Dollar Declines to 2 1/2-Year Low Against Yen on Credit Losses The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. economy showed more signs of sinking into recession. The U.S. currency also dropped to a record low against the Swiss franc on analysts' expectations U.S. financial companies including Merrill Lynch & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against the South African rand and the New Zealand dollar as a slump in global stocks prompted investors to reduce carry trades funded with cheap loans from Japan. ``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp., the second-largest U.S. bank. ``The equity markets are shaky and the yen should remain robust.''
Arab Nations May Coordinate to Revalue, Standard Chartered Says Middle East central banks with fixed exchange rates to the dollar may opt for a ``coordinated'' revaluation to curb inflation should the U.S. currency weaken further, according to Standard Chartered Plc. The Saudi riyal and the United Arab Emirates dirham may strengthen 8 percent by the end of the first quarter, Standard Chartered said in a report today. Kuwait dropped its dollar peg in May last year, whilst the other five members of the Gulf Cooperation Council continued their links with the U.S. currency. ``If we see further dollar weakness against the majors a coordinated revaluation by the GCC is possible,'' wrote Callum Henderson, head of global currency strategy, and Marios Maratheftis, head of research for the Middle East.
Under the downgrade shadow Rating firm Moody’s on January 10 signaled its belief that the long-term credit rating of US government debt might have to be cut - downgraded - below AAA. The firm was clearly neither downgrading nor about to downgrade in the foreseeable future. It was a warning about pension costs, healthcare costs and the track our government is on. I would urge you to take this announcement to heart for three reasons. First, this is a serious warning about the long-term health and standing of the US in the community of global economies. Second, Moody’s has provided us with another symbolically powerful milestone. Third, this warning foreshadows looming political battles.
Inflation Up by Largest Amount in 17 Years Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained tame outside of those two areas. Meanwhile, industrial output was flat in December, more evidence of a significant slowdown in the economy. Consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said Wednesday. Consumers felt the pain when they filled up their gas tanks or shopped for groceries. Prices for both energy and food shot up by the largest amount since 1990. In a second report, the Federal Reserve said that output at the nation's factories, mines and utilities showed no growth in December, adding to a string of weak economic reports showing that the economy was slowing at the end of last year.
U.S. financial woes: More to come after Citigroup Citigroup's announcement of a staggering fourth-quarter loss was a sobering reminder that the housing market and the broader economy still have not bottomed out. To shore up their financial condition, Citigroup and Merrill Lynch, which has also been rocked by the subprime mortgage debacle, both were forced again to go hat in hand for cash infusions from investors in the United States, Asia and the Middle East, for a combined total of nearly $19.1 billion. Citigroup's gloomy news will most likely add to the anxiety of consumers and workers already concerned that the housing crisis could plunge the economy into a recession. Adding to worries, the government reported that retail sales in December declined for the first time since 2002.
MBIA's Capital Need Grows, Credit-Default Swaps Show The worst may still be ahead for the world's biggest financial companies, trading in credit-default swaps shows. Prices for contracts tied to the bonds of MBIA Inc., Bear Stearns Cos. and Washington Mutual Inc., which protect lenders and creditors against the possibility that debt payments won't be made, are higher for one year than for five, according to data compiled by Bloomberg. Longer-term protection is usually more expensive because the risk of nonpayment is greater. It still costs more to take out insurance against default for one year even after New York-based Citigroup Inc., the largest U.S. bank, obtained $14.5 billion yesterday to shore up depleted capital. Lenders hold more than $200 billion of bonds and loans used to finance leveraged buyouts that they can't sell and are falling in value, based on data compiled by JPMorgan Chase & Co.
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