EURO
The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2760 level and was capped around the $1.2905 level. Traders are positioning themselves ahead of tomorrow’s U.S. January non-farm payroll and unemployment numbers. Many economists believe the economy lost at least 300,000 jobs last month and expect possible downward revisions to November’s and December’s tallies. Many data were released in the U.S. today. First, December factory orders were off 3.9%, the fifth consecutive monthly decline. Second, Q4 U.S. productivity jumped an annualized 3.2%, above expectations. Unit labour costs were up an annualized 1.8% and productivity was up 2.8% in 2008, the highest rate in five years. Third, weekly initial jobless claims were up 35,000 to 626,000 last week, the highest total since October 1982, while continuing jobless claims reached a record high near 4.8 million. In eurozone news, the European Central Bank kept its main refinancing rate unchanged at 2.0% today, as expected. European Central Bank President Trichet said a rate cut at this time would not be “appropriate.” The ECB has slashed interest rates by 225bps from October’s peak of 4.25% and most traders believe the ECB will cut rates again in March, probably by 50bps. Trichet added “zero interest rates at this moment” are not appropriate. Trichet also signaled new staff economic forecasts will be released in March. German Chancellor Merkel called for a new global economic charter to prevent future economic emergencies. The G10 will convene in Rome next week and will likely discuss protectionist policies and exchange rate volatility. Data released in Germany today saw December industrial orders register their largest annual decline in more than twenty years, off 27.7% y/y. Euro bids are cited around the US$ 1.2475 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.25 level and was supported around the ¥89.20 level. Bank of Japan Policy Board member Mizuno reported “It's not too much to say falling exports are triggering a downward spiral of production, incomes and spending.” Mizuno intimated the central bank will study ways to purchase more debt and many BoJ-watchers believe this will entail more shorter-term Japanese government bonds purchases. Deputy Governor Nishimura this week said the next policy steps are to contain market interest rates and the central bank this week indicated it will purchase up to ¥1 trillion in equities held by Japanese financial institutions. Many traders believe Bank of Japan and the Japanese government will soon be forced to resort to drastic actions to counter Japan’s escalating deflationary pressures. Q4 2008 GDP data for Japan are scheduled for release on 16 February and are likely to show Japan’s economy shrank 3.1% late last year. Prime Minister Aso today reaffirmed that Japan is likely to continue investing its foreign reserves in U.S. Treasuries. The Nikkei 225 stock index yesterday climbed 2.73% to close at ¥8,038.94. 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 ¥118.90 level and was supported around the ¥114.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥135.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥79.35 level.
