Tuesday, April 22, 2008

More HOTNESS (2 hours later)

First, compare the chart 2 hours ago (previous post) and now:

Then read this article, I think there's a full blown panic in DC right now:


By Bo Nielsen and Ye Xie

April 22 (Bloomberg) -- The euro surpassed $1.60 for the
first time as European Central Bank officials said they'll
increase interest rates if inflation doesn't slow.

The dollar weakened for a second straight day as oil surged
above $119 a barrel and Federal Reserve Bank of Dallas President
Richard Fisher said inflation is starting to grip U.S.
consumers. South Africa's rand appreciated against all of the
major currencies on bets rising consumer prices will force the
central bank to increase its target lending rate.

``The market has started to price in the possibility of a
rate hike from the ECB,'' said Tom Fitzpatrick, global head of
currency strategy at Citigroup Global Markets Inc. in New York.
``Given the momentum of this trade, we will at least move up to

The euro advanced 0.4 percent to $1.5982 at 2:27 p.m. in
New York, from $1.5912 yesterday. It touched $1.6019, the
highest since Europe's currency debuted in 1999. The euro traded
at 164.63 yen, compared with 164.32. The dollar dropped 0.3
percent to 103.02 yen, from 103.27.

The 15-nation currency strengthened against the dollar as
ECB governing council member Christian Noyer said policy makers
will act to restrain consumer prices if inflation doesn't slow.
``Our big problem is to make sure that inflation falls back
below 2 percent next year,'' the Bank of France governor said
today in an interview on RTL radio. ``We'll do what it takes for
that,'' he said, adding, ``If needed, we'll move rates.''
Garganas on Inflation

His colleague, Bank of Greece Governor Nicholas Garganas,
said at a news conference in Athens that inflation will ``remain
high'' in the coming months and isn't expected to fall at a
``rapid pace'' in the second half.
The euro has surged 1.4 percent in April and 9.7 percent
this year against the dollar on speculation inflation will
encourage the ECB to hold its target lending rate at a six-year
high of 4 percent. A European Union report showed last week that
annual inflation rose to a 16-year high of 3.6 percent in March.
``ECB worries about inflation are over and above their
concerns about the euro,'' said Nick Bennenbroek, head of
currency research in New York at Wells Fargo & Co. `That's the
most important driver of the euro.''

The euro may rise to $1.65 over the next week after
breaching $1.60, said Greg Anderson, a foreign exchange
strategist at ABN Amro Bank NV in Chicago in a note to clients
today. Breaks of $1.30, $1.40 and $1.50 all led to increases of
about 3 cents in about a week, Anderson said.

Three-Month Euribor

The implied yield of the three-month Euribor future for
December rose 0.15 percentage point to 4.62 percent. It has
risen 0.63 percentage point this month as traders priced in the
likelihood of an interest rate increase. The ECB has held its
target lending rate steady since June.
The U.S. central bank has lowered the fed funds target by 3
percentage points since September to 2.25 percent to prevent the
economy from tipping into a recession. Futures on the Chicago
Board of Trade show an 84 percent chance that the Fed will cut
its benchmark by a quarter-percentage point on April 30. The
balance of bets is for no reduction.

A decline in European bonds after Noyer's comments widened
the yield advantage of two-year German government bunds over
Treasuries with similar maturities by 0.12 percentage point to
1.74 percentage points. The increased spread boosted the appeal
of euro-denominated assets.

The dollar's weakness hurts earnings at companies such as
Toulouse, France-based Airbus SAS when revenue from dollar-
denominated sales is converted into euros. The world's biggest
maker of commercial aircraft said it's raising the price of its
planes in response to the dollar's decline and an increase in
the cost of metals.

Stronger Rand

South Africa's rand rose 2.5 percent against the South
Korean won and 2 percent versus the dollar on bets inflation
will force the central bank to raise borrowing costs, increasing
the currency's interest-rate advantage.

The Pretoria-based central bank raised its lending target
for a fifth time in 10 months on April 10, lifting it a half-
percentage point to a five-year high of 11.5 percent.
The dollar extended its drop against the euro after a U.S.
industry report showed sales of previously owned homes fell in
March. Purchases dropped 2 percent to an annual rate of 4.93
million, from 5.03 million in February, the National Association
of Realtors said today in Washington.

The Dallas Fed's Fisher said yesterday in a Fox Business
Network interview airing today that inflation from rising food
and energy prices has been so persistent that it's starting to
affect consumers' expectations for future prices.

``I'm concerned that we might be on a path of higher
inflation than we would otherwise have had,'' he said.

Fisher voted against interest-rate cuts at the Jan. 30 and
March 18 meetings, and was joined in dissent by Philadelphia Fed
President Charles Plosser at the March meeting.

For related news:
Weak dollar: {STNI DOLLARLOW }

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