15:11 EST

Is the Dollar Out Of the “Woods”? - by Denese

Bretton Woods – the Introduction of Currency Pegging

In 1944, in a war torn world, the Bretton Woods Agreement was born in an attempt to secure peace and monetary stability in war-ravaged Europe. Major central banks opted to peg their currencies to the U.S. dollar while the United States agreed to peg the dollar to gold at $35 an ounce. This was called the Bretton Woods Agreement and its major objective was the reconstruction of the European economies. In the lofty words of Henry Morgenthau in the opening address: the aim was, the “Creation of a dynamic world community in which the peoples of every nation will be able to realise their potentialities for peace." With that world leaders left behind gold as a currency, pegging instead to the US dollar, which was used as the standard currency for all trading between capitalist countries. The main terms of this agreement were:· The formation of the International Monetary Fund and the International Bank for Reconstruction and Development (presently part of the World Bank). · Adjustable peg Foreign exchange market rates system: The exchange rates were fixed, with the provision of changing them if necessary. · Currencies were required to be convertible for trade related and other current account transactions. The governments, however, had the power to regulate ostentatious capital flows. · As it was possible that exchange rates thus established may not be favourable to a country's Balance of payments position, the governments had the power to revise them by up to 10%. · All member countries were required to subscribe to the International Monetary Fund's capital.

Pegging and Inflation

By the late 1960s, the dollar peg was creating a problem of inflation. The United States was flooding the world with more dollars than were desired at the pegged exchange rates. The only way that the French and German central banks could maintain their currency pegs versus the dollar was to inflate their own economies. The pegging Central Banks had to buy U.S. dollars in the foreign exchange market with their own currencies, in order to prevent the dollar from falling. The dollar-buying central bank gets its own currency by figuratively printing it and therefore floods its economy with its own base money, resulting in inflation – inflation in the prices of goods/services and inflation in the prices of assets. The demise of the Bretton Woods Agreement occurred in August 1971 when the peg between the U.S. dollar and gold was severed. Europe started a long process towards monetary union, via an exchange-rate mechanism, which resulted in a single and free floating currency 30 years later and an era of floating exchange rates was ushered in. The US did not however entirely lose its status as the world’s reserve currency and today the US$ is still used as a peg by many developing and trading nations, particularly in the Middle and Far East. The peg would bring developing nations financial credibility and would provide them with stable trading conditions while trading with the world’s most voracious consumer.

The Role Of Pegging In the US Deficit

The dollar’s role as the world's reserve currency has allowed for its excessive and growing deficit. In 2006, the US ran a current account deficit of more than 6 per cent of gross domestic product., Being the major Reserve Currency Asian countries tie their currencies to the dollar at highly competitive levels and use their reserves to lend money to the U.S. by purchasing its financial assets, especially Treasuries, allowing these nations to pursue an export-oriented economic-development strategy, to maintains growth and keep their large populations employed. In return, an overvalued dollar permits Americans to keep consuming cheap imports, spend more than they save and borrow from Asia at low interest rates.

In 2003, the economists Michael Dooley, David Folkerts-Landau and Peter Garber analyzed this phenomenon and dubbed it the Bretton Woods II theory.

Bretton Woods II

“The idea is based on the observation that newly industrialized countries peg their currencies to the dollar at an undervalued exchange rate in pursuit of export-led growth. In return, they reinvest their loot back into the US, which acts as an anchor and consumer of last resort.” Wolfgang Munchau ``Some have called it the world's biggest vendor-financing scheme,'' Barnes says. ``The U.S. gets to satisfy its insatiable demand for cheap imports, and Asia keeps its factories running.'' “In some respects, Bretton Woods II appears like a giant money laundering cartel. You buy my goods and, in return, I give you the money back in the form of a loan. It is, perhaps, no surprise that it took a credit market crash to bring that macroeconomic scam to an end. “Wolfgang Munchau The Bretton Woods II theory says that this excessive deficit is both desirable and sustainable, which has not convinced all economists and in fact America's reliance on others to fund its deficits has accelerated the rise of new powers that will challenge its hegemony and the US may become the victim of globalisation, rather than its champion. If the dollar continues to lose ground, and it has fallen by 52 per cent against a trade-weighted basket of currencies since 1985, other countries may not find it worthwhile to invest in dollar-denominated assets (which helps to offset the US current account shortfall) whether they be equities, American Government bonds, mortgage-backed securities or even highly rated US corporate debt. What could cause the loss of ground to become a landslide would be a decision bythe Chinese and Saudi central banks to eliminate the pegs of their currencies to thedollar. Both countries are experiencing inflation as a by-product of pegging their currencies to the dollar. So – out of the woods?

Tokyo Property Props up Bank Losses

Tue, 25 Mar 2008 07:16:41 EST

Tokyo Property Props up Bank Losses - by Denese

Three Japanese financial institutions have so far needed to seek external funding after heavy losses on subprime-related investments. The latest bank to seek assistance, is the Japanese online bank, e-Bank, who is asking for a capital infusion from the Development Bank of Japan. Who reportedly already hold about 15%. E-bank has reported 5 billion yen in subprime losses so far and is expected to write off at least 10 billion yen by March 31. According to the business daily Nikkei, the bank, will issue as much as 10 billion yen ($100 million) of subordinated bonds to DBJ by the close of the fiscal year ending March 31. The capital injection will boost eBank's capital-adequacy ratio to 10%, up from 9.1% at the end of December. Reuters reports that Resona Holdings, Japan's fourth-largest bank have yet to repay 2.3 trillion yen from a bailout. Although Resona has no direct exposure to subprime mortgage investments, it has nonetheless struggled to boost earnings due to stiff competition and a weakening domestic economy. On Tuesday the Bank announced that it was selling its Tokyo headquarters to property developer Mitsubishi Estate Co for 162 billion yen. The bank said in a statement that it expects to book an extraordinary profit of 100 billion in the year to March 2009 from the sale. That could boost its net profit in the coming financial year by 41 percent from current estimates. Earlier this month Midsize Japanese lender Shinsei Bank, which also has to repay government money, said it would sell its Tokyo office to Morgan Stanley in order to offset subprime losses. Meanwhile back in the USA, In a deal worth 48billion yen, U.S. bank Citigroup, sold its Tokyo headquarters to Morgan Stanley last month to offset big subprime losses, last month, a deal reported to be worth 48 billion yen.