Currency Wars Spread Worldwide As Turmoil In Forex Markets Intensifies

from Gold Silver Worlds Gold prices have remained relatively steady this week, despite being pressured by a stronger U.S. dollar ahead of a key U.S. Federal Reserve policy meeting this week that could hint at the timing of any hike in U.S. interest rates. Investors will be watching the Fed’s two-day policy meeting that begins on Tuesday for clues on how soon it could raise interest rates. Higher rates could curb demand for gold, which does not pay any interest. A resetting of the likely timing of the first Federal Reserve Funds Rate hike since June 2006 has pushed the greenback higher recently. Expectations for the Fed to begin raising rates were being pushed out to the fourth quarter but now there is a possibility that this may come as soon as June. Last week, global markets were dominated by the currency market as the U.S. dollar continued its unrelenting upward momentum impacting on dollar commodities including gold which ended the week at $1158.60 an ounce. Currency trading is the biggest financial market in the world, with trillions of dollars changing hands every day. Much of the trading is done in the major currencies, in particular the U.S. dollar and the euro, and in recent weeks, we have witnessed some large moves in this pair. The dollar is now sitting at the highest level in 11 years against other major currencies. In the last 12 months alone, it’s appreciated more than 21% against the Norwegian and Swedish currencies; more than 17% against the euro and more than 13.5% against the yen. During last week, the U.S. dollar index jumped 2.6% to 100.18 up 11% year to date while in Latin America, the Brazilian real fell 5.7%, the Colombian peso fell 3.2% and the Chilean peso fell 1.8% In Eastern European currencies were also under heavy pressure. The Polish zloty was down 3.6%, the Bulgarian lev fell 3.2%, the Hungarian forint fell 3.2%, the Romanian leu fell 3.2%, the Czech koruna fell 3.1% and the Iceland krona declined by 2.4%. The Russian rouble reversed course and declined 2.9% last week. In other currencies, the Norwegian krone dropped by 3.7%, the South African rand fell 3.5%, the Danish krone fell 3.4%, the euro fell 3.2%, the Swedish krona fell 2.9%, the South Korean won fell 2.7%, the Swiss franc fell 2.0%, the British pound fell 2.0%, the Canadian dollar fell 1.2%, the Singapore dollar fell 1.1%, the Australian dollar fell 1.0%, the Taiwanese dollar fell 0.6%, the Japanese yen fell 0.5% and the New Zealand dollar was down 0.4%. The South African Rand was trading at 12:50 versus the greenback, the lowest level in 13 years. On Monday, Asian emerging market currencies were weaker against a buoyant dollar, with Indonesia’s rupiah touching a new 17-year low. The stronger dollar also impacted on commodities. The Bloomberg Commodity Index dropped 3.1% last week to the lowest level since August 2002. This index is now down 44% from 2011 highs. The 19-commodity Thomson Reuters/Core Commodity CRB Index fell a six-year low. Weakness was notably broad-based. The week saw the following commodities fall. Heating oil 7.3%, coffee 6.7%, lean hogs 6.0%, sugar 5.9%, cocoa 3.8%, cotton 3.4%, natural gas 3.9%, lead 2.3%, nickel 1.7%, silver 2.0%, orange juice 1.5%, corn 1.4% and soybeans 1.2%. Global oil prices tumbled on Friday and fell 9% and (WTI) traded at its lowest level since 2009 to close out the week at a 2-1/2 month low under $45. Benchmark Brent oil settled near a one-month low below $55 a barrel. Meanwhile, benchmark US 10-year Treasuries are now yielding about 2.1%. While super-low historically, this is still vastly higher than prevailing European yields. 10-year sovereign bonds from Germany, France, Italy, and Spain are merely yielding around 0.2%, 0.5%, 1.1%, and 1.2%! So it certainly makes sense for global investors to seek out the superior returns now available in dollar bonds. Even though gold fell around $35 following the latest non-farm payrolls report, the price of the yellow metal has been able to hold at current levels. And, although the price of gold is down by 4.5% this month in dollar terms, it is up by 3.5% in Australian Dollars, up by 6.6% in Canadian dollars, up 11.2% in euros and up by 2.1% in sterling. The dollar’s surge is being driven by expectations that Fed chair Janet Yellen will indicate following this week’s policy meeting that rates will rise sooner rather than later following a run of. This parabolic surge in the U.S. dollar has sparked off a chain reaction with central banks all around the world. The central banks of Turkey, Korea, Thailand, Russia, Poland, India and Serbia have all cut rates this month. Earlier this month, the People’s Bank of China lowered interest rates for a second time in a little more than three months. Recently, the central banks of Denmark, Canada, Switzerland, Peru and India have all taken unprecedented and dramatic action to ease policy and weaken their currencies. The Danish central bank cut its main interest rate to minus 0.35% from minus 0.20%, the second rate cut in a week. Switzerland similarly anticipated a weaker euro and took a momentous and shocking step of ending the cap of the Swiss franc. Canada cut interest rates for the first time since 2010, citing the sharp plunge in oil and its negative impact on the Canadian economy, which depends on oil exports. Continue Reading>>>

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