Reply #9: dollar watch [View All]

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 82.190 Change -0.236 (-0.29%)

Pound Rallies as BoE Considered 50bp - But Is There Really More in Store?

http://www.dailyfx.com/story/bio2/Pound_Rallies_as_BoE_Considered_1179914722756.html

The Bank of England Monetary Policy Committee voted unanimously for a 25bp rate hike at its meeting in May, surprising many traders who expected to hear at least one voice of dissent. However, perpetual dove David Blanchflower concurred with the majority view voting to take rates higher after the headline CPI rate breached 3.0 percent level in April. In fact the only point of debate was whether the BoE should raise a full 50bp rather than the 25bp ultimately agreed upon.

In the discussion on the proper setting of monetary policy preceding the vote, the Minutes read "For some members, the question was whether Bank Rate should be increased by 25 basis points or whether there was a case for a rise of 50 basis points - given the upside risks to inflation over the medium term and the buoyant outlook for growth and demand." Sterling rallied on the news as market once again considered the possibility of another BoE rate hike in the next few months.

However, we remain skeptical about the likelihood of any further tightening this summer. In contrast to the April numbers, May inflation data saw a considerable decline dropping from 3.1% to 2.8%. Furthermore UK Retail sales contracted sharply, registering their first negative reading in three months as higher interest rates and skyrocketing gasoline prices clearly dampened UK consumer spending. The UK central bank is correct to be concerned about the overheating, especially if global equity markets continue to rally. As the first “hedge fund” economy, UK is extremely leveraged to any additional gains in the financial markets which would translate to higher bonuses for workers in the City and will filter across the whole UK services sector. Should equity markets from Tokyo and Shanghai to London and New York remain “hot”, UK economic growth will be as “buoyant” as the BoE expects, prompting another 25bp hike shortly. However, should capital markets cool, the slowdown in UK consumer demand, which is already evident will exacerbate and in that case the BoE is almost certain to remain stationary. For now sentiment favors the hawkish view, but the reality is far more data dependent than many pound bulls believe.

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Dollar: Stock Market Rallies around the World Continue to Fuel Dollar Gains

http://www.dailyfx.com/story/bio1/Dollar__Stock_Market_Rallies_around_1179863402512.html

When the foreign exchange markets have nothing to worry about, carry traders have no reason to abandon their positions. This explains why the US dollar took another aim at its 5 week high, shrugging off weak manufacturing data and stronger Eurozone data in the process. Little has come out of the US-China meetings thus far and the market’s worst fear of a Shanghai stock market collapse following the latest moves by China proved to be unwarranted. In fact, the Chinese stock market hit yet another record high last night. The untamable bubble in the East has fueled untamable bubbles in the West. The risk seeking appetite of global investors is fervent and this could continue well into Thursday with no US data on the calendar to alter market sentiment. Even though the Richmond Fed index deteriorated significantly in the month of May, the index did a poor job of forecasting the directional movement of the national ISM manufacturing index last month. Furthermore, the index still reflected an improvement in manufacturing conditions in the region, which explains why the dollar failed to react to the report. Weekly retail sales data was mostly positive. Redbook sales increased 2.2 percent between April and May and even though the ICSC/UBS weekly chain store sales dropped 1.5 percent, sales year over year remain positive. For the time being, the Federal Reserve has no reason to shift away from their hawkish monetary policy bias, especially as the US stock market hits another new record intraday high before reversing. As long as nothing rocks the interest rate boat, traders will continue to buy up dollars, but be careful, because once the stock markets around the world turn, expect the yen crosses and the dollar to do so as well.

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China Invests In Blackstone Group - Is It Only The Beginning?

http://www.dailyfx.com/story/special_report/special_reports/China_Invests_In_Blackstone_Group_1179860306555.html

On Monday, Beijing announced a deal that surprised the finance community, and it didn’t involve commodities or the domestic currency. Instead, officials, on the cusp of creating an private investment arm, invested a significant amount in the private equity firm Blackstone Group LP.

The deal has subsequently boosted the overall filing as the Chinese government seeks out financial returns on its rather lackluster foreign exchange reserves. Although widely pertinent to the equity markets, the planned offering does have subsequent implications in the FX world with many looking ahead to further potential acquisitions and investments on the horizon.

Details of the Transaction

Looking for higher rates of return, the Chinese government has elected to invest a heavy sum into the proposed Blackstone Group initial public offering, set to come to market in a couple of months. The stake, worth 9.9 percent of the overall deal, has subsequently forced lead underwriters to boost the capacity of the offering, setting shares in the $29-$31 range. Shortly after the announcement, deal makers increased the deal by almost 20 percent to as much as $7.8 billion. Laden with plenty of additions and clauses, the final transaction markup will value the soon to be public private equity firm at a whopping $33.6 billon. Ultimately, the total will boost Blackstone’s carry in the financial services industry, making comparisons with some of Wall Street’s heavy public hitters like Goldman Sachs and Morgan Stanley.

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