Forex outlook:
The dollar fell to the lowest in almost two months against the euro on Monday as the U.S. currency came under pressure on renewed worries about Iran’s nuclear program. The dollar’s latest slip was partly due to the surge in gold and oil prices as Western power were set to meet in London to discuss tightening sanctions on Iran amid a flurry of tough talk between Washington and Tehran. However, analysts said they didn’t expect a sustained dollar move based on the Iran situation alone, especially with a slew of indicators this week on U.S. growth, manufacturing and inflation that will help shape expectations on the interest-rate outlook. The dollar declined as low as $1.3199 per euro, the weakest since 3 Jan. It also dropped to 120.75 yen from 121.08. The currency may decline to $1.33 per euro by the end of March, some analysts said.
The yen may fall 4 percent to 126 a dollar by the end of June because the Bank of Japan won't raise rates before the fourth quarter, said Deutsche Bank AG, the world's biggest currency trader. Japan's currency remained higher after minutes of the Bank of Japan's January meeting earlier this morning showed policy makers decided against raising rates, preferring to examine more data. “There will be no additional rate increases by the BOJ at least in the coming six months,” Koji Fukaya, senior currency strategist in Tokyo at Deutsche Bank, said today. “Interest-rate differentials meantime will provide an environment where investors can sell yen with a sense of security.”
Market activity was light with little major economic data set for release in the U.S. or Europe today. Reports will show tomorrow orders for U.S. durable goods fell 3 percent in January, according to economists’ forecast. Reports the following day will show the economy grew 2.3 percent last quarter, from the 3.5 percent the government reported last month and sales of new homes declined 3.6 percent in January, separate surveys showed.
Gold: Gold rose to near a nine- month high on Monday and was poised to test $700 an ounce in coming days, as rising tension surrounding Iran's nuclear program spurred demand from investors seeking a haven and getting support from crude oil. Gold, which often gains during times of geopolitical tension, rose to $690.90 an ounce today. Iran’s President Mahmound Ahmadinejad declared Iran had “no brake and no reverse gear”, prompting U.S. Secretary of State Condoleezza Rice to say Tehran needed a “stop button” for a program the West fears is geared to producing nuclear arms.
Crude Oil: Crude oil rose for a fourth day on concern that the dispute over Iran's nuclear program may disrupt Middle East supplies. Friday’s $61.80 peak was the highest price since 26 Dec, marking a complete recovery from the early-January slump. A snowstorm is forecast to dump 7 inches of snow on New York City and the Northeast, a region that accounts for the majority of U.S. heating oil demand. Prices may trade between $59 and $63, led by concern that Iranian supplies may be disrupted, senior commodities trader in Japan said. U.S. fuel inventories may drop as refineries shut for maintenance during late February and March when heating oil demand wanes and gasoline use has yet to increase.
Pool position:
