US Dollar Comes Under Further Pressure: US Financial Trading Update

Posted on | November 23, 2009 |

Wall Street moved into positive territory today, as investors increased their exposure to riskier assets in order to hedge their wealth against prospective US Dollar declines.

The Dollar was under pressure again today after Charles Evans, President of the Federal Reserve Bank of Chicago, told the Financial Times that US interest rates may stay near zero until ‘late 2010, perhaps later in terms of 2011′.

The comments of James Bullard, the President of the Federal Reserve Bank of St Louis, also hurt the Dollar. He said the US central bank should continue purchasing mortgage-backed securities even past the first quarter of next year, when quantitative easing is meant to end.

Meanwhile, Dominique Strauss-Kahn, the International Monetary Fund’s managing director, told a Confederation of British Industry that they ‘don’t see a high probability of a double dip,’ in the global economy. [1]

These developments continue to suggest that there’s more pain to come for the US Dollar and have enhanced the appeal of higher risk/return assets such as equities and commodities.

Also boding well for risk appetite was a bigger than expected increase in existing home sales. According to the National Association of Realtors sales of existing US homes surged 10.1% to an annual rate of 6.1 million in October. This exceeded Bloomberg’s expectation for a 2.3% rise to an annual rate of 5.7 million.

‘It’s an impressive increase and shows a lot of pent-up demand for housing,’ said Dean Maki of Barclays Capital. ‘Buyers have enough confidence to take the plunge. The housing market recovery will be a durable one.’ [2]

Not surprisingly, by 3.35pm (London time) the Dow Jones Industrial Average was trading 175.11 points (+1.7%) higher at 10493.27, while the broader S&P 500 was 20.04 points (+1.84%) above its previous close at 1111.42. The Nasdaq fared relatively better, climbing 36.09 points (+2.05%) to 1800.48.

Miners benefited from another rise in commodity prices today, with Freeport-McMoRan Copper & Gold up 2.5% to $86.75 and Newmont Mining 4% higher at $54.38 after December gold futures hit a new record high of $1,174 per troy ounce. Escalating political tensions over Iran’s nuclear programme also contributed to gold’s appreciation.

Banks were en vogue as well today, with Goldman Sachs advancing 1.9% to $173.22 a share after analysts at Sanford C. Bernstein raised their fourth quarter earnings-per-share estimates on the company by 15%. The brokers expect Goldman to earn $5.86 per share in the fourth quarter, up from an earlier forecast of $5.11 per share. [3] Meanwhile, Citigroup rose 1.4% to $4.26 and Bank of America climbed 2% to $16.42.

Elsewhere, AT&T gained 2.2% to $26.58 after Barrons said the company may be undervalued. The newspaper also said that shares of Discovery Communications, the owner of the Discovery Channel and Animal Planet cable channels, may gain around 25% in a year, as it benefits from higher earnings and increased viewership. [4] Shares of Discovery Communications climbed 2.7% to $32 a share.

Source: [1] Bloomberg News (23 November 2009)
Source: [2] Bloomberg News (23 November 2009)
Source: [3] Bloomberg News (23 November 2009)
Source: [4] Bloomberg News (23 November 2009)

By Anthony Grech, Research Analyst, IG Index.

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