By GCI Fx Research
€
The euro gained moderate ground-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3930 level and was supported around the $1.3750 level. European Central Bank policymaker Mersch reported the eurozone economy is likely to return to positive economic growth “sometime in the middle of” 2010. ECB member Weber said “more (monetary) measures are not needed” at this time and added liquidity measures are continuing to improve. ECB member Draghi said it is too soon for policymakers to unwind their massive stimuli but added policymakers should be crafting their “exit strategies” now. Similarly, ECB member Ordonez reported a failure to absorb liquidity could “put the global economy at the end of a depressive spiral of grave consequences.” Data released in the eurozone today saw the annual EMU-16 inflation rate decline to a record low of 0% in May while the monthly increase slowed to +0.1% from +0.4% in April. It was also reported that EMU-16 Q1 labour costs were up 3.7% y/y, down from a record 4.0% pace in Q4 2009 while the German June ZEW economic expectations index improved to 44.8 from 31.1 in May. Other big news in the eurozone today saw the ECB confirm the eurozone’s largest banks are facing additional write-downs of US$ 283 billion by the end of 2010. In U.S. news, data released in the saw May housing starts climb 17.2% m/m to an annualized 532,000 rate while May building permits were up 7.5% m/m, their third consecutive increase. These data suggest the U.S. housing market remains on the mend but with massive inventories of unsold homes still on the market and rising mortgage interest rates, the upside in the sector is limited. In contrast to the rosy housing data, May industrial production was off 1.1% m/m with capacity utilization lower at 68.3%. The American Bankers Association today reported the economic recession should abate in the third quarter. Additional data saw May producer price inflation climb 0.2% m/m, less than the 0.6% print that economists expected, and down 5% y/y. Core PPI was off 0.1% m/m, the first decline since October 2005. Euro bids are cited around the US$ 1.3435 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥96.05 level and was capped around the ¥97.90 level. Finance minister Yosano verbally intervened to support the U.S. dollar today, indicating “My thinking about the US economy or the world standard currency – the dollar – or my firm confidence in them, isn’t shaken at all.” Yosano intimated Tokyo has no plans to sell the U.S. dollar. Bank of Japan’s Policy Board meeting ended with little fanfare. The central bank kept its overnight call rate target unchanged at 0.10%. The Nikkei 225 stock index lost 1.74% to close at ¥10,039.67. U.S. dollar offers are cited around the ¥104.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥132.70 level and was capped around the ¥135.35 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥156.45 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.10 level. In Chinese news, the U.S. dollar weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8330 in the over-the-counter market, down from CNY 6.8353.
Daily Market Commentary provided by GCI Financial Ltd.
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