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Investors Shy Away From Forex, Gold, Prefer Cash

Investors Shy Away From Forex, Gold, Prefer CashInvestors Shy Away From Forex, Gold, Prefer Cash

The euro had its worst day in five month on Saturday, sinking to a 2 1/2 year low following its beating in the Forex market on Friday. The Azadi gold coin also sank to a three-month low on Saturday, as investors shed their gold holdings as a global dip in bullion's price on Friday diminished its safe haven appeal for Iranians.

Investors cashed out of the foreign exchange and equity markets, finding solace in their bank accounts for the time being.

The euro fell to an 11-1/2 year low against the dollar on Friday, as interest rate differentials widened in favor of US Treasuries with investors as news of robust US employment growth bolstered market sentiment that the Federal Reserve was closer to raising interest rates, Reuters reported.

The euro fell nearly 2.5 percent to a record low of 37,200 rials by 11:51 GMT on Saturday, levels unseen in over two years. Euros vows come as the gap between German and US bond yields is near its widest for at least 25 years with the ECB's money-printing program just days away.

US employers stepped up hiring in February and the unemployment rate fell to nearly a seven-year low, putting further pressure on the Fed to raise interest rates in June.

Euro is heading for parity with the dollar if its depreciation continues.

The Azadi fell by over two percent, while the dollar edged down versus the rial on Saturday. Sterling, yen and the Turkish lira also fell markedly.

"The market is positioning itself ahead of Monday's start to quantitative easing," said Jane Foley, senior currency strategist at Rabobank in London, Reuters reported.

"What we have now is what markets speculated about for quite some time which is a combination of more quantitative easing for the ECB and the market positioning itself for the start of a Federal Reserve hiking process."

Traders said comments by the head of the euro zone's rescue fund that Greece needs to pay back all the money it received from its euro zone partners rather than asking for debt relief also affected the move.

Forex in Turmoil

The dollar's jump on Friday to an 11-1/2 year high against a basket of currencies held it versus the rial, but sent other currencies reeling in Ferdowsi Street – the center of currency trade in Tehran.

The dollar index, which values the greenback against six other major currencies, was last up 1.3 percent to 97.647, a hair beneath an earlier high of 97.696 last seen in September 2003, according to Reuters.

The Japanese yen dropped the most against the rial, among major currencies. The yen plunged 3.57 percent to 280 rials by 11:51 GMT on Saturday as the currency closed lower versus the dollar on Friday.

The dollar had risen sharply against the Japanese yen on Friday was last up 0.80 percent at 121.09 yen, according to Thomson Reuters data.

Sterling slid 1.74 percent to a three-month low of 51,640 rials on Saturday. The Turkish Lira also fell 2.7 percent to 13,330 rials.

Despite rising to 11-year highs versus major currencies, the greenback fell versus the rial, slipping 0.26 percent to 34,010 rials. The dollar has tested and failed to break below the 34,000 rial mark four times in the past month.

Friday's Hit on Gold

Azadi trailed gold on Saturday. The precious metal fell nearly three percent to a three-month low on Friday after stronger-than-expected US jobs data.

Spot gold was down 2.6 percent at $1,167.29 by Friday's close, its biggest daily drop since October 2013. The metal had its fifth straight session of losses and the biggest weekly drop in a month.

The Benchmark precious coin dropped 2.51 percent to 9,550,000 rials by 11:51 GMT on Saturday in Tehran, following the precious metal's global price.

Payrolls data also pressured gold futures. US gold for April delivery settled down $31.90, or 2.67 percent, at $1,164.30 an ounce, according to Bloomberg generic pricing.

An increase in US interest rates would further boost the value of the dollar, in turn hurting demand for non-interest-bearing assets such as gold.

"The market may be reading too much into one data release," said Frances Hudson, global thematic strategist at Standard Life Investments in Edinburgh to Reuters.

"When the central bank tells you the move is going to be data dependent, I'm pretty sure they're not going to say that particular data release will be the tipping point because payroll figures are quite often subject to pretty substantial revisions."

A stronger US currency makes dollar-denominated gold more expensive for holders of other currencies, while a rise in yields on US bonds is negative for the metal, whose holders earn no interest.

"We continue to forecast a further strengthening of the US dollar, which will keep gold under pressure," Deutsche Bank said in a note.

On the physical market, prices on the Shanghai Gold Exchange suggested physical demand for gold in China, the second biggest bullion consumer, remained at healthy levels.

Chinese gold prices were about $4 to $5 an ounce higher than the global benchmark.

Spot silver was down 2 percent at $15.84 an ounce, after falling to a two-month low of $15.74. Palladium was off 1.1 percent at $815 an ounce, and platinum dropped 1.7 percent to $1,154.75 an ounce.

Bearish Equities

Money seems to be flowing into bank accounts as the Tehran Stock Exchange's main index hovered above a 17-month low. The Tedpix edged down 0.16 percent to 63,911.00 by Saturday's close, dragged down by petrochemical and financial service firms, TSE data shows.

The Tehran Stock Exchange's Index has lost nearly 20 percent in 2014, as petrochemical companies and lenders plunged.

Analysts cite the ongoing uncertainty over the fate of Iran's sanctions, the widening budget deficit which fuels speculation that the government will have to monetize the deficit, the credit crunch in the banking system and the plunge in crude oil prices as the main reasons for the downtrend that is currently holding down equities.

Iran and the P5+1 are now negotiating to reach a long-term deal, which both sides hope to help sanctions imposed on Iran over its nuclear energy program lifted.

 

 

Financialtribune.com