EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3885 level and was capped around the $1.4025 level. The common currency continues to suffer form a lack of confidence regarding Greece’s fiscal problems. The European Commission formally endorsed a plan that would give Greece until the middle of 2012 to bring its budget gap below 3%. Five-year Greek credit default swaps tightened to 373.6 bps today from 387.3 bps at yesterday’s close. Portuguese debt widened significantly today – leading to further euro weakness – and unconfirmed chatter that Moody’s was imminently downgrading Spain’s sovereign debt also hurt the euro. Data released in the eurozone today saw January services PMI upwardly revised to 52.5 from the flash estimate of 52.3. Other data released today saw EMU-16 December retail sales flat m/m and off 1.6% y/y. Also, German January services PMI was downwardly revised to 52.2 from 52.7. Most traders believe the European Central Bank will not announce any major policy shift tomorrow. In U.S. news, data released today saw MBA mortgage applications reverse course in the latest week and expand 21.0%, up from the prior reading of -10.9%. Also, January Challenger job cuts were off 70.4% y/y, up from -72.4% y/y. Additionally, January ADP employment was off 22,000 from a revised -61,000 in December and January ISM non-manufacturing improved marginally to 50.5 from the prior reading of 50.1. Tomorrow’s data include weekly initial jobless claims, Q4 non-farm productivity, and December factory orders. Fed Chairman Bernanke was sworn in to his second term today and said the Fed has an enormous challenge ahead of it, principally with regard to unwinding its emergency stimuli programs, compacting its balance sheet, and regulatory reform. Euro bids are cited around the US$ 1.3740 level.
JYP / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.25 level and was supported around the ¥90.05 level. Data released in Japan overnight saw January PMI services decline to 54.5 from 56.8 in December. On the political front, the Hatoyama government may have narrowly missed a missile as prosecutors have decided not to charge ruling DPJ party official Ozawa over a funding scandal. The Group of Seven meeting convenes in northern Canada on Friday and finance minister Kan is expected to discuss the need to liberalize China’s yuan exchange rate further. The government and Bank of Japan continue to disagree over the former’s belief that the latter needs to implement additional monetary easing policies to combat deflation and stimulate final private demand. BoJ Governor Shirakawa last week reported it is a “critical challenge” to root out deflation but said this week that a lack of final private demand is the “root cause of deflation” and there is no “magic wand” to lift prices. The Nikkei 225 stock index lost 0.32% to close at ¥10,404.33. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥126.95 level and was supported around the ¥125.95 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥145.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.20 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8266 in the over-the-counter market, down from CNY 6.8271. Bank of China and the Industrial and Commercial Bank of China called back about CNY 70 billion in loans in H2 January. Bank of China was informed by the government that it must raise its reserve requirement. A rumour circulated through the market yesterday that China will permit the yuan to appreciate after July.
STERLING
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5745 level and was capped around the $1.6070 level. Data released in the U.K. today saw January services PMI decline to 54.5 from 56.8, disappointing economists. On a positive note, Nationwide reported consumer confidence improved. Prime Minister Brown, facing an uphill battle against the opposition Tories at the mandatory general election, said he did the “right thing” by taking on so much debt. The big question facing traders is whether Bank of England’s Monetary Policy Committee will scale back, pause, or extend its bond purchase program when its monetary policy announcement is made on Thursday. Cable bids are cited around the US$ 1.5720 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8770 level and was supported around the ₤0.8710 level.
