EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3585 level and was capped around the $1.3745 level. It was a very volatile day in the global financial markets as traders reacted to a mixed bag of U.S. January employment data that saw non-farm payrolls off 20,000, an improvement from a downwardly revised -150,000. At the same time, the unemployment rate fell to 9.7% from the prior reading of 10.0%, probably reflecting workers who have left the labour force. Factories added an unexpected 11,000 workers to payrolls last month, the first increase since January 2007 and the largest climb since April 2006. Another positive indication is that average hours worked and overtime hours worked both increased. Nonetheless, more than 5.9 million factory jobs have been shed over the last decade. The U.S. employment picture – when coupled with the increase in Q4 2010 gross domestic product – suggests the U.S. economy is on the mend but economists are fiercely split as to when the U.S. economy may be able to record some real jobs growth. Other data released today saw January average hourly earnings up 0.2% m/m and 2.0% y/y while December consumer credit printed at –US$ 1.7 billion, up from the previous reading of –US$ 21.8 billion. Traders will pay close attention to remarks from G7 finance ministers and central bankers on Baffin Island this weekend. In eurozone news, traders continue to punish the common currency on account of mounting debt concerns in Greece and other eurozone countries including Portugal, Spain, Ireland, and Italy. One school of thought suggests that as credit quality for sovereigns deteriorates, the credit quality for non-sovereign debt must worsen too. This would lead to less demand for higher-yielding assets and the euro is suffering as a result. Data released in the eurozone today saw German December industrial production off 2.6% m/m and 7.1% y/y. Euro bids are cited around the US$ 1.3530 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥89.90 level and was supported around the ¥88.80 level. Canadian finance minister Flaherty reported Group of Seven countries will continue to stimulate their economies even as budget deficits mount. Finance minister Kan reported the economy is on the verge of escaping deflation but most economists believe Japan will continue to battle deflation for at least another year. Traders are paying close attention to see how much pressure Japan and other G7 countries exert on China this weekend regarding its yuan currency. BoJ Policy Board member Nakamura yesterday called on the government to improve the country’s fiscal health and said it would be “disastrous” if interest rates move higher on debt woes. Furthermore, Nakamura reported the downward pressure on prices in Japan will continue. Data released in Japan this week saw January PMI services decline to 54.5 from 56.8 in December. The Nikkei 225 stock index lost 2.89% to close at ¥10,057.09. 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 ¥120.70 level and was capped around the ¥123.30 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥138.25 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.30 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8265 in the over-the-counter market, down from CNY 6.8268. The government reported China’s current account surplus weakened 35% y/y in 2009 to US$ 284.1 billion. Beijing reacted coolly yesterday to pressure from the Obama administration regarding its yuan currency, saying “it is China’s own business.” Li also said there “will not be any sudden or major yen appreciation.”
STERLING
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5555 level and was capped around the $1.5775 level. Data released in the U.K. today saw January output producer price inflation up 0.4% m/m and 3.8% y/y while input PPI was up 2% m/m and 8.4% y/y. Sterling is moving lower as traders shun higher-yielding assets and for escalating concerns over the amount of debt the U.K. government has accumulated, including a perception of deteriorating credit quality. As expected, Bank of England’s Monetary Policy Committee yesterday voted to keep its benchmark Bank Rate unchanged at 0.50% and decided to pause its ₤200 billion asset purchase program for the first time since March 2009. BoE kept the door open to enact more purchases if need be in the future. Cable bids are cited around the US$ 1.5340 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8750 level and was supported around the ₤0.8685 level.
SWISS
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0795 level and was supported around the CHF 1.0645 level. Swiss National Bank is rumoured to have intervened during the European session, possibly by purchasing euro for francs around the CHF 1.4620 level. U.S. dollar offers are cited around the CHF 1.0810 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.0795 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 1.6750 level.
