By GCI Fx Research
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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bisa around the US$ 1.3685 level and was capped around the $1.3775 level. The Federal Open Market Committee is not expected to make any significant changes to monetary policy tomorrow when its interest rate decision is announced. The Obama administration is said to favour San Francisco Fed President Yellen to replace retiring Vice Chairman Kohn. It is believed Obama may stack the Fed Board with so-called monetary doves to retain a downward bias on interest rates. Data released in the U.S. today saw February capacity utilization rise to 72.7% from 72.5% while February industrial production fell to +0.1% from the prior reading of +0.9%. Also, January total net Treasury International Capital flows printed at –US$ 33.4 billion, down from a revised +US 53.6 billion for December. Net long-term TIC flows tumbled to US$ 19.1 billion from the prior reading of US$ 63.3 billion. These data mean the U.S. did not cover its trade deficit in January through foreign investment inflows. Other data released today saw the March Empire State manufacturing index decline to +22.86 from the previous reading of +24.91. Dealers await the March NAHB housing market index later in the day and details about new financial services regulation legislation making its way through Congress. In eurozone news, EMU-16 Q4 unemployment was off 0.2% q/q and 2.0% y/y. Eurozone CPI data will be released tomorrow along with German ZEW data. Traders remain fixated on Greece, especially as French finance minister Lagarde and other eurozone officials have intimated Greece may be able to resolve its massive fiscal deficit without external financial assistance. European Union officials are said to have a “contingency” plan in place that they can implement “with the push of a button.” Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.85 level and was supported around the ¥90.55 level. Traders await Bank of Japan Policy Board’s interest rate decision tomorrow night with strong expectations of additional monetary easing. The central bank may expand a ¥10 trillion fund that provides funding to banks when policymakers convene on 16-17 March and this is important because an unlimited uncollateralized loan facility expires on 31 March. The central bank remains under significant pressure to do more to combat the deflation problem further. BoJ Governor Shirakawa and other Policy Board members have recently indicated deflationary pressures are persisting because there is insufficient final private demand. Shirakawa overnight said he is “not against inflation targeting” and said the central bank should not make policy based on short term price movements. He also said that additional Japanese government bond purchases would mean the central bank will sell them eventually. Concerning the yen, Shirakawa said the central bank’s accommodative policy is impacting the yen and “proper action needs to be taken.” It appears the Hatoyama government is becoming increasingly concerned with the yen’s strength and there is growing speculation the government may begin to officially intervene in the market, especially as the government increased the size of the funding it has available for intervention in its draft budget. Data released in Japan overnight saw February consumer confidence improve to 40.0 while February Tokyo-area condominium sales climb 10.7% y/y. Machine tool orders and tertiary index data will be released tomorrow. The Nikkei 225 stock index climbed 0.01% to close at ¥10,751.98. 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 ¥124.25 level and was capped around the ¥125.15 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥136.10 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.85 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8262 in the over-the-counter market, up from CNY 6.8256. Data released in China overnight saw February actual foreign direct investment decrease to +1.08% from the prior reading of +7.80%. Premier Wen Jinbao reported the yuan is “not undervalued.” Chinese and U.S. tensions are definitely increasing and it remains to be seen how quickly China may liberalize its yuan exchange rate policy.
₤
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5020 level and was capped around the $1.5205 level. Sterling moved lower on remarks from Bank of England Monetary Policy Committee member Barker who reported the U.K. economy could recede again, adding the economic recovery will continue to be “bumpy and fragile.” Cable continues to suffer from political uncertainty ahead of the upcoming mandatory General Election. Prime Minister Brown is expected to lose to Tory leader Cameron but Cameron may not be able to form a majority government if he wins, and this could lead to a weaker pound. U.K. DCLG house prices data will be released tomorrow. On Friday, Bank of England Chief Economist and Monetary Policy Committee member Dale reported that from the time quantitative easing was implemented last year, “the economy has stabilized, household and business confidence have recovered, and financial market conditions have improved.” Dale noted the BoE is poised to make additional purchases of assets if required but noted the central bank could also withdraw monetary stimulus at any time. Cable bids are cited around the US$ 1.4455 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the US$ 0.9130 level and was supported around the $0.9045 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0615 level and was supported around the CHF 1.0575 level. Data released in Switzerland today saw February producer and import prices decline 0.3% m/m and fall 1.0% y/y. SECO March 2010 economic forecasts will be released tomorrow. As expected, Swiss National Bank last week kept its three-month Swiss franc Libor target rate unchanged at 0.2% today. SNB reported ‘The Swiss National Bank is maintaining its expansionary monetary policy. It will act decisively to prevent an excessive appreciation of the Swiss franc against the euro.” SNB is forecasting the Swiss economy will expand about 1.5% this year. SNB Chairman Hildebrand said the main risks to Swiss economic growth are “external” and reiterated foreign exchange intervention remains one of its tools. January M2 money supply growth was an annualized 16.5%. U.S. dollar offers are cited around the CHF 1.1045 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4525 level while the British pound moved lower and tested bids around the CHF 1.5915 level.
Daily Market Commentary provided by GCI Financial Ltd.
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