Euro up, Dollar down on Fed speculation

Expectations that major central banks may add more stimulus have helped edge the Euro higher against the Dollar earlier today. The Euro though, has remained off its recent three week high while the Aussie touched a four month high.
Following ECB President Mario Draghi's recent pledge to do whatever was necessary to protect the Euro zone from collapse, the markets have remained optimistic about the outcome of an ECB policy meeting to be held on Thursday.
Most analysts agree that the market sentiment at the moment is that there are going to be some strong measures taken. If so, we could expect a boost to the commodity currencies and some emerging market currencies.
The outcome could well be that the ECB may soon reactivate its bond-buying programme in a bid to assist in cutting Spain and Italy's borrowing costs. Such steps may however find opposition from Germany.
With market expectations running high, it's apparent to me that the ECB simply can't afford to do nothing, as they themselves have raised the expectations.
What is also clear to me is that many remain sceptical, and justifiably so, that ECB bond-buying by itself would be enough to change the Euro's weak overall trend.
The fact is that the Euro bloc's issues are, and will remain, very complex and no single measure in itself will be enough to provide long term relief. Recent investor diversification out of the Euro bloc periphery and Europe as a whole, has longer term implications and won't suddenly turn around. If anything, the ECB's measures could provide short term respite for the Euro and so we could expect some short term spikes for the Euro.
Data is due today that could show that the jobless rate in the Euro area rose to 11.2% in June from 11.1% in May, the highest on record.
The Euro had earlier moved up 0.1% to $1.2274, however it remained below the high of $1.2390 hit last Friday.
Even so, the modest rise in the Euro had weighed on the Dollar index, which measures the Dollar's value against a basket of major currencies. The index last stood at 82.749, near a three week low of 82.343 hit the previous week.
As against the Yen, the Dollar edged up 0.1% to 78.26 Yen.
In fact the Dollar was down against most of its major peers on speculation that Federal Reserve policy makers will signal additional stimulus when they conclude a two day meeting that starts later today.
While the Fed is deemed unlikely to do a "QE3" at this point, it is possible that they could come up with other forms of stimulus. New stimulus measures could well send U.S. interest rates lower and we may see the Dollar-Yen decline as a result.
High beta currencies such as the Aussie, which are relatively volatile and tend to benefit when investor optimism about the outlook for the global economy picks up, have recently been amongst the best performers.
The Euro was down 0.2% to the Australian Dollar at A$1.1656, after having hit a record low around A$1.1646 on Monday.
In Australia, the Bureau of Statistics announced today that the number of permits granted to build or renovate houses and apartments fell 2.5% in June, a figure that was a lot lower than had been expected, and this contributed to the greenback falling to a four month low against the Aussie.
The Aussie last stood at $1.0526, having hit a four month high of $1.0538 earlier today.

“Binding” AAR Rulings can be challenged but not directly in the Supreme Court

Columbia Sportswear Company vs. DIT (Supreme Court)
The Petitioner, a USA company, filed an application for advance ruling on the question whether its liaison office in India was a “business connection”/ “permanent establishment” and whether its business profits were taxable under the Act and the DTAA. The AAR held that the liaison office was a business connection/ PE and that the income attributable thereto was assessable to tax in India. The Petitioner filed a SLP directly in the Supreme Court to challenge the AAR’s ruling. The Supreme Court had to consider whether the AAR was a “tribunal”/ “court” and whether a direct challenge in the Supreme Court was desirable. HELD:

Japanese unemployment falls, consumer spending rises.

 Japan's unemployment rate eased to 4.3% in June, beating expectations the rate would remain at May's level of 4.4%. Meanwhile, household spending rose 1.6% on year, missing forecasts for a 2.9% increase.

NPA Provisions saw a rise on Balance Sheets of Indian Banks.

There was little doubt in investors' minds that Indian banks, especially PSUs are into troubled waters. The June 2012 quarter results further confirmed the same. The near term outlook does not look rosy either. Policymakers have cut the GDP (Gross Domestic Product) growth forecasts. Further, an unfortunate mishmash of high inflation, stagnant capex plans and the economic turmoil in the developed economies could worsen credit growth. This has led many Indian companies to either restructure or default on their debt. As a result, the non-performing assets have been piling up on the balance sheets of Indian banks. As per a report on Mint, PSU banks' NPA provisions saw a rise of 129% YoY in the June quarter. Further, the gross NPA ratio went up from 1.5% in June 2011 to 1.8% in June 2012. Even large PSU banks like Bank of Baroda (BOB) and Oriental Bank (OBC) were badly hit. Given that the NPA writeoffs take a direct toll on bank's networth, investors can expect returns to remain muted for the time being.

The European Central Bank (ECB) seems to be running out of options to resolve the Euro crisis. It has cut down interest rates to 0.75%. It has bailed out the troubled nations but their troubles are far from over. It gave cheap funds to the European banks to bail them out. But nothing seems to be working. All of its efforts can at best be described as short term fixes. Now it appears that it would use another option, that used by the United States. It plans to come up with a quantitative easing and print money to bail the Euro zone out. The ECB President has hinted that he may look at buying sovereign bonds in the zone and in effect pump money into it. However, before planning it, he has to get Germany to agree to the plan. But we feel that someone needs to go and tell the ECB President that money printing is again nothing but a short term fix. In the long run, it really does not help much. Something the US realized after embarking on two rounds of quantitative easing.


 

RBI keep rates unchanged.

For the second time running since April, the central bank decided to keep rates unchanged. Under current circumstances, the Reserve Bank of India (RBI) believes that easing policy rates would only aggravate inflation and not necessarily stimulate growth. The RBI maintained status quo on the policy front. It kept the cash reserve ratio (CRR) for banks at 4.75% and the repo rate unchanged at 8%. This was in line with the general market expectation. But, there was some liquidity enhancement undertaken by the central bank. The RBI slashed the statutory liquidity ratio (SLR) of scheduled commercial banks from 24% to 23% of their deposits with effect from mid August. The SLR is the percentage of total deposits that banks need to invest in the government bonds. The reduction will help in the flow of credit through the system. A 1% cut, based on the total deposits in the country, will help inject around Rs 620 bn of liquidity into the system.

Euro Slides But Losses Limited, Yen & Dollar Remain Sticky

The Euro dropped from the 3-week high achieved last week but losses were at a minimum as most investors expect the European Central Bank (ECB) to embark on a fresh new campaign to tackle the Euro Zone debt crisis.
Strangely enough, investors have avoided both the US Dollar and the Japanese Yen over the last few days, leaving the greenback stuck at a 3-week low against a basket of currencies.
The focus of market players in the days ahead, will be largely on whether the ECB will reactivate its bond buying programme in an attempt to cut Spanish and Italian borrowing costs. The ECB's President, Mario Draghi, had vowed recently to do whatever was necessary to protect the Euro zone from collapse.
I think it's likely that the Euro's downside tendency will be limited in the coming days and that the currency will probably remain range bound, at least until the ECB meeting on Thursday.
In the opinion of many analysts, ECB bond buying alone will not resolve the fiscal issues of indebted countries and is therefore unlikely to change the Euro's weak overall trend.
If nothing meaningful is announced, that would clearly be a massive disappointment, though the expectation is that there is room for some leeway to be made.
A report due out today, from the European Commission in Brussels, may add to signs that the region's debt crisis is weighing on consumer sentiment.
The report is expected to confirm its index of household sentiment in the Euro area declined to an almost three year low of minus 21.6 in July.
A separate report, due out on Tuesday, could show that the jobless rate in the area probably had risen to 11.2% in June, from an all time high of 11.1% in May.
With economic data remaining very weak, the Euro will continue to be sold each time such data comes out.
The Euro earlier dropped 0.3% from a three week high of $1.2390 hit on Friday, to $1.2293 and fell 0.4% to 96.31 Yen, remaining above last week's low of 94.12 Yen.
Ahead of a two day meeting of the Federal Reserve, which starts on Tuesday, demand for the Dollar was limited amid speculation the Fed may signal additional stimulus which would debase the greenback.
Fed Chairman, Ben Bernanke, had said earlier this month that policy makers are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labour market. Bernanke had indicated that introducing a third round of asset purchases is an option.