By GCI Fx Research
€
The euro strengthened vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4675 level and was supported around the $1.4575 level. The common currency appears poised to close at its highest quarter-ending level since Q4 2008. Mixed global economic data fueled some of the euro’s ascent. The flash EMU-16 September consumer price index wasoff 0.3% y/y, lower than August’s -0.2% y/y decline. Nonetheless, many economists believe this pullback in CPI is temporary and are forecasting a recovery in November. Other data released overnight saw German September unemployment decline 12,000 with the unemployment rate at 8.2% while August plant and machinery orders were off 43% y/y. Eurogroup Chairman Juncker reiterated the European Central Bank is unlikely to implement an exit strategy before 2010. ECB member Kranjec reported the ECB’s liquidity tender shows “the system is liquid enough” while ECB Vice President Papademos added monetary policy can be used to ensure price stability and lessen asset-price bubbles. In U.S. news, the September ADP private employment report came in worse-than-expected at -254,000, down from an upwardly revised -277,000 for August. Also, second quarter gross domestic product came in better than expected at -0.7%, up from the prior reading of -1.0%, while the Q2 GDP price index was unchanged. The Q2 core PCE reading was also unchanged at +2.0% q/q and the September purchasing manager index came in less-than-expected at 46.1, down from the prior reading of 50.0. Friday’s non-farm payrolls report will be closely watched with some private forecasts calling for job losses below -200,000. Philadelphia Fed President Plosser said the Fed will need to prevent a recurrence of “great inflaton” while Atlanta Fed President Lockhard noted he favours a sustained stimulus until final private demand expands. Fed Governor Kohn cited inflation as “subdued” and said the Fed “can’t predict” how rapidly it will have to raise rates but added low rates will likely be warranted for an extended period. Nonetheless, Kohn said rates will need to rise before the economy overheats. Former Fed Chairman Greenspan reported U.S. economic growth should average 3% – 4% in the next six months and said the U.S. economy should not return to recession next year. Group of Seven officials convening in Istanbul this weekend are not expected to issue a statement after their meeting.
Euro bids are cited around the US$ 1.4445 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.35 level and was capped around the ¥90.40 level. Traders are talking about rumours that Bank of Japan will decide as early as October to let its corporate debt purchase programs expire. The central bank has been supporting the corporate bond and commercial paper market and the emergency purchase programs are schedule to expire at the end of December. BoJ officials are concerned the continuation of these programs could distort the proper functioning of the markets. Recently, on 18 September, BoJ found no lenders that were offering to sell commercial paper to the central bank. BoJ will release its quarterly Tankan survey of business sentiment overnight and it is expected to evidence an improvement in business confidence. BoJ’s Policy Board convenes on 14 October and 30 October and will publish its twice-yearly economic growth and inflation forecasts at the latter. Finance minister Fukii reported he will not discuss currencies at the Group of Seven meeting in Istanbul this weekend. Data released in Japan overnight saw August construction orders decline 25.2% y/y while August overall housing starts were off 38.3% y/y. Additionally, August industrial output was up 1.8% m/m and manufacturing PMI rose to 54.5. Dealers continue to cite continued yen repatriation flows even on the last day of Japan’s fiscal year-end. The Nikkei 225 stock index climbed 0.33% to close at ¥10,133.23. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥130.60 level and was capped around the ¥132.00 figure. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥142.85 level while the Swiss franc moved lower vis-à-vis the yen and tested offers around the ¥85.90 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8244 in the over-the-counter market, up from CNY 6.8230. People’s Bank of China reported it will continue its “moderately easy” monetary policy “while highlighting the role of domestic consumption in pushing the economy.” Chinese financial markets will be closed from 1 October through 8 October for the National Day’s holiday. Some banks are predicting China will register consumer price inflation growth in November. Some PBoC-watchers believe the central bank is not doing enough to prevent an asset bubble.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.6125 level and was supported around the $1.5945 level. Data released in the U.K. today saw GfK September consumer confidence improve to -16 from -25 in August. Also, service sector output fell 0.2% in the three months to July following a 0.6% decline in the three months to June. Chancellor of the Exchequer Darling discussed the government’s new policies regarding bankers’ pay. Bank of England Monetary Policy Committee member Miles said the central bank’s asset purchase facility program is supporting spending and added the BoE’s rate cuts have not been enough to offset credit tightening. Leading City economists met with the Bank of England yesterday and reported the central bank is not planning an imminent move to a Riksbank-style policy mechanism where overnight deposits would be subject to a tax in an attempt to stimulate spending. . Cable bids are cited around the US$ 1.5720 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9160 level and was supported around the ₤0.9075 level.
CHF
The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0445 level and was supported around the CHF 1.0280 level. The pair moved higher as dealers reported the Swiss National Bank likely sold francs for euro and possibly the U.S. dollar via the Bank for International Settlements. SNB member Jordan last week said the central bank would act “with full force” to avoid the franc’s appreciation. Data released in Switzerland today saw the September KOF leading indicator climb to 0.85 while data released in Switzerland yesterday saw the August UBS consumption indicator decline to 0.66 from 0.75 in July. U.S. dollar offers are cited around the CHF 1.0490 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5235 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6730 level.
Daily Market Commentary provided by GCI Financial Ltd.
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