By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3495 level and was capped around the $1.3690 level. Traders continue to punish the common currency on account of the ongoing fiscal problems of eurozone members including Greece. The Greek crisis is unlikely to be resolved for weeks, with Greece expected to provide the European Union with an interim update in mid-March on how it is improving its fiscal situation. Many dealers believe bilateral or multilateral financial assistance will be provided involving some eurozone members but Germany continues to report there will be no financial assistance until Greece helps itself. Data released in the eurozone today saw the February Ifo headline business climate index recede to 95.2 from 95.8 in January while the current assessment index weakened and the expectation survey ticked higher. In U.S. news, some dealers remain critical of the Fed’s decision to lift the discount rate last week. The Federal Deposit Insurance Corporation reported “problem” banks climbed to their highest level in seventeen years. The FDIC noted there were 702 banks on their “problem” list representing US$ 402.8 billion in assets, a 27% q/q increase. There will invariably be more bank failures in the U.S. in 2010. The U.S. Treasury today expanded its Supplemental Financing Program, a move that will likely help the Fed to tighten policy further. Fed Chairman Bernanke will testify in Congress tomorrow and Thursday. Data released in the U.S. today saw the December CaseShiller home price index decline 3.08%, up from a revised -5.34%, and was up 0.32% m/m from a revised 0.26%. Also, the February Richmond Fed manufacturing index improve to +2 from the prior reading of -2 and February consumer confidence fell sharply to 46.0 from a revised 56.5 in January. Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.90 level and was capped around the ¥91.30 level. Minutes from Bank of Japan’s 25-26 January Policy Board meeting were released overnight in which policymakers reported fiscal conditions are “serious.” Last week, the central bank voted to not expand monetary policy further, much to the anger of the Hatoyama government. In December, the central bank reported gross domestic product will expand 1.3% in the year beginning 1 April. Finance minister Kan yesterday called on Bank of Japan to “make more efforts” to combat deflation, just days after suggesting the central bank target an inflation target. BoJ Governor Shirakawa yesterday said Japan is “providing ample liquidity” and again called on the government to rein its massive public debt burden. Prime Minister Hatoyama on Sunday indicated he “sincerely” hopes the BoJ will implement “monetary policy appropriately.” The spat between the central bank and government is worsening just days after data revealed deflationary pressures are deepening in Japan. Vice finance minister Minezaki suggested the government should suspend a temporary measure that reduces taxes on income from dividends and capital gains. The central bank last week voted to keep monetary policy unchanged and some dealers expressed surprise the central bank did not expand its monthly Japanese government bond buying operations. Some traders have already starting repatriation inflows of yen back to Japan ahead of the fiscal year end at the end of March. Notably, interbank yen borrowing costs fell and their premium over U.S. dollar loans fell to their lowest level since yen rates moved above dollar rates on 24 August last year – the first time this happened in sixteen years. The spread between three-month yen loans and three-month dollar loans is now around 0.09 bps. Three-month yen Libor is now trading around 0.25313%. The Nikkei 225 stock index lost 0.47% to close at ¥10,352.10. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥121.55 level and was capped around the ¥124.50 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥138.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.00 figure. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8264 in the over-the-counter market, down from CNY 6.8265. Chinese financial markets were closed last week for the Chinese New Year holiday. Chinese leaders this week said the country will maintain an “appropriately loose” monetary policy in 2010 and seek to balance the objectives of fostering growth and managing inflation expectations. Some media reports are suggesting China is becoming increasingly concerned with the “carry trade” in which hot money inflows are finding their way into the Chinese financial system after borrowings are being made in cheaper currencies like the U.S. dollar.
₤
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5390 level and was capped around the $1.5575 level. Bank of England Governor King today testified the U.K. economy may need additional quantitative easing measures to extend its “nascent” economic recovery. King cited several economic risks including the “stalled” economic recovery in Europe but downplayed the market’s concerns over U.K. sovereign debt. Data released in the U.K. today saw BBA January mortgage approvals decline to 35,100 from 45,650, the first decline since March 2009. Cable bids are cited around the US$ 1.5340 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8750 level and was capped around the ₤0.8835 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0845 level and was supported around the CHF 1.0715 level. Swiss National Bank is rumoured to have bought euro for francs again today in what would be the latest intervention move. Data released in Switzerland today saw the January UBS consumption indicator improve to 1.36 from 1.19, its highest level since September 2008. U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4680 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6735 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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