By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3575 level and was capped around the $1.3655 level. A flat day for U.S. equities capped the common currency as did rumous of an “emergency bailout” of up to €25 billion for Greece’s economy. European Central Bank member Bini Smaghi said European Union states need to support Greece financially, adding he opposes an International Monetary Fund bailout for Greece. Many traders believe the ECB will be forced to keep its interest rates low for some time on account of the fiscal crises – including Greece’s – in the eurozone. Short-term euro forward borrowing rates have collapsed this month, an indication of expectations for lower rates. ECB member Provopoulos said the Greek government will meet its “very ambitious” deficit reduction goals and finance minister Papaconstantinou is on the tape saying the country is “ahead of schedule” on reducing its budget deficit and will not require a “bailout.” In U.S. news, data released today saw the January Chicago Fed natinal activity index improve to +0.02, up from the revised print of -0.58, while the February Dallas Fed manufacturing index came in much weaker-than-expected at -0.1%, down from the +8.3% previous reading. Data to be released tomorrow include the December S&P/ CaseShiller home price index, February Richmond Fed manufacturing index, and February consumer confidence. San Francisco Fed President Yellen said the “economy still needs the support of extraordinarily low rates.” Yellen also warned the economy is likely to operate “well below its potential throughout this year and next.” She also indicated interest on bank reserves will pay a “lead role” when policy is eventually tightening, signaling the Fed is likely to make adjustments to its monetary targets and perhaps become less dependent on the federal funds rate. Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.00 figure and was capped around the ¥91.90 level. Finance minister Kan called on Bank of Japan to “make more efforts” to combat deflation, just days after suggesting the central bank target an inflation target. BoJ Governor Shirakawa today said Japan is “providing ample liquidity” and again called on the government to rein its massive public debt burden. Prime Minister Hatoyama yesterday indicated he “sincerely” hopes the BoJ will implement “monetary policy appropriately.” The spat between the central bank and government is worsening just days after data revealed deflationary pressures are deepening in Japan. Vice finance minister Minezaki suggested the government should suspend a temporary measure that reduces taxes on income from dividends and capital gains. The central bank last week voted to keep monetary policy unchanged and some dealers expressed surprise the central bank did not expand its monthly Japanese government bond buying operations. Some traders have already starting repatriation inflows of yen back to Japan ahead of the fiscal year end at the end of March. The Nikkei 225 stock index climbed 2.74% to close at ¥10,400.47. 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 ¥123.60 level and was capped around the ¥125.20 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥140.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.40 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8265 in the over-the-counter market, down from CNY 6.8333. Chinese financial markets were closed last week for the Chinese New Year holiday. Chinese leaders today said the country will maintain an “appropriately loose” monetary policy in 2010 and seek to balance the objectives of fostering growth and managing inflation expectations. Some media reports are suggesting China is becoming increasingly concerned with the “carry trade” in which hot money inflows are finding their way into the Chinese financial system after borrowings are being made in cheaper currencies like the U.S. dollar.
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The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5520 level and was supported around the $1.5430 level. Bank of England Monetary Policy Committee member Fisher last week said the economic outlook is “hugely uncertain.” Fisher added “Double dip (recession) is something that would likely happen if there was some exogenous, extraneous shock that came along and hit the economy. It’s not something that you can forecast.” It was announced last week that Kate Barker will leave the MPC and Spencer Dale was reappointed to the MPC. Cable bids are cited around the US$ 1.5340 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8760 level and was capped around the ₤0.8815 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0785 level and was supported around the CHF 1.0740 level. Swiss National Bank member Jordan said the franc’s strength is “no obstacle” to recovery and added financial regulation needs to increase. Data released in Switzerland last week saw the January trade surplus climb to CHF 2.42 billion from CHF 1.36 billion in December while the ZEW February expectations survey fell to 52.5 from 56.2 in January. Dealers last week speculated the Swiss National Bank sold francs for euro in an intervention to help Swiss foreign trade. Many dealers believe the Swiss National Bank will not be able to prevent the Swiss U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4630 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6715 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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