EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4655 level and was capped around the $1.4735 level. The common currency retraced some some of its recent gains as traders reacted to weakness in U.S. equity markets. Many dealers believe the U.S. dollar’s intraday strength may prove short-lived given the significant amount of pressures weighing on the currency including waning international demand and calls for a new global reserve currency. European monetary officials have recently been very vocal in their support for strength in the U.S. dollar, leading to some speculation the Obama administration may be less in favour of the long-standing official U.S. strong dollar policy than previous administrations have been. Kansas City Fed President Hoenig should start raising interest rates “sooner rather than later” and said the Fed will eventually need to shrink its balance sheet “very gingerly.” Data released in the U.S. today saw MBA mortgage applications climb 16.4% in the most recent week and August consumer credit data will be released later in the North American session. Data to be released tomorrow include weekly initial jobless claims and continuing jobless claims. In eurozone news, most traders expect the European Central Bank will keep interest rates unchanged tomorrow. Data released in Germany today saw August manufacturing orders climb 1.4% m/m, down from a revised +3.1% gain in July, and were off 20.4% y/y in August, worse than July’s 20.1% decline. The European Commission reported eurozone countries must better coordinate their economic policies. The Commission today warned nine countries – including Germany and Italy – that their budget deficits are too high. Other data released in the eurozone today saw EMU-16 Q2 GDP downwardly revised to -0.2% q/q and -4.8% y/y, sharper-than-expected. Many economists are reporting, however, that the eurozone economy likely emerged from a technical recession in the third quarter with a return to nominal economic growth. Euro bids are cited around the US$ 1.4445 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.00 figure and was capped around the ¥89.40 level. The greenback moved to its lowest level since January as traders inched closer to testing the multi-year low of ¥87.10, established in late 2008 and in January 2009. Finance minister Fujii verbally intervened again, saying the greenback’s recent weakness is attributable to low interest rates. Fujii added he is “closely watching” currency movements and added the government may intervene in foreign exchange moves are disorderly or abnormal but also said the yen’s levels “are not extremely abnormal.” There is a sense among some dealers, however, that monetary authorities may try to prevent the ¥87.10 level from being tested as there are large stops rumoured to be in place below. Tokyo three-month interbank offered rates are near their lowest level since December 2006 and Libor for dollar loans remains near record lows. The yen currently enjoys an interest rate premium over the U.S. dollar. Traders are also paying close attention to any decisions from Bank of Japan’s Policy Board regarding an end to its emergency asset purchase programs. Data released in Japan overnight saw foreign reserves at US$ 1.053 trillion as of the end of September. Also, the August leading indicator improved to 80.0 from 72.7 in July while the composite leading index improved to 83.3. The Nikkei 225 stock index climbed 1.11% to close at ¥9,799.60. 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 ¥129.55 level and was capped around the ¥131.10 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 ¥85.55 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 6.8245. Chinese officials have recently indicated they will stimulate domestic final private demand to reduce China’s dependence on foreign trade.
STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5970 level and was supported around the $1.5855 level. Data released in the U.K. today saw the BRC shop price index flat m/m and off 0.1% y/y while the Nationwide September consumer confidence index improved to 71, its highest level in fifteen months. On the political front, the Tories and Labour continue to spat over wage freezes ahead of the general election that must be held by next year. Cable bids are cited around the US$ 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 ₤0.9275 level.
