Bloomberg

Euro Declines as German Ministry Says Economy Is Deteriorating

Aug. 20 (Bloomberg) -- The euro fell against the dollar to near the lowest level in six months as Germany's Economy Ministry said the outlook for Europe's largest economy has deteriorated even beyond the second quarter.

The pound fell to near a two-year low versus the dollar as minutes of the Bank of England's August meeting indicated British inflation risks may have ``eased a little'' while the outlook for the economy got worse. The dollar has risen 8 percent versus the euro from the record low set in July.

``The market was waiting for a big correction after such a massive dollar rally, but they never got it,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``People are pessimistic about European growth. They are coming back to buy the dollar on a dip.''

The euro decreased 0.2 percent to $1.4748 at 10:38 a.m. in New York, from $1.4776 yesterday, when it touched $1.4631, the lowest since Feb. 20. It reached the record high of $1.6038 on July 15. The currency fell 0.1 percent to 161.92 yen, from 162.13 yesterday, when it touched 160.87, the weakest in three months. The dollar traded at 109.76 yen, compared with 109.72.

The pound dropped 0.3 percent to $1.8621 on the Bank of England's economic outlook, after touching $1.8512 on Aug. 15, the lowest level since July 2006.

BOE policy makers split three ways when they kept the target lending rate unchanged earlier this month, minutes of the Aug. 7 meeting showed today. Governor Mervyn King and six other members of the Monetary Policy Committee held the benchmark at 5 percent, while one official voted for a rate increase and another called for a cut to help sustain growth.

Freddie Mac

The dollar erased its gain versus the yen and pared its advance against the euro after the Wall Street Journal reported that Freddie Mac executives are scheduled to meet with U.S. Treasury Department officials today.

Crude oil increased 1.5 percent to $116.24 a barrel. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they move in lockstep.

Futures on the Chicago Board of Trade show a 21 percent chance the U.S. central bank will raise the 2 percent target rate for overnight lending between banks by at least a quarter- point by its Dec. 16 meeting, down from 35 percent odds a week earlier. Policy makers next meet Sept. 16.

The euro fell 0.2 percent to 14.9409 Mexican pesos as Germany's economic ministry said in its monthly report that growth will remain moderate.

The country's BDB banking association said it no longer expects Europe's biggest economy to expand between 2.25 percent and 2.50 percent this year, and will change its growth forecast on Sept. 18. The German economy shrank 0.5 percent in the second quarter, the first contraction in four years.

Yen

Yen Advances as Credit Losses Damp Demand for Higher Yields

Aug. 19 (Bloomberg) -- The yen increased to a three-month high against the euro on speculation financial firms will report more losses, reducing demand for higher-yielding assets funded by loans in Japan.

Dollar Eases

USD Eases on Data, Oil
by Korman Tam
8/19/2008 3:17:00 PM
The dollar continued to relinquish its gains versus the majors in Tuesday trading, falling to 1.4791 against the euro and giving back the 110-handle versus the yen. Rebounding oil and commodity prices, combined with more evidence of deterioration in the US housing market prompted further profit taking in the greenback. Crude oil edged up to a session high of 116.12 but closed at 114.31 while spot gold recovered above the $800-level to $810/oz.

The economic reports released earlier in the session saw housing starts slump by 11% to 965k units for July, down from 1.066mln units a month prior. Building permits reversed the16.4% increase from June, sinking by 17.7% to its lowest level in 17-years at 937k units, down sharply from 1.138mln units previously. Meanwhile, producer prices firmed in July as core PPI increased to 0.7% up from 0.2% a month earlier and 3.5% compared with 3.0% from the previous month. Headline producer prices shot up to 9.8% versus 9.2% from a year earlier.

The next batch of US data are slated for release on Thursday, including weekly jobless claims, leading indicators, and the Philadelphia Fed manufacturing survey. Weekly jobless claims are seen easing slightly to 433k, down from 450k, while July leading indicators are estimated to worsen to -0.2% from -0.1%. The Philadelphia Fed manufacturing survey is expected to improve to -14.0, from -16.3 from July.

USA Housing Starts

Relevance: Tends to move markets on release
Release schedule : 8:30 AM (EST); monthly, two or three weeks after the reporting month
Source of report : U.S. Census Bureau
Web Address : www.census.gov
Address of release : www.census.gov/const/www/newresconstindex.html

Fundamental Forex News: USDJPY

Euro Down

Euro Trades Near 5 1/2-Month Low Versus Dollar as GDP Shrinks

Aug. 14 (Bloomberg) -- The euro traded near a 5 1/2-month low against the dollar after a report showed Europe's economy contracted for the first time since the 15-nation currency was introduced almost a decade ago.

Euro Falls

Euro Falls the Most in 8 Years on Reduced Bets for Higher Rate
Aug. 8 (Bloomberg) -- The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.