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The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2510 level and was capped around the $1.2640 level. Several factors continue to plague the common currency. First, Eastern European markets remain in rough shape. Credit default swaps on some sovereign debt are at all-time highs with Hungarian CDS rates around 550bps. There is growing concern that western European banks may be forced to bail out their Eastern European subsidiaries. Second, there are lingering rumours that some countries may leave the eurozone, an assertion that German finance minister Steinbrueck flatly rejected as “absurd” today. Third, the European Commission criticized France, Spain, Ireland, Greece, Malta, and Latvia for their large budget deficits. Fourth, the German government reported “The outlook for the current year remains strongly clouded for the time being. Current economic indicators signal that the decline of economic activities will continue in the first quarter of 2009. The world economic conditions continue to hurt. In addition, there are the increasingly direct consequences of the financial market crisis, in particular through a tightening of banks’ conditions for companies’ funding.” Most traders believe European Central Bank will ease interest rates by at least 50bps next month. In U.S. news, January housing starts were off 16.8% while January building permits were off 4.8%. Additionally, the industrial production index fell to 101.3 while capacity utilization moderated to 72.0 from 73.3 in December. Also, it as reported the January import price index improved to -1.1%. Traders cite an increasing likelihood the Obama administration may nationalize some U.S. banks with Citigroup and Bank of America as two possibilities. Euro bids are cited around the US$ 1.2475 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥93.95 level and was supported around the ¥92.10 level. The yen came off across the board as traders chased dollar-bloc yields plays in the loonie, Aussie, and kiwi. Bank of Japan reported it will restart its purchases of equities from banks on 23 February, a temporary program designed to help the ailing banking sector. The total size of the central bank’s purchases will likely be around ¥1 trillion and BoJ could announce new measures at the end of tonight’s Policy Board meeting to expand corporate debt purchase operations. The Nikkei 225 stock index lost 1.45% to close at ¥7,534.44. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥118.05 level and was supported around the ¥115.95 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥133.70 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥79.60 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8378 in the over-the-counter market, up from CNY 6.8355. The government rejected a media report that it is forecasting a depreciation in the yuan. The government reported China’s 2008 current account surplus was around US$ 440 billion.
Daily Market Commentary provided by GCI Financial Ltd.
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