EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3345 level and was supported around the $1.3110 level. Traders chased yield plays as risk appetite returned following the U.S. Treasury’s release of US$ 350 billion in funds under the Troubled Asset Relief Program. This second tranche of bailout funds will likely be allocated relatively quickly by the incoming Obama administration. Obama is said to be seeking an additional US$ 825 billion in fiscal stimulus to counter the deepening economic recession. Data released in the U.S. today saw December headline consumer price inflation off 0.7% with the ex-food and energy component flat. Other data saw December industrial production off 2% with capacity utilization lower at 73.6%. Additionally, the University of Michigan consumer sentiment survey for mid-January improved to 61.9 from 60.1, above expectations and the highest reading since September’s print of 70.3. San Francisco Federal Reserve President Yellen said a decline in inflation below one per cent “would be undesirable, unwelcome, and we would fight it.” Other data saw November net capital inflows decline to US$ 56.8 billion from a revised October of US$ 260.6 billion. In eurozone news, the EMU-15 November trade deficit printed at -€7 billion, down from a €500 million surplus in October. German exports were off a record 10.6% m/m in November. European Central Bank reported “To the question is 2 percent the lowest level that you will attain', I say ‘no.’ If you ask me the question 'if you go to zero', I would say ‘no.’” The ECB cut rates yesterday by 50bps and most traders expect another ECB rate cut in March. Chicago Fed President Evans reported “It could be useful (for the Fed) to purchase significant quantities of longer-term securities such as agency debt, agency mortgage-backed securities and Treasury securities.” Minneapolis Fed President Stern said the expansion of the Fed’s balance sheet to more than US$ 2 trillion does not pose much risk to inflation. Atlanta Fed President Lockhart reported “If the second $350 billion tranche of the TARP (Troubled Asset Relief Program) in fact is deployed, in all likelihood, some of that will be deployed to inject further capital into banks.” Fed Governor Duke reported “The Board is in the final stages of developing a foreclosure mitigation policy for use by the Federal Reserve Banks.” Euro bids are cited around the US$ 1.3055 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.75 level and was supported around the ¥89.70 level. Risk appetite returned to the market after Bank of America received a large bailout from the U.S. government to help finance its acquisition of Merrill Lynch and Citigroup finally decided to split into two entities and shed businesses that lost money. Bank of Japan Governor Shirakawa today reported “sustained global market tensions are affecting financial institutions' businesses through stock price falls and rising credit costs.” BoJ’s Policy Board convenes next week and may decide to purchase corporate bonds outright. Nikkei reported the BoJ may decide to purchase up to ¥2 trillion in commercial paper to enhance short-term corporate financing. The central bank lowered its assessment of regional economies in its regional report released today. The Nikkei 225 stock index climbed 2.58% to close at ¥8,230.15. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥120.70 level and was supported around the ¥117.75 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥135.70 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥81.40 level. The Chinese yuan came off vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8374 in the over-the-counter market, up from CNY 6.8363. People’s Bank of China Governor Zhou reported “The international financial crisis is still spreading, and the risk of global recession is increasing. China's economic development will face a harsher and more complicated situation.”
STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.3345 level and was supported around the $1.3110 level. Bank of England Deputy Governor Gieve reported the U.K. economy will suffer its worst pullback in decades in 2009. Gieve added “The authorities both here and overseas need to consider whether further action on interest rates (or other monetary measures) or fiscal action is required. They need also to consider whether to do more to underpin the confidence among banks and among investors that is necessary to support the lending the economy needs to emerge from recession.” The U.K. government may announce new plans next week to enhance bank lending measures. U.K. bids are cited around the US$ 1.4590 level. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.9010 level and was supported around the ₤0.8845 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1010 level and was capped around the CHF 1.1245 level. Data released in Switzerland today saw December producer and import prices fall 0.7% m/m and rise 0.4% m/m. SNB member Jordan yesterday said inflation does not pose a problem for the central bank and added the SNB may use other facilities to ease credit strains. U.S. dollar offers are cited around the CHF 1.1550 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4880 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 1.6405 level.
