EURO
The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4560 level and was capped around the $1.4720 level. World Bank President Zoellick reported the U.S. dollar could lose its status as the dominant reserve currency but noted it will remain a “major currency,” adding the euro is a “respectable alternative if the dollar is weak.” European Central Bank President Trichet optimistically reported “There has been no materialization of the deflationary risk in Europe.” Trichet also voiced his objection to a Tobin tax on speculative financial transactions. Speaking about the eurozone economy, Trichet added “The governing council of the ECB considers that it would be premature to declare the crisis over. Now is not the time to exit. However at some point in time exit strategies will have to be implemented.” Trichet remarked that the current level of interest rates in the eurozone economy is “appropriate” and said it is “extremely important” to have a strong dollar. Data released in the eurozone today saw German September consumer price inflation off 0.4% m/m and off 0.3% y/y, the latest data that suggest the risk of inflation there is minimal. Some economists are predicting the German inflation rate will remain below 2% in 2010. Other data saw the EMU-16 August composite index of leading indicators improve 1.8%. In U.S. news, traders will pay close attention to Friday’s September non-farm payrolls report. A reported released by the U.S. government today reported the U.S. Treasury raised US$ 1.202 trillion in new cash this year by selling U.S. Treasury securities and that the Federal Reserve has purchased about 24.1% of the new securities. Fed Governor Warsh on Friday suggested the Fed may need to be more aggressive than previously thought in preventing inflation. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.25 level and was capped around the ¥89.65 level. The pair ceded some significant intraday gains that were earned as traders continued to speculate Japanese government officials will do little to slow the runaway yen. Finance minister Fujii verbally intervened twice overnight saying “The temporary movements (in the yen against the dollar) at present are a little one-sided. Prime Minister Hatoyama said in Pittsburgh that it's desirable if foreign exchange rates are stable, and I feel absolutely the same.” Fujii made it clear that although he does not favour much intervention, he does not want the yen to become a one-way bet, either. Data to be released on 1 October include the quarterly Bank of Japan tankan survey of business sentiment. The Nikkei 225 stock index lost 2.50% to close at ¥10,009.52. 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 ¥129.80 level and was capped around the ¥131.80 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥139.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥85.90 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8220 in the over-the-counter market, down from CNY 6.8235. People’s Bank of China Deputy Governor Hu last week reported G20 nations should consider establishing an international wealth fund to invest a portion of members’ current account surpluses. Chinese financial markets will be closed from 1 October through 8 October for the National Day’s holiday. Some banks are predicting China will register consumer price inflation growth in November.
STERLING
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5765 level and was capped around the $1.5975 level. Bank of England Chief Economist Dale reported the U.K. economy has stabilized but added “it’ll be a long haul” to a full economic recovery. There is speculation that BoE may be getting ready to reduce the overnight deposit rate to a negative percentage so that lenders are not incentivized to stash cash overnight at the central bank. This is a policy action that Sweden’s Riksbank enacted recently. Cable bids are cited around the US$ 1.5720 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.9190 level and was capped around the ₤0.9295 level.
