Venezuelan president Hugo Chavez has ordered the first sale in six years of $93bn of dollar reserves in an attempt to shore up the recently devalued bolivar. Chavez has given the central bank orders “burn the hands” of speculators betting against the currency. Chavez said last week that he wanted to strengthen the bolivar more than 30 percent in unregulated trading in order to contain inflation after he devalued the official rate by as much as 50 per cent.
REAL SUFFERS AS CHINA TIGHTENS POLICY
Brazil’s real fell to its lowest level in more than four months yesterday on investor concerns that Chinese tightening could curb demand for commodities. Brazil is one of the largest commodity exporters in the world and will suffer if China’s voracious appetite for raw materials wanes in 2010. The real was the best performing major currency in 2009, gaining 33 per cent but 2010 has seen a sharp reversal. Its 5.5 per cent fall year-to-date has made it the worst performer so far.
US DOLLAR BIG WINNER FROM JAPAN WOE
Ratings agency Standard and Poor’s yesterday downgraded its outlook on Japanese sovereign debt to negative from stable. Analysts at Mizuho Asset Management said that the big winner will be the US dollar. “The knee-jerk reaction is the weaker yen, but the big winner is the dollar,” they said. “It’s caused a flight-to-quality bid, and the dollar will be stronger against other major currencies.” He added that US Treasuries would also benefit.
CZECH INTEREST RATES TO STAY ON HOLD
Czech interest rates are likely to be kept on hold until the third quarter of this year, according to monetary policymaker Vladimir Tomsik, who said that a stronger koruna would help contain inflation. The Czech Republic’s rates are currently at 1 per cent, the lowest in eastern Europe.
TECHNICALS POINT TO EURO AT $1.38
Technical chart patterns may drive the euro to as low as $1.38, should it close below a key support level at $1.4118, according to technical analysts at Forecast Pte in Singapore. Daily momentum charts such as the moving average convergence/divergence show a sell signal for the euro versus the dollar. This keeps the focus for the euro very much on the downside in the coming days. The $1.38 target represents a 50 per cent retracement of the euro’s rally from the March low.