By GCI Fx Research
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2545 level and was capped around the $1.2635 level. The common currency was pressured lower after it was reported the European Union rejected a specific Eastern European plan to stimulate economic growth in the troubled central and Eastern European regions. Instead, EU leaders endorsed a plan to coordinate steps to ease credit strains across the entire bloc. The Eastern European plan called for €190 billion in aid to benefit the region. Traders are also talking about additional stories including Berkshire Hathaway’s worst investment year ever, HSBC’s weaker-than-expected capital position, and the possibility AIG will obtain US$ 30 billion in additional government aid. Dealers are already looking ahead to Friday’s February non-farm payrolls number with most economists forecasting another bad print. In U.S. news, January construction spending was off 3.3% m/m while the February ISM manufacturing survey improved slightly to 35.8. Also, January personal consumption was up 0.6% m/m, up from December’s 1.0% decline, while personal income was up 0.4%, up from December’s 0.2% decline. Notably, the personal savings rate printed at 5.0%, the highest level since March 1995. Additionally, the personal consumption expenditures price index was up 0.2% in January from a 0.5% decline in December. The core PCE price index was up 0.1% m/m and 1.6% y/y in January from a 0.1% decline in December. In eurozone news, the EMU-16 February manufacturing PMI survey declined to 33.5. Also, EMU-16 annualized inflation rose to 1.2% in February from 1.1% in January, ending six months of declines. Euro bids are cited around the US$ 1.2475 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥97.90 level and was supported around the ¥96.90 level. The yen was mostly strong across the board but weaker vis-à-vis the U.S. dollar. The yen has given back some of the gains it made over the past few months. U.S. officials are becoming increasingly concerned that Japan is going to pursue a weaker yen to help bolster its beleaguered export situation. Japanese net trade data are quite weak and the unpopularity of the Aso government could see the government try to orchestrate a weaker yen. Dealers expect Bank of Japan will expand its asset purchase program to steer market rates lower in an attempt to stimulate the asset backed commercial paper market. The Nikkei 225 stock index shed 3.81% to close at ¥7,280.15. 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 ¥121.95 level and was capped around the ¥123.55 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥135.90 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.35 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8438 in the over-the-counter market, up from CNY 6.8405.
₤
The British pound came off sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.3955 level and was capped around the $ 1.4295 level. The big news in the U.K. today was HSBC’s announcement that it may need to raise ₤12.5 billion to shore up its capital base through a rights offering. Data released in the U.K. today saw the February PMI manufacturing survey print at 34.7, down from 35.8 in January. Also, BoE reported January total U.K. consumer lending grew ₤1.1 billion in January, down from ₤2.1 billion in December and the weakest rate since 1993. Most traders believe Bank of England will reduce its main interest rate to 0.50% on Thursday. The bigger news, however, will be the expected announcement that the central bank will begin to aggressively conduct unsterilized asset purchases to expand its balance sheet. BoE Deputy Governor Gieve retired on Friday and he indicated the key interest rate will need to be raised before it is “obvious on the street that the economy is getting better.” Cable bids are cited around the US$ 1.3340 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9010 level and was supported around the ₤0.8810 level.
Daily Market Commentary provided by GCI Financial Ltd.
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