By GCI Fx Research
€
The euro came off sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4045 level and was capped around the $1.4195 level. The common currency extended recent losses on account of stronger than expected U.S. economic data and a pullback in U.S. equity prices. Data released in the U.S. today saw the Federal Reserve Bank of New York’s Empire State manufacturing index improve to 12.1 from -0.6 in July. Other data saw the August NAHB housing market index print at +18, up from +17 in July, while June net long-term TIC flows printed at US$ 90.7 billion, much stronger than expected and above the revised May print of –US$ 19.4 billion. In contrast, however, total net TIC flows came in at –US$ 31.2 billion, an improvement from the revised –US$ 65.86 billion May print but below the US$ 23.0 billion forecast. Global equity markets were given today after Asian markets suffered a sell-off. The Federal Reserve today extended an emergency program by three to six months called the Term Asset-Backed Securities Loan Facility (TALF) that is designed to cushion the commercial real estate market. In eurozone news, the EMU-16 trade surplus registered a two-year high in June. European Central Bank member Weber reported the German economy is likely to perform better than expected in the third quarter. The ECB today reported the Eurosystem has purchased €7 billion in covered bonds. Euro bids are cited around the US$ 1.3900 figure.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.20 level and was capped around the ¥94.85 level. The yen was up strongly across the board as a downturn in global equities dampened demand for higher-yielding currencies. Data released in Japan overnight saw Q2 gross domestic product expand 0.9% q/q, less than expected but the first improvement since Q1 2008. The improvement means Japan is no longer in a technical recession but many economists believe economic growth may slow to an annualized 2.9% pace in the three months ending 30 September. On the political front, Prime Minister Aso’s Liberal Democratic Party is likely to lose the upcoming lower house election to the Democratic Party of Japan. Policymakers including Bank of Japan Governor Shirakawa have warned Japan’s domestic demand is likely to remain very weak. The Nikkei 225 stock index lost 3.10% to close at ¥10,268.61. 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 ¥132.50 level and was capped around the ¥134.50 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥153.45 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.20 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8332 in the over-the-counter market, up from CNY 6.8314. Chinese equities realized their worst decline since November on account of declining commodities prices and concerns that People’s Bank of China will tighten liquidity measures.
₤
The British pound extended recent losses vis-à-vis the dollar today as cable tested bids around the US$ 1.6275 level and was capped around the $1.6515 level. Bank of England Monetary Policy Committee member Sentance reported the U.K. economy is expected to return to economic growth in the second half of the year and said global economic growth will in part depend on Asian economies. Data released in the U.K. overnight saw the Rightmove August house price index off 2.2% m/m and 3.1% y/y. Cable is now off seven big figures over the past ten days. Sterling remains pressured by BoE’s announcement that it is expanding its bond-buying operations by ₤50 billion. Sterling is also being pressured by increased borrowing and deficit spending. Cable bids are cited around the US$ 1.5975 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8645 level and was supported around the ₤0.8585 level.
Daily Market Commentary provided by GCI Financial Ltd.
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