By GCI Fx Research
€
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3470 level and was supported around the US$ 1.3250 level. The common currency darted higher for a couple of reasons. First, traders have been already discounting the anticipated results of today’s U.S. banks’ stress tests results. The common perception among market participants is that between seven and ten U.S. banks will be commanded to submit new capital raising plans to the U.S. Treasury by 8 June. Citigroup, Bank of America, and Wells Fargo are the names most dealers associate with being undercapitalized ahead of the stress test results. It is expected that banks will be asked to raise at least an additional US$ 65 billion in capital. Second, the euro moved higher after the European Central Bank reported plans to purchase covered bonds in the market, its first foray into quantiative easing. The ECB also reduced its main refinancing rate target by 25bps to 1.00%. Traders reacted optimistically to the ECB’s plans on expectations that the global economic outlook is improving. Data released in the U.S. today saw Q1 non-farm productivity climb 1.1% q/q and 1/1% y/y while unit labour costs were up 2.9% q/q and 2.9% y/y. Also, weekly initial jobless claims were off 34,000 to 601,000, their lowest level since January, while continuing jobless claims rose 56,000 to 6.351 million, the highest level since at least 1967. In eurozone news, German March manufacturing orders were up 3.3% m/m but they were off 26.7% y/y. Euro bids are cited around the US$ 1.2765 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥99.75 level and was supported around the ¥98.25 level. Japanese financial markets reopened overnight and risk appetite returned to the market ahead of the release of the U.S. banks’ stress tests results. Japanese bank Mitsubishi UFJ Financial’s share price soared 15.8% while Sumitomo Mitsui Financial’s share prices escalated 12.3% following its announcement that it is purchasing Citigroup’s Japanese securities business. The Nikkei 225 yesterday stock index gained 4.55% to close at ¥9,385.70. 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 ¥133.55 level and was supported around the ¥130.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥148.30 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.10 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8220 in the over-the-counter market, up from CNY 6.8180.
₤
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4940 level and was capped around the $1.5195 level. Bank of England kept its official bank rate target unchanged at 0.50% today and will continue its program of asset purchases, increasing its size by ₤50 billion to ₤125 billion. The timing of this announcement took many traders by surprise. Most BoE-watchers believe the BoE does not want to reduce its main refinancing rate below 0.50%. Cable bids are cited around the US$ 1.4735 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8935 level and was supported around the ₤0.8765 level.
Daily Market Commentary provided by GCI Financial Ltd.
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