Forex News | Currency News by Forexlive

• Fed’s Kocherlakota says Fed funds rate may need to rise 75 bp by year-end 2011
• Irish banks need an additional EUR 24 bln in capital after stress tests; banks to be consolidated into two health banks
• No short-term agreement with ECB for Irish liquidity facility; FinMin hopes for facility in medium-term
• US weekly jobless claims fall to 388,000 from 391,000
• Chicago PMI 70.6 from 71.2, holds at historically high level
• US factory orders fall 0.1% in February
• KC Fed index rises to 39 in March from 26
• ECB’s Wellink: Irish banking system a “big black hole”
• Fed’s Lacker: Less comfortable with consumer inflation expectations
• S&P 500 falls 0.2% to 1326;  rises 5.4% in Q1
• US yields rise 2 bp to 3.47%
• oil rises $2.38 to 106.65; agricultural commodities soar

Wow. A busy news session. Scroll down for more headlines that I could not wedge into the wrap-up.

EUR/USD spent a relatively quiet month-end session giving back some of its London gains in New York as the market prepared for the Irish stress tests. The results were ugly but the market was prepared and took the news largely in stride. Late in the session we fell back from the 1.4205/10 area to end the day on the lows for NY just above 1.4150 support as Minneapolis Fed president Kotcherlakota stunned the market by suggesting 75 bp in hikes from the Fed before the end of this year. The market assumed the Fed was prepared to let QE2 end but was surprised by the idea of Fed moderate suggesting a series of hikes in a relatively narrow timeframe.

Major resistance in the 1.4250/80 area once again proved to strong for the sovereign debt impaired euro…

USD/JPY did some backing and filling during US hours before getting a boost late in the day on a report in the Nikkei that the BOJ will pump another JPY 1 trln in cheap loans into the banking system to keep business in the quake zone afloat. Combined with the hawkish Fed comments and it was to new highs on the day at 83.23. 83.30 is important resistance. Stops lie above.

AUD/USD set fresh record highs during the US afternoon at 1.0373 as soaring grain prices and hot Eurozone inflation data spurred global inflation fears. A barrier at 1.0375 held the line. We need at 1.0325 after the hawkish Fed comments took the steam out of the rally.

After being sold against th EUR early in the day, the pound was bought against the dollar for month-end rebalancing, reaching 1.6085 in thin trade. It ends the day at 1.6032, undermined by Kotcherlakota.

With the Fed starting to shift to a more  hawkish stance, payrolls take on added importance tomorrow. So long as we get another 200,000 (give or take) new jobs, the market will anticipate the Fed moving to a less accommodative stance in the months to come. Very weak data will push those expectations back out into the future.

–Might Have to Tighten More Than 50 bps

WASHINGTON (MNI) – The Federal Reserve may have to raise rates by
the end of this year, possibly by more than 50 basis points, if growth
hits 3% and underlying inflation rises, Minneapolis Federal Reserve Bank
Narayana Kocherlakota said Thursday the Wall Street Journal reported.

If economic conditions progress as he expects, the Fed will end the
$600 billion asset purchase program in June as planned, he said.

He said he expects core inflation to rise to about 1.3% by year
end, so raising the Federal funds rates by more than half a point late
this year is “certainly possible.”

He noted in the interview that the often-cited Taylor Rule would in
that circumstance call for a 75 bps rate increase.

“If you consider monetary policy was appropriate at the end of 2010
… and then you see core inflation go up by 50 basis points over the
course of 2011 … the usual response that we know from 20 years of
thinking about monetary policy (or even more) is to raise the target
rate by even more than that increase in observed inflation,” he said,
according to the report. “So that means you should be raising the target
rate by more than 50 basis points.”

Kocherlakota also said that the Fed’s second-round of quantitative
easing, was more potent than he anticipated and had raised near-term
inflation expectations by more than he expected.

When the time comes to tighten monetary policy, he said he favors
raising short-term interest rates over selling assets by the Fed’s
portfolio, primarily because the Fed has a firmer understanding of how
interest rates affect the economy.

Kocherlakota also said he expects the effect of recent global
shocks, such as the crises in Japan and the Middle East, on the U.S.
economy as “relatively small.”

“There’s a more psychological channel of how these uncertainties
impact financial markets,” he said, citing the European debt worries
last year, but didn’t appear too concerned.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]

–All 47 Senate Republicans Back Balanced Budget Amendment
–Senate Minority Leader McConnell: GOP ‘Unanimous’ On Amendment
–Sen. McConnell: Amendment Needed To Balance Federal Budget
–Sen. Hatch: ‘We Will Have A Vote On This’

By John Shaw

WASHINGTON (MNI) – U.S. Senate Republican leaders formally unveiled
Thursday a new version of a constitutional amendment to require a
balanced federal budget, but declined to commit to offering a plan that
actually balances the budget.

At a briefing in which Senate Minority Leader Mitch McConnell was
joined by about a dozen Republican senators, Republican senators said
Congress is unable to balance the federal budget without a
constitutional requirement.

McConnell said a constitutional amendment is needed to force
Congress and the White House to “do the job we need to do.”

Senate Republicans, McConnell said, have a “unanimous view” on the
need for a balanced budget requirement. He added that all 47 Senate
Republicans support the amendment.

The balanced budget amendment would require the president to submit
a balanced budget each year that limits outlays to 18% of GDP.

Increasing taxes would require a super-majority vote of two thirds
of the House and Senate. The amendment’s requirements would be waived
during a war.

Passing a balanced budget amendment would require two-thirds votes
in the House and Senate and then ratification by 38 states.

Senate Republicans have indicated that they want a vote on the
balanced budget amendment during the Senate debate on debt limit
legislation this spring.

Sen. Orrin Hatch, the ranking Republican on the Finance Committee,
said the Senate GOP will find a way to get a vote on the amendment this
year.

“We will have a vote on this,” Hatch said.

On another fiscal matter, Sen. Chuck Schumer said he believes the
White House and congressional leaders are very near an agreement on the
final fiscal year 2011 spending bill.

“We are right on the door step,” Schumer said.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

LISBON (MNI) – Portugal’s President Anibal Cavaco Silva tonight
officially accepted the resignation of Prime Minister Jose Socrates and
announced that early elections for a new government will be held on June
5.

Speaking to the nation in a live televised address, Silva also said
that the country’s Council of State had met earlier in the day and
agreed unanimously to dissolve the parliament.

Socrates had submitted his resignation on Wednesday of last week
after the opposition parties in parliament defeated his minority
government’s latest package of austerity measures.

The President, who noted Socrates did not have the political
conditions to remain in power, stressed that the economic situation is
“very grave” and that the social climate has shown signs of
“aggravation.”

He said the new government will face an economic situation without
precedent and urged the parties to end their bickering and to conduct
the election campaign in an “elevated” tone, putting an end to political
tensions.

He added that the current caretaker government must do whatever is
necessary to enable the state to meet its obligations.

Silva explained that he had chosen June 5 election date in order to
allow time to prepare for the elections. The other date under
consideration was May 29. According to reports in the Portuguese press,
Carlos Cesar, the President of the Autonomous Region of the Azores, was
against that date May because it coincides with an important religious
event there.

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MGX$$$,M$$CR$,M$S$$$]

By Joseph Plocek & Yali n’Diaye

WASHINGTON (MNI) – The Federal Reserve Board, whose hand was forced
by unfavorable judgements in lawsuits filed by Fox News and Bloomberg
LLP, Thursday released thousands of pages of raw data from borrowing
records during the financial crisis.

In response to the Freedom of Information Act rulings, the data was
supplied to media on computer disks that reproduced internal
documentation for borrowing under the discount window and special
lending programs, and covered the period up to January 2009. The two
CD-ROMs each contained 894 PDF files for reporters to parse.

The Fed has never before revealed identities of borrowers, although
the Dodd-Frank legislation last year required the Fed to release details
of emergency lending programs, including names.

In the interests of filing this report in a timely manner, before
all the files were examined, Market News International studied smaller
51-page the file on primary dealer credit from the discount window.

Those data showed, for example, that Citigroup borrowed between $2
and $4 billion in January 2009.

Merrill Lynch, which agreed to a purchase by Bank of America on
September 14, 2008 at the height of the financial crisis, ceased to
exist as a separate entity in January 2009 and subsequently had its
borrowing fall to zero.

Morgan Stanley (London) at times into the credit facility for in
excess of $21 billion, had a mere $3.6 billion in borrowing near the end
of January.

There are many other files in the package and which will provide
analysts with information to mine for weeks to come.

Meanwhile, the “tri-party collateral reports” — only 663 pages —
shows email reports on the collateral posted at the Primary Dealer
Credit Facility, the Term Securities Lending Facility and open market
operations accompanied by highlights.

For instance, through the November 7, 2008 week, “Deutsche,
Goldman, Merrill and Mizuho have stopped pledging CP-CDs to the three
liquidity programs.”

By August 7, 2009, “Barclays continues to be the only user of the
liquidity facilities,” the update shows.

It added that “Barclays’ $3.36 billion of collateral is composed
primarily of Agency MBS (54.23%), ABS (43.63%), Private Label MBS
(1.50%), and CMBS (0.54%).”

Interestingly, the documents showed the Fed accepted securities for
which it did not know the ratings, revealing “gaps” in its own database.

A footnote reads: “Due to an absence of agency ratings and current
gaps in our internal databases, ratings on some types of assets are
unknown. Securities with unknown ratings are labeled “N/A.” They are
principally corporate bonds and municipal bonds.”

Other collaterals were whole loans and foreign sovereign debt: “Due
to current gaps in our internal databases, descriptions of some type of
assets are incomplete. The securities are labeled ‘Other’ and are
principally whole loans and foreign sovereign debt,” the document shows
in a section about the collateral value .

A note from June 26, 2009 shows that ABS is “the most commonly
pledged asset class, accounting for 39.34% of all collateral on June 26.
Agency MBS is the second most commonly pledged asset class at 22.52% of
all collateral. Corporate Bonds are the third most commonly pledged
asset class at 22.17% of all collateral. The remaining 15.97% of
collateral is primarily composed of Private Label MBS (7.47%), CMBS
(5.43%), and Municipal Bonds (1.04%).”

**Market News International Washington Bureau: (202)371-2121**

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MK$$$$,M$$FI$]

US session lows of 1.4164 are coming into view after the startlingly specific comments from Minny Fed President Kotcherlakota.

Look for bids down to the 1.4150 area and stops kicking in below that level.

Stops are seen above 83.25/30 offers in USD/JPY.

Minneapolis Fed President Kocherlakota says the Fed funds rate may need to rise 75 basis points late this year. He expects the economy to grow 3%, according to the Wall Street Journal.

To date, he has been pretty moderate, so take this as a sign that the easy money days at the Fed are nearing an end.

USD/JPY is firmer at 83.12 and EUR/USD has fallen back to 1.4188.

• Has not made up mind on whether to to support cutting QE2 short or see through to completion in June
• Energy price surge may some times warrant tightening
• Economy has good, broad momentum
• Release of stress tests useful

• Snap election on June 5
• Parliament dissolved

FRANKFURT (MNI) – The European Central Bank will accept all
marketable debt instruments issued or guaranteed by the Irish government
as collateral in the Eurosystem’s refinancing operations regardless of
their rating, the ECB said in a statement Thursday night.

The ECB said that Ireland’s commitment to fully comply with the EU
and IMF program and its decision to recapitalize its banks means that
the central bank deems “debt instruments issued or guaranteed by the
Irish government to fulfill the credit standards required for collateral
in Eurosystem credit operations.”

The move mirrors a decision taken last May, when the ECB suspended
its collateral rules on banks depositing Greek bonds at a time when the
country’s sovereign debt was subject to frequent downgrades.

It is a significant step for the central bank to drop its own rules
of accepting only investment grade debt as collateral. It also exposes
the Eurosystem to greater risk if the borrowing bank ends up defaulting.

“The suspension applies to all outstanding and new marketable debt
instruments. It will be maintained until further notice,” the ECB said.
It added that “the relevant risk control measures will be reviewed on a
continuous basis.”

In a separate statement, the ECB said it “welcomes the Irish
authorities’ rigorous assessment of the capital needs of Irish banks and
supports the government’s commitment to ensure that these capital needs
are met in a timely manner.”

Recapitalization efforts will “substantially strengthen the banks
and give them a sound capital basis,” the ECB said. “Such a situation of
solvency is a prerequisite for continued access to Eurosystem
refinancing. Against this background, the Eurosystem will continue to
provide liquidity to banks in Ireland.”

–Frankfurt Newsroom, +49-69-720-142; jtreeck@marketnews.com

[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]

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