By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2665 level and was capped around the $1.2800 figure. The common currency extended yesterday’s losses as traders expressed skepticism that the rescue packages announced by eurozone officials early yesterday will suffice in addressing the bloc’s major debt woes. In fact, the common currency traded lower than Friday’s close following last week’s major sell-off. Ireland’s budget deficit-to-GDP ration remains 14.3% and Greece’s remains 13.6%, underscoring the major debt problems faced by many eurozone countries including these, Spain, Portugal, and Italy. There are renewed forecasts that the common currency will eventually decline to parity with the U.S. dollar. European Central Bank member Nowotny reported “the intention is to get again control of the unorderly markets and I think this is a goal that has been achieved remarkably in an effective way.” EMU-16 central banks yesterday began purchasing eurozone government bonds in the secondary market as a quantitative easing measure. ECB member Wellink went one step further today, saying “If there are excessive deficits at a certain moment, fines should be considered more quickly. Deny countries who are erring the access to European structural funds.” Data released in Germany today saw the April consumer price index decline 0.1% m/m and up 1.0% y/y while the EU-harmonized index was off 0.1% and up 1.0% y/y. Also, the April wholesale price index was up 1.7% m/m and 6.0% y/y. In U.S. news, Fed Chairman Bernanke reported the eurozone’s approximate US$ 1 trillion aid package is “basically not a panacea” and called for “fundamental underlying changes” in countries’ economies. The Senate today approved an amendment to a regulatory overhaul bill that will audit the Fed’s emergency-lending programs during the financial crisis over the past couple of years. Richmond Fed President Lacker reported “We are already seeing evidence that employment is on the path to steady growth.” Data released in the U.S. today saw March wholesale inventories decline to +0.4% from the prior reading of +0.6%. Euro bids are cited around the US$ 1.2585 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥92.21 level and was capped around the ¥93.40 level. Traders again moved back into yen as doubts resurfaced regarding the adequacy of the €500 billion deal announced over the weekend to support debt-laden eurozone countries. Bank of Japan Deputy Governor Yamaguchi yesterday said the central bank has “no need to alter the outlook in our semi-annual economic report” following recent market volatility. Finance minister Kan reported equity and currency markets will “start to stabilize.” Minutes from last month’s BoJ Policy Board meeting were released yesterday and policymakers observed “balance sheet adjustments in the banking sector and the fiscal deficit problem in some European countries might further slow the pace of economic recovery” in the region. BoJ yesterday injected ¥2 trillion into the financial system for a second day, the first back-to-back same-day operations since October 2008. Also, BoJ reestablished a U.S. dollar currency swap agreement with the Fed and other central banks this weekend to help stabilize global financial markets. Data to be released in Japan overnight include April official reserve assets. The Nikkei 225 stock index lost 1.14% to close at ¥10,411.10. U.S. dollar offers are cited around the ¥96.85 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥116.90 level and was capped around the ¥119.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥139.65 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.95 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8293 in the over-the-counter market, up from CNY 6.8266. People’s Bank of China adviser Xin Bin said the central bank’s quarterly report released yesterday is a signal the central bank will permit the yuan to appreciate vis-à-vis the U.S. dollar. The central bank yesterday yielded some clues regarding the possibility of ending its U.S. dollar peg, reporting it will manage the yuan “with reference to a basket of currencies” – language that was absent from the central bank’s previous quarterly summary. Many data were released in China overnight. First, the April trade balance expanded to US$ 1.68 billion from the prior reading of –US$ 7.24 billion. Second, April NDRC housing prices improved to 12.8 from the prior reading of 11.7. Third, April producer prices were up 6.8% y/y and April consumer prices were up 2.8% y/y. Fourth, April retail sales growth decelerated to +18.5% y/y. Fifth, April industrial production was up 17.8% y/y. Sixth, April new yuan loans expanded to CNY 774.0 billion from the prior reading of CNY 510.7 billion.
£
The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5005 level and was supported around the $1.4720 level. Cable moved higher after Prime Minister Brown resigned from office and tendered his resignation to Her Majesty the Queen, who quickly accepted incoming Prime Minister Cameron’s plea to form a new government. Sterling moved higher on this news on the premise that a Tory-Liberal Democrat coalition may be more successful in reducing the U.K.’s bloated debt and deficit problems than a Labour-Liberal Democrat coalition. Today’s political drama ends more than twelve years of uninterrupted Labour rule. Data released in the U.K. saw the April RICS house price balance increase to 17% from the prior reading of 9%. Also, March industrial production was up 2.0% m/m and 2.0% y/y with manufacturing production up 2.3% m/m and 3.3% y/y. The April NIESR GDP estimate will be released tonight. Cable bids are cited around the US$ 1.4335 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8475 level and was capped around the £0.8615 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1035 level and was capped around the CHF 1.1135 level. Data released in Switzerland today saw the April SECO consumer confidence survey improve to +14 from the prior reading of -7, exceeding expectations. April producer and import prices will be released tomorrow. Swiss National Bank Chairman Hildebrand reiterated the central bank’s policy is prepared to fight inflation and deflation and reiterated the SNB will not permit an excessive appreciation of the franc. U.S. dollar offers are cited around the CHF 1.1270 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4030 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6620 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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