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$ 1.2560 level and was capped around the $1.2685 level. The common currency is close to testing multi-month lows that could see the pair test March 2009 lows. Deepening eurozone credit concerns are impacting the common currency negatively, as are output concerns that suggest U.S. economic growth will continue to outpace EMU-16 economic growth. European Central Bank President Trichet today defended the ECB’s decision this week to buy eurozone debt in the secondary market and said the ECB will sterilize its purchases through time deposits. ECB member Quaden called on banks today to maintain more and stronger capital. Many traders believe the ECB will keep its main interest rate target unchanged until late next year. In U.S. news, data released today saw the April import price index climb 0.9% m/m and 11.1% y/y. Also, weekly initial jobless claims fell to 444,000 from 448,000 and continuing jobless claims rose to 4.627 million. Fed Vice Chairman Kohn and Minneapolis Fed President Kocherlakota defended the Fed’s pledge to keep interest rates low for an “extended period.” Regional Fed Presidents including Dallas’s Fisher, St. Louis’s Bullard, and Philadelphia’s Plosser have recently suggested the pledge may inhibit the Fed’s ability to manage medium-term inflation expectations. Fed Chairman Bernanke said a Senate proposal to divest swaps trading desks from commercial banks would result in less financial stability. Euro bids are cited around the US$ 1.2585 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥92.60 level and was capped around the ¥93.65 level. Traders jumped back into yen today on renewed sovereign credit concerns. Many data were released in Japan overnight. First, the March current account total printed at ¥2.534 trillion. Second, the March trade balance printed at ¥1.074 trillion. Third, April bank lending was off 1.8% y/y. April bankruptcies data will be released overnight along with April machine tool orders data and the economy watchers’ survey. Bank of Japan Deputy Governor Yamaguchi this week said the central bank has “no need to alter the outlook in our semi-annual economic report” following recent market volatility. Finance minister Kan this week 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. The Nikkei 225 stock index climbed 2.18% to close at ¥10,620.55. 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 ¥116.60 level and was capped around the ¥118.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥136.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.15 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8280 in the over-the-counter market, up from CNY 6.8272. People’s Bank of China member Li Daokui reported “conditions for China’s interest rate adjustment are basically mature now.” Yuan forwards rose today on the premise that bilateral U.S.-Chinese talks could lead to yuan appreciation. People’s Bank of China adviser Xin Bin this week said the central bank’s quarterly report released on Monday is a signal the central bank will permit the yuan to appreciate vis-à-vis the U.S. dollar. The central bank 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.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4735 level and was capped around the $1.4915 level. Traders expressed fresh doubts that the new coalition government would be able to adequately reduce the U.K.’s mammoth fiscal deficit. The new government has suddenly found an ally in Bank of England Governor King who has publicly supported their decision to reduce spending by as much as £6 billion. The central bank is likely to gain additional oversight powers and the inclusion of the Liberal Democrats in the new government may have saved the Financial Services Authority. Data released in the U.K. todays aw the total trade balance worsen sharply, printing at -£3.683 billion. Cable bids are cited around the US$ 1.4335 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8540 level and was supported around the £0.8495 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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