Rally momentum fades after US GDP data disappoints By Vivianne Rodrigues in New York The 2012 broad risk

asset rally displayed a mild bout of fatigue as attention returned to the eurozone crisis amid Greek debt negotiations, and after data showed the US grew slightly less than expected in the fourth quarter. Also adding to the cautious tone on Friday, rating agency Fitch took action on six eurozone sovereigns, cutting the long-term ratings of Italy, Spain and Belgium. However, selling was relatively meagre as disappointment over the world’s biggest economy is tempered by this week’s reconfirmation that the US Federal Reserve stands ready to provide additional support if required. The FTSE All-World equity index was slightly lower by 0.1 per cent, but still up about 6 per cent this year. Industrial commodity prices are softer and Treasuries are adding to recent gains, with benchmark 10-year yields down 3 basis points to 1.90 per cent. The FTSE Eurofirst 300 was down 0.7 per cent, and the S&P 500 in New York was 0.1 per cent lower by closing time in New York. Before faltering late in the day, Wall Street’s benchmark index on Thursday touched its best level since July, lifted by an unexpectedly dovish statement from the US central bank, which said interest rates would remain “exceptionally low” until at least late 2014 and also didn’t rule out further asset purchases to help the economy. The Fed news joined mostly better US economic data of late and reduced signs of eurozone stress – as the sovereign bond yields of Italy and Spain retreated from unsustainable levels – to propel global growth-focused assets to multimonth highs. Investors shifted money back into “growth assets” with flows into emerging markets equity and bond funds surging to levels last seen in the second quarter of 2011, according to data by EPFR. But “bull” markets don’t go up in a straight line, and Friday witnessed a more contemplative mood. Copper, for example, was up 0.4 per cent to $3.92 a pound early on Friday, its most expensive in more than four months, before pulling back to $3.88 after the US GDP data broke. Also in traders’ thoughts were the tortuous negotiations between Athens and its creditors, the failure of which may reignite concerns about the sovereign debt exposure of the European financial system.

8 per cent to Y120. On European government debt. the single currency has rallied more than 3. The yen was also stronger against the euro. later than had been anticipated and increasing expectations the Federal Reserve would embark on a fresh round of quantitative easing. The euro rose 0. Additional reporting by Jamie Chisholm in London Dollar down as outcome of Greek deal awaited By Alice Ross The dollar lost ground against other major currencies again on Friday as investors continued to move into risky assets in the hopes a deal would be reached over the weekend between Greece and its creditors to avoid a full-scale default on its debt. The dollar index was down 0. with yields and credit default swaps at extreme levels. was compiled before this week’s Fed announcement.5 per cent and was up almost 1 per cent on the day at $1. The Japanese yen was one of the biggest risers against the dollar on Friday.4 per cent to Y101.3194. wiping out all its gains in a week that saw an unusual spike in the value of the US currency against the yen. which triggered a sell-off in the US dollar. Italian 10-year bond yields were down 17 basis points to 5. the pound. European and Asian currencies continued to rally following news earlier in the week that the US did not plan to raise interest rates until the end of 2014. . a gauge for future currency moves. with the greenback down 1 per cent to reach Y76. News that US gross domestic product had grown slightly less than expected in the fourth quarter of last year led the dollar to rise only briefly before giving up its gains.6 per cent as the US currency fell against the euro. the yen and the Swiss franc.67.44.7 per cent to $1.10. for now the euro is relatively stable and holding on to much of its recent gains. Still.88 per cent. Sterling dropped 0. But the Fed’s dovish stance on Wednesday helped to reverse those falls.Investors are also wary of the message bond markets are sending about the likelihood of a default by Portugal. Latest data from the Commodity Futures Trading Commissioned released on Friday showed currency speculators raised bets in favour of the US dollar and raised their net euro short positions to a straight record high in the latest week. Sharp falls in the yen on Tuesday had sparked speculation by traders that Japanese investors were selling the currency to buy higher-yielding US debt. CFTC data. Since hitting a 16-month low two weeks ago. which fell 0.3226. their lowest levels since early December.

2 per cent. Sterling rose 0.“We expect the yen to be the natural beneficiary of the latest dovish innovation by the Fed and policy easing in the rest of the G10.1 per cent higher against the US dollar at $1. Currently. across these pairs. The euro was flat against the Swiss franc at SFr1. That requires rather extreme conditions to keep the dollar bid. Investors were also awaiting an outcome on Greece’s debt talks with its creditors. the common denominator is a weak greenback. A lot of attention is paid to the 10-day rally from GBPUSD. That said.2 per cent to $1. What is driving this plunge? The answer to that question will help us to answer where we go (and how quickly) from here. with an announcement expected over the coming days.2073 after trading in a tight range against the Swiss currency all week. If we were to assess the situation by analyzing the most potent fundamental driver first – underlying risk appetite – we would label this nascent bear trend a dominant trend. the S&P 500 (my favored benchmark for basic sentiment) is nearly sixweeks into a bull run. as a lack of attractive yield opportunities overseas complicates current account recycling efforts. the dollar represents a ‘last resort’ harbor for capital when there are serious concerns about the stability of the broader financial markets. Set that against the building evidence of an impending global slowdown (if not recession). To form an assessment of the dollar itself.8224 but still eked out a gain of 0. Copyright The Financial Times Limited 2012 US Dollar a Natural Short but also a Fundamentally Loaded Currency By John Kicklighter. The New Zealand dollar fell from its highs to $0. we can look to the Dow Jones FXCM Dollar Index which failed to make the move to fresh 12-month highs and instead tumbled over these past two weeks to lows not seen since November 14th. and threat of a downdraft in risk is high. And. Currency Strategist 28 January 2012 04:14 GMT The dollar has been hammered over the past two weeks.5713.0636 at the close of London trading. but we would also have to be highly skeptical of follow through. the EURUSD’s near five percent rally over the past two weeks or AUDUSD returning to three-month highs. while the Australian dollar lost its earlier gains and was 0. a deepening European crisis and protectionist agendas across the largest financial centers. As the market’s liquidity provider. . There are a lot of fundamental arguments to be made for their individual performance.” said analysts at Credit Suisse. but the simplest explanation is generally the correct. volume behind this move (a measure of conviction) has trended towards its lowest levels since 1999 (using a threemonth average).

Greek Debt Talks By Allison Bennett and Catarina Saraiva Jan. The dollar fell 2. The greenback declined for a second week against the euro. Canada’s dollar and Norway’s krone rallied as gasoline prices reached an almost five-month high. spurring investors to seek higher-yielding assets. On the opposite side of coin. Yet. head of currency strategy for BNP Paribas SA in New York. “The combination of the direct implications for U. The greenback lost 0.4 percent to . the experienced fundamental trader knows that what ‘should’ happen and what does happen frequently deviate for markets that run on speculation. All told. To make the most effective dollar collapse or rally. we should not grow too comfortable with the dollar bear trend. after dropping 2 percent last week.However. but such efforts are usually made when markets are under significant pressure. its longest losing streak since October. That said. a clear and strong bearing on market-wide sentiment is needed. this particular foil can offer immediate buoyancy or exact weight to the greenback. there seems to be a growing expectation for the Fed to bestow a QE3 on the world sometime in the early second quarter.S.” said Ray Attrill. there is plenty of reason to deleverage but just not the will. the longest streak in three months. That means. We have absorbed clear signs of trouble (Euro Zone downgrades. we wait for the speculative drift to run out of steam and mass risk aversion to kick in once again.The dollar fell against all its most-traded counterparts after the Federal Reserve pledged to keep interest rates low for at least three years. Since specific catalysts seem to be falling short of triggering a change in tone. we should lower our expectations that specific indicators over the coming week (like Friday’s NFPs) will mark a definitive turning point. The shared-currency’s rally has contradicted a growing wealth of bearish evidence. – JK Dollar Tumbles on Fed Interest Rate Pledge. it would be difficult to truly encourage a lasting sense of confidence given the fundamental headwinds that a building. As the greenback’s most liquid counterpart and the most prominent threat to global capital flow. on speculation the U. A move towards greater stimulus would provide temporary fuel.2 percent to $1.S. Another clear dollar driver that has separated itself further and further from traditional risk trends to keep an eye on is the health of the euro.3220 per euro. 28 (Bloomberg) -. but the half-life of such programs has grown shorter and shorter with each new effort. That is just as unstable a catalyst as risk trends themselves. yields and the fact that the carrot of quantitative easing is still dangling rather enticingly over the market was an undeniable dollar negative. central bank will enact further monetary stimulus and that Greece would reach a deal with private-sector creditors. poor 4Q earnings and weakened global GDP figures) with no change in bearing from the riskiest assets or the most stoic.

Canada Rally The loonie. the largest export for Canada and Norway.” Rehn said at the World Economic Forum in Davos. Euro area governments are seeking to fill a deeper-than-expected hole in Greece’s finances by pressing investors to accept a lower interest rate on exchanged bonds.3 percent to 7.0018. Crude oil. 26 for the first time since Nov. was buoyed as gasoline jumped to the strongest level since August. interest rates will be on hold for an even longer duration puts a spotlight back on global interest.8001 per dollar and 0.70 yen in its first weekly drop this year. a market analyst in Washington at Travelex Global Business Payments. Canada’s currency had its biggest weekly gain versus the dollar in a month. 21 to avert a credit crunch.” Italy auctioned 182-day bills at a yield of 1.S. “The next three days will be very crucial. which faces a 14. a currency-exchange network.969 percent yesterday. An agreement may come “if not today. 24.” he said.5 billion)for three years on Dec. The krone gained 2. Switzerland. The Frankfurt-based ECB loaned euro-region banks a record 489 billion euros ($646.251 percent at a sale of similar-maturity debt on Dec. “Expectations that U. The euro rose 1. European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that Greece was “close” to reaching agreement with its creditors. It traded stronger than parity on Jan. 1. rose 1.rate differentials that highlights a key source of dollar weakness. Norway’s currency reached its highest level in six weeks against the greenback.2 percent to 5.39 yen.347 on Jan. as the currency is nicknamed.76. Futures traders increased their bets the euro will fall versus the dollar to a record for a fifth straight week. So-called net shorts rose to 171.1 percent to C$1. The accord is tied to a second financing package for the cashstrapped country.5 billion-euro bond payment on March 20. then over the weekend. 28. Greek Talks “The euro is benefitting from hopes that we could enter next week with a deal for Greece to stabilize its finances. The euro gained against the dollar every day this week. according to data from the Washington-based Commodity Futures Trading Commission.8 percent to 101. Dollar Measure .6675 per euro. down from 3.” said Joe Manimbo.

The Japanese currency is viewed as a safe haven because the nation’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders. head of currency strategy at Bank of Nova Scotia in Toronto. The yen fell against most of its major counterparts after the Ministry of Finance said Japan’s exports dropped 8 percent in December from a year earlier. falling 1. declined for a second week.3 percent. which tracks the U. almost the lowest in since March. Bernanke said at a Jan.S. Weekly Downturn The dollar was the worst performer this week against its nine developed-nation counterparts. “The truth of the matter is that interest rates are on hold for a very long time. The median estimate of 27 economists surveyed by Bloomberg News was for a 7. according to Bloomberg Correlation-Weight Indexes. The euro gained 0. currency against those of six trading partners. Commerce Department figures showed yesterday in Washington.S.4 percent decline. The Fed “recognizes the hardships imposed by high and persistent unemployment in an underperforming economy.6 percent.” .The Dollar Index.” Chairman Ben S.6 percent. Implied volatility of three-month options of Group of Seven currencies was 10. dropping 1.7 percent to 78. The Fed pledged to keep its interest rate at a record low of zero to 0. “We’ve had an environment of very low volatility so that is good for carry trades. Low volatility makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits. according to the JPMorgan G7 Volatility Index. U. 25 press conference in Washington after the central bank’s meeting.825.25 percent until late 2014.9 percent and the yen fell 0.” said Camilla Sutton. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase.8 percent gain in the prior quarter. gross domestic product climbed at a 2.8 percent annual rate following a 1. and it is prepared to provide further monetary accommodation.