USD gains as investors seek refuge after economic worsen

The dollar rose to the highest level in almost four months against the euro after a government report showed Australia’s economy unexpectedly shrank last quarter, boosting demand for the U.S. currency as a refuge.

The dollar climbed to $1.2495 per euro Tokyo from $1.2561. The greenback rose to 98.49 yen from 98.16 yen. The currency appreciated to $1.4026 from $1.4050 against the British pound and advanced to 1.1811 Swiss francs from 1.1760.

The yen strengthened to 123.03 per euro from 123.31. Japan’s currency rose 0.6 percent to 15.71314 versus South Korea’s won and advanced 0.5 percent to 62.29 against Australia’s dollar from late in New York yesterday.

The Dollar Index, which the ICE uses to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose as much as 0.8 percent to 89.624 as investors sought shelter in the world’s reserve currency.

Gains in the yen may be limited after an aide to Japan’s opposition leader was arrested in a funding probe, signaling further political turmoil in the nation.

The senior aide to Ichiro Ozawa, head of the Democratic Party of Japan, was arrested on suspicion of receiving illegal political donations from a construction company. “I did absolutely nothing illegal,” Ozawa told reporters today in Tokyo, vowing to stay on as leader.

EURO rises on speculation Germany will signal aid for region

The euro rose from near a three- month low against the dollar on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to take action to help avert the financial turmoil in the region.

The euro snapped three days of losses against the dollar after Finance Minister Peer Steinbrueck said yesterday Germany would show its ability to act as some of the 16 countries that share the currency are getting into difficulties. Merkel will hold a joint press conference with European Commission President Jose Barroso in Berlin today.

Eurozone countries have started to recognize the importance of the financial system and begun to address it properly. Optimism about the stabilization of the European financial system may help to halt the recent steep decline of the euro.

The euro climbed to $1.2582 from $1.2530 late in New York yesterday. Europe’s single currency advanced to 117.81 yen from 117.50 yen. The dollar traded at 93.64 yen from 93.79 yen yesterday.

Merkel’s Cabinet also approved yesterday a draft bill allowing the state to take control of property lender Hypo Real Estate Holding AG, paving the way for the first German bank nationalization since the 1930s. The bill, which will be put to parliament on April 3, allows the government to carry out compulsory purchases of shares in “systemically relevant” banks.

Gains in the euro may be tempered by concern European companies will report steeper-than-expected losses stemming from the global financial turmoil.

Some of the company are Axa SA, Europe’s second-largest insurer, will probably report today a net loss of 1.76 billion euros. BNP Paribas SA will today likely post a loss of 1.36 billion euros, and Deutsche Postbank AG, may report a quarterly loss because of credit-related writedowns. 
The euro snapped three days of losses against the dollar after Finance Minister Peer Steinbrueck said yesterday Germany would show its ability to act as some of the 16 countries that share the currency are getting into difficulties. Merkel will hold a joint press conference with European Commission President Jose Barroso in Berlin today.

Eurozone countries have started to recognize the importance of the financial system and begun to address it properly. Optimism about the stabilization of the European financial system may help to halt the recent steep decline of the euro.

The euro climbed to $1.2582 from $1.2530 late in New York yesterday. Europe’s single currency advanced to 117.81 yen from 117.50 yen. The dollar traded at 93.64 yen from 93.79 yen yesterday.

Merkel’s Cabinet also approved yesterday a draft bill allowing the state to take control of property lender Hypo Real Estate Holding AG, paving the way for the first German bank nationalization since the 1930s. The bill, which will be put to parliament on April 3, allows the government to carry out compulsory purchases of shares in “systemically relevant” banks.

Gains in the euro may be tempered by concern European companies will report steeper-than-expected losses stemming from the global financial turmoil.

Some of the company are Axa SA, Europe’s second-largest insurer, will probably report today a net loss of 1.76 billion euros. BNP Paribas SA will today likely post a loss of 1.36 billion euros, and Deutsche Postbank AG, may report a quarterly loss because of credit-related writedowns.

USD still favourite safe haven investment

The dollar headed for a weekly advance against the euro and British pound on speculation a U.S. package to end the recession will fall short, spurring demand for the relative safety of the greenback and U.S. Treasuries.

The yen was set for its first weekly gain versus the dollar in three weeks on speculation Japanese investors will repatriate earnings from U.S. government bond payments. The U.S. currency may rise for a fourth day versus the euro before a report that economists say will show the 16-nation region shrank the most in 13 years, prompting traders to add to bets for more European Central Bank interest-rate cuts next month.

Risk-aversion will not fade unless we know more concrete details of the U.S. plans. This will keep interest in safe havens alive.

The dollar traded at $1.2880 per euro. The yen traded at 117.01 versus the euro. The U.S. currency traded at 90.83 yen.

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US Unemployment Rate Climbs up to 7.2%

US unemployment rate in December jumped from 6.8% to 7.2%, according to the Statistics of the US Bureau of Labor, Department of Labor. Payroll employment fell by 524,000 during the month and by 1.9 million during the last four months of 2008.

Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3 percentage points.

U.K. Consumer Confidence Declined in December

U.K. consumer confidence fell to the lowest since at least 2004 in December as the recession deepened and unemployment rose, based on Nationwide Building Society. An index of sentiment fell four points from a month earlier to 47, the worst since the survey began four years ago. The reading, taken from a survey conducted between Nov. 17 and Dec. 14, compares with 84 points a year earlier.

The Bank of England will probably cut the benchmark interest rate further this week after reducing it in December to 2 percent, the lowest since 1951, economists say. Prime Minister Gordon Brown plans to unveil new measures to bolster the economy as it endures its first recession since 1991.

Consumers confidence fell sharply in 2008, driven mainly by their sentiment about the economic and labor market situation. As the U.K. enters recession it is likely to be some time before we see confidence returning.

Nationwide’s index of consumers’ future expectations declined four points to 60 points in December, and a measure of sentiment on the current situation declined two points to 28. A gauge of willingness to spend rose to 82 from 66, as stores stepped up discounting to attract shoppers.

Britain’s economic prospects are worsening as shrinking growth lead companies to cut staff. The economy contracted 0.6 percent in the third quarter, and consumer spending dropped the most since 1995. Unemployment rose at the fastest pace since 1991 in November.

The U.K. central bank will probably cut the benchmark interest rate by a half point to 1.5 percent on Jan. 8, according to the median forecast of 57 economists in a Bloomberg News survey. (Bloomberg)

Obama Said to Push for Tax Cuts in U.S. Stimulus Plan

President-elect Barack Obama is pushing for tax cuts amounting to hundreds of billions of dollars in a stimulus package he’s asking Congress to pass within the next several weeks, a transition official and a Democratic aide say. Obama is asking that tax cuts make up 40 percent of a stimulus package, the officials say. The measure may be worth as much as $775 billion, meaning tax cuts may constitute more than $300 billion of the legislation.

Making tax cuts such a large part of the stimulus may help win support from congressional Republicans. Senate Minority Leader Mitch McConnell, a Kentucky Republican, said today his party would support an immediate middle-class tax cut as part of any stimulus package.

Obama’s plan would attempt to boost consumer demand by spending $140 billion on tax breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The change would come by altering tax-withholding rules, rather than though a rebate check as with the previous stimulus plan enacted last year, so that workers would see an immediate increase in their take-home pay.

The plan also includes business tax breaks, including ones allowing companies to write off more of their losses against previous years’ tax bills. Other provisions would allow companies to write off more of the cost of their equipment, the aide said. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said.

Many of the business tax incentives would be accelerated from future years so that any dollar written off now would not be able to be claimed in future years, the aide said. That would reduce the long-term impact of the tax cuts on the federal budget deficit.

The tax cuts would be part of stimulus Obama is seeking which will also boost spending for roads, bridges, power grids and other public works projects.