Goldman Sachs Group Inc. (GS) and Bank of America Corp. (BAC) are among Wall Street firms that offered deals to help Venezuela obtain U.S. dollars amid a plunge in the nation’s foreign reserves.

A swap proposed by Goldman Sachs would provide $1.68 billion in cash and be backed by $1.85 billion of the central bank’s gold, documents obtained by Bloomberg News show. Bank of America said it could be an intermediary for $3 billion in payments to firms seeking U.S. dollars, documents show. Neither deal has been completed, a government official with direct knowledge of the matter said, requesting anonymity because the talks are private.

Dollars are becoming scarce in Venezuela, limiting the supply of products from medicine to toilet paper in a nation that imports about three-quarters of goods it consumes. Foreign reserves dropped 28 percent this year, touching a nine-year low of $20.7 billion this month, largely because 70 percent of the assets are in gold. The metal plunged 26 percent in the period.

“The fact you have dollar shortages is symptomatic of an economy that’s completely broken down,” Robert Abad, who helps oversee $53 billion in emerging-market debt at Western Asset Management Co., said yesterday in a telephone interview from Pasadena, California.

“This is something that’s just incredibly unnecessary, very unfortunate, and the victim of all of this is the real economy, real people.”
The dollar rose to a six-month high against the yen as an unexpected drop in U.S. jobless claims and a rise in leading economic indicators added to speculation the Federal Reserve may start reducing stimulus next month.

The euro strengthened to a four-year high against the yen as German lawmakers reached a coalition accord on wages and spending increases without raising taxes, spurring demand for the region’s assets. The Thai baht fell after the central bank cut interest rates,

while the Canadian dollar dropped as crude oil slipped for a fourth day. “The dollar is benefiting from a very small risk of taper in December,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “I’m still a little skeptical about December tapering. Granted the FOMC meeting minutes was a bit more hawkish than expected, but if you just focus on what Bernanke and Yellen said, the most likely scenario is taper in the first quarter.”

The dollar gained 0.9 percent to 102.16 yen at 5 p.m. in New York and touched 102.19, the strongest level since May 29. It slipped 0.1 percent to $1.3579 against the common currency, having dropped as much as 0.3 percent earlier. The euro advanced 0.9 percent to 138.73 yen after touching 138.79, the highest since June 2009.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, rose 0.3 percent to 1,021.55.
Switzerland’s economy expanded more than economists expected in the third quarter, with exports helping it perform better than neighboring Germany.

Swiss gross domestic product rose 0.5 percent in the three months through September from the second quarter, when it expanded by the same amount, the Secretariat for Economic Affairs in Bern said in a statement today. That beats the 0.4 percent median estimate in a Bloomberg survey of 19 economists.

The Swiss National Bank (SNBN) set a cap on the franc of 1.20 per in September 2011, citing the risk of deflation and a recession. Since then, the Swiss economy has seen a single quarter of contraction, while the debt-plagued euro area only emerged from an 18-month slump in the middle of this year.

If the SNB were to tighten monetary policy reflecting better growth, “it would have immediate negative domestic effects,” said Christian Lips, an economist at NordLB in Hanover. “Looking forward, neither the cap nor the rates can be changed before year-end 2014,” given weak growth in the neighboring euro area, Switzerland’s top trading partner, he said.

The franc, which has slipped two percent against the euro since the start of the year as the bloc’s debt crisis has waned, was trading unchanged at 1.2324 per euro at 8:43 a.m. in Zurich, off an intra-day high of 1.2321.
Britain’s consumer and housing-driven recovery, the fastest among Group of Seven nations, risks losing steam unless export growth picks up, economists said.

While the economy grew the fastest in more than two years in the three months through September, the expansion was led by consumer spending, construction and stock building. Net trade knocked 0.9 percentage point off GDP, the most since the second quarter of 2011.

Bank of England Governor Mark Carney this week extolled the strength of the economy’s revival, while acknowledging that weak growth in the euro area may weigh on the export outlook and limit rebalancing of the economy. Part of the domestic demand is linked to a revival in the housing market, which has fueled concerns of a brewing bubble. Carney will address those risks at a press conference in London today.

“The consumer is a big part of the economy, so it’s always going to be an important component of growth but it shouldn’t be the sole component,” said Carl Astorri, senior economic adviser to the EY ITEM Club. “To get the stronger recovery that we’re forecasting for next year does rely on it broadening out.”

The U.K. economy grew 0.8 percent in the last quarter, the Office for National Statistics said yesterday. Investment in private-sector dwellings climbed 5.9 percent, the most in two years. Consumer spending increased for an eighth consecutive quarter. Exports, which account for about one third of the economy, fell 2.4 percent, the most in more than two years.
The Canadian Dollar touched the weakest level against its U.S. counterpart since July as the price of crude oil, the nation’s biggest export, declined for a fourth day.

The currency weakened as futures of crude oil fell 1.4 percent to $92.39 per barrel in New York. So-called commodity currencies, which include Canada’s and the Australian and New Zealand dollars also declined. Yields on Treasury (USGG10YR) 10-year notes have increased to 19 basis points more than Canadian debt, from negative nine basis points in January, amid speculation that U.S. policy makers will reduce monetary stimulus earlier than Canadian officials.

The market thinks “the Bank of Canada will lag the Fed in taking away the easier policy,” Ken Dickson, an Edinburgh-based director for foreign exchange at Standard Life

Investments Ltd., which oversees about $291 billion, said in a phone interview. “On that relative basis, we think that will favor the dollar against the Canadian dollar through 2014.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.5 percent to C$1.0595 per U.S. dollar at 5:00 p.m. in Toronto, after reaching C$1.0603. One loonie buys 94.38 U.S. cents.

Bond Trade

The nation’s benchmark 10-year government bonds fell, pushing yields up three basis points to 2.55 percent. The price of the 1.5 percent securities maturing in June 2023 declined 20 cents to C$91.23.

BlackRock Inc., the world’s biggest asset manager, is recommending Canadian investors bet on a widening gap between short- and long-term debt in anticipation of less U.S. monetary stimulus next year.

Canadian debt maturing in one to three years returned 0.9 percent since May through Nov. 25, compared with losses of 5 percent for bonds with maturities of 10 to 15 years, Bank of America Merrill Lynch index data show.

Investors should bet against the Canadian currency versus the U.S. dollar, in what Goldman Sachs Group Inc. analysts in a client note called their third top-trade recommendation for 2014.

The Canadian dollar has lost 3.3 percent this year against nine developed-market peers tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar is up 4 percent, while the Australian currency fell 11 percent.

“We’ve seen steady interbank buying of dollar-Canada since today’s open and that appears to be what has pushed us up here,” said George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at Royal Bank of Canada. “Oil also under pressure, which is not helping.”
Brazil’s central bank raised its key interest rate for a sixth time, extending the world’s biggest tightening cycle as a weaker currency and widening budget deficit spur inflation pressures.

The bank’s board, led by President Alexandre Tombini, voted 8-0 to raise the Selic today to 10 percent from 9.5 percent, as forecast by 50 of the 52 economists surveyed by Bloomberg. Two analysts predicted a 25 basis-point increase.

The decision sought to “give continuation to the adjustment of the benchmark rate that began in the April 2013 meeting,” policy makers said in their statement posted on the central bank’s website. Board members removed from the statement a phrase used after the previous decision saying the increase would ensure inflation’s continued slowing in 2014.

Brazil’s central bank has raised borrowing costs by 275 basis points since April as the real dropped the most among major currencies and deteriorating fiscal accounts sparked concern of a credit downgrade. Investor pessimism on Brazil’s economy means there is no room to let up on inflation, according to Enestor Dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria and the top Selic forecaster according to data compiled by Bloomberg.

“The burden is on the central bank’s shoulders,” Dos Santos said by phone before today’s decision. “The central bank is fighting to regain lost credibility. Inflation expectations for next year remain elevated.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell one basis point to 10.82 percent. The real fell 1.5 percent to 2.3305 per dollar, extending its decline this year to 12 percent.
The dollar touched a six-month high against the yen after signs of improvement in the world’s largest economy boosted the allure of U.S. assets.

The Bloomberg U.S. Dollar Index was near a two-week high before data next week forecast to show U.S. manufacturing expanded for a sixth month. The euro retreated from a four-year high against the yen as technical indicators signaled its recent gains were excessive. The Australian dollar rallied from a two-month low after business investment unexpectedly grew.

“A string of reasonably positive data in the U.S. is probably going to help the dollar via higher treasury yields,” said Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney. Yields on Japanese government bonds “have been falling fairly consistently for the past four or five months and that’s kept the yen fairly weak.”

The dollar was little changed at 102.13 yen as of 6:42 a.m. in London from yesterday, after touching 102.28, the strongest level since May 29. It traded at $1.3583 against the euro from $1.3579. The shared currency was unchanged at 138.73 yen after touching 138.84, the highest since June 2009.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, declined 0.1 percent to 1,020.55. It rose 0.3 percent to 1,021.55 yesterday, the highest close since Nov. 12.

The benchmark U.S. 10-year yield gained three basis points, or 0.03 percentage point, to 2.74 percent yesterday. U.S. markets are closed for Thanksgiving holiday. Similar-dated Japanese government bonds yielded 0.60 percent today.
Emmanuel Ng, FX Strategist at OCBC Bank is expecting EUR/USD to remain neutral to supported.

Key Quotes

“Despite the updraft from the GBP, dovish ECB rhetoric may also continue to place a damper on excessive upside against the USD. “

“Look for initial support on dips around the 55-day MA (1.3548) while key resistance is expected on approach of 1.3600 ahead of the EZ inflation number tomorrow. “
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