A Pfennig For Your Thoughts

And Now… Today’s Pfennig!

In this issue…

  • What will the Fed say?
  • The HIA window has closed!
  • China takes another baby step…
  • German outlook is upgraded!

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And Now… Today’s Pfennig!

FOMC Minutes Hold The Key…

Good day… And a Happy New Year to one and all! I sure hope your New Year’s celebration was fun and safe… Mine was very subdued as I have been very much under the weather… But Hey! How about my Mizzou Tigers on Friday? What a comeback! I did see that game before heading off to bed, for the weekend!

As expected, Friday’s currency action was stuck in the mud, with no direction to be found… Yesterday, while we, in the U.S., were still on holiday, the dollar was sold a bit… But still no real conviction to do so, by the European traders that did come to work! I’ve got the feeling that this week, with it being a short one, will still not see everyone back to work, and we’ll be counting flowers on the wall, and playing solitaire with a deck of 51 the rest of the week…

We do come back to a bit of data this week, with the topping applied on Friday with a Jobs Jamboree… Between now and then though, we’ll see the ISM Manufacturing Index, Some Vehicle Sales data, and…. The Minutes of the last FOMC meeting… And the guessing of what’s in these minutes are what’s moving the dollar lower this morning… The markets are thinking that the Fed will indicate in the minutes that they are near the end in their 18-month rate hike cycle… As I’ve told you for some time now… The removal of the rate hikes, will be a blow to the dollar, and remove the support it received from rising rates…

The other thing that supported the dollar in 2005 has been thrown out with the old bath water as we closed the books on 2005…. For new readers, this was the HIA repatriation of the dollar… This basically was a one year window for U.S. Corporations doing business overseas to bring back profits at a much reduced tax rate… There was much debate over how much this was going to affect the dollar, but in the end we know that it supported the dollar with over $200 Billion (probably close to $300 Billion) being converted to dollars and brought back into the U.S…. But… As I said, the window has closed, and now the dollar doesn’t have this crutch to fall back on….

So… We’ll see what the FOMC minutes have for us later this afternoon…

As we begin the new year… China has announced that they are moving away from their role as the only counterparty on all renminbi trades… They will now accept daily quotes from designated banks like Citicorp, and HSBC to help set the daily fixing rate… This is another move that while it doesn’t seem like a big deal… It is… It’s a very important next step toward a market based currency system…

This move will also help the Asian currencies, as they continue to hold themselves back waiting for a move from China…

Speaking of the Asian currencies… There was good news from Singapore overnight, as the Singapore economy grew at a much faster pace than forecast coming in at +9.7%!!!! WOW! Forecasters had set the economic growth at +7.5%… So the actual number blew away the forecast! Electronic gadgets are being pointed out as the difference maker, and why not considering the popularity of such things with U.S. consumers!

I see this report as a warning shot across the Central Bank’s bow, to get to work raising interest rates… And that’s all good for Sing dollars!

Gold is on the rise again, gaining over $5 last night to $522, the highest level we’ve seen in three weeks from the shiny metal…

Germany’s DIW (think tank) research institute has raised its forecast for growth in 2006… This is good news for the euro, as it will give the ECB some room around the collar to raise rates throughout 2006… Let’s rewind the tape on some of the data we saw as the year came to an end… German Business Confidence jumped to the highest level since 2000, Investor Confidence hit a 12=year high water mark, and unemployment fell 110,000 In December…

Well… The selling in Kiwi has stopped for now… I said last week that I thought it was overdone, and it was… You see, the markets have a different tone to them this week, and it will all hinge on the FOMC minutes… Here’s the skinny… If the Fed is close to the end with their rate hikes, then the interest rate differential that kiwi enjoys will be maintained, and will remain attractive to investors and bond issuers… Australia is also in that same boat… So… The FOMC minutes today will have a lot to say about the near term direction of Aussie and kiwi too!

Currencies today: A$ .7370, kiwi .6830, C$ .8625, euro 1.1895, sterling 1.7305, Swiss .7650, ISK 62.60, rand 6.29, krone 6.70, forint 211.62, zloty 3.23, koruna 24.39, yen 117.20, baht 40.82, sing 1.6545, China 8.0702, pesos 10.63, dollar index 90.72, and gold…. $523.75

That’s it for today… The start of my 15th year of writing the Pfennig… Pretty amazing… To think that it began with some hand written notes to the salesmen each morning that they began to fax to their customers… Then being posted on the Mark Twain Bank website, which at the time was one of the few banks that had a web site, to the daily email that currency exists, and the Pfennig’s own web site… WOW! It’s come a long way, baby! We’re currently putting together a special edition Review & Focus that celebrates The World Markets Division’s 20 years in existence… Some of the pictures are pretty funny! Anyway… Have a great start to the year, and a great Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com

PFENNIG DISCLOSURE