EURO
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3795 level and was supported around the $1.3670 level. The common currency continues to claw back some of the ground it lost recently following eurozone sovereign debt concerns. Greece continues to assert that it will not require financial assistance to manage its mountain of maturing debts. If a bailout is required, the most likely candidates include Germany, the European Union, and the International Monetary Fund. The risk of contagion is possible with Italy, Spain, and Portugal being the most likely candidates. ECB President Trichet today said the ratings agencies will respect Greece’s “courageous” fiscal consolidation and said the European Monetary Authority concept deserves consideration. Trichet also said “confidence” is the “main factor” for continuing the economic recovery and said current rates “are appropriate.” Data released in the eurozone today saw EMU-16 January industrial production climb 1.7% m/m and 1.4% y/y while German February wholesale prices were up 0.1% m/m and 2.1% y/y. In U.S. news, there are reports that President Obama will nominate San Francisco Fed President Yellen to replace the retiring Donald Kohn as Vice Chairman of the Federal Reserve. Data released in the U.S. today saw February advance retail sales climb 0.3%, up from a downwardly-revised previous reading of 0.1%, while the ex-autos component was up 0.8%, an improvement from January’s 0.5% revised print. Also, mid-March University of Michigan consumer sentiment came in at 72.5, down from the final February tally of 73.6. Additionally, January business inventories were unchanged, down from +1.0% in December. Data to be released on Monday include March Empire State manufacturing, January TICS flows, February industrial production, February capacity utilization, and the March NAHB housing market index. Euro bids are cited around the US$ 1.3335 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.950 level and was supported around the ¥90.15 level. Many traders are concluding an additional quantitative easing measure by Bank of Japan next week seems like a foregone conclusion. Central bankers are known to be concerned that deflationary pressures are likely to remain in Japan through at least fiscal year 2012 and the Japanese government continues to pressure the BoJ into loosening policy further. The central bank may expand a ¥10 trillion fund that provides funding to banks when policymakers convene on 16-17 March and this is important because an unlimited uncollateralized loan facility expires on 31 March. The central bank remains under significant pressure to do more to combat the deflation problem further. BoJ Governor Shirakawa and other Policy Board members have recently indicated deflationary pressures are persisting because there is insufficient final private demand. Shirakawa overnight said he is “not against inflation targeting” and said the central bank should not make policy based on short term price movements. He also said that additional Japanese government bond purchases would mean the central bank will sell them eventually. Concerning the yen, Shirakawa said the central bank’s accommodative policy is impacting the yen and “proper action needs to be taken.” Data released in Japan today saw January revised industrial output climb 2.7%. Prime Minister Hatoyama said the government must take “firm measures” to prevent further yen appreciation because a strong yen is not reflective of a “Japanese economy and industries that aren’t necessarily strong.” Former corporate executive Yoshihisa Morimoto has been nominated to become a member of the BoJ Policy Board. The Nikkei 225 stock index gained 0.81% to close at ¥10,751.26. 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 ¥125.00 figure and was supported around the ¥123.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥137.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.80 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8256 in the over-the-counter market, down from CNY 6.8266. People’s Bank of China Vice Governor Su Ning reported a stronger yuan will not offer help in resolving the imbalances between China and called on the U.S. to not politicize the yuan’s appreciation. The U.S.’s trade deficit with China increased to US$ 18.3 billion in January from US$ 18.14 billion in December. PBoC’s Guo said consumer price inflation may increase further in the first quarter and said the country’s 2010 loan targets can support 8.5% annual economic growth. Many PBoC-watchers believe the central bank may tighten monetary policy further imminently.
STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5170 level and was supported around the $1.5025 level. Bank of England Chief Economist and Monetary Policy Committee member Dale reported that from the time quantitative easing was implemented last year, “the economy has stabilized, household and business confidence have recovered, and financial market conditions have improved.” Dale noted the BoE is poised to make additional purchases of assets if required but noted the central bank could also withdraw monetary stimulus at any time. A Bank of England quarterly inflation survey was released this week in which U.K. inflation expectations climbed to their highest level since November 2008. This increase in expectations has added to speculation that interest rates could rise. Consumers now expect inflation to be 2.5% higher one year from now, up from the previous reading of 2.4%. The other big factor in the U.K. now remains the general election. The big wildcard for sterling remains the U.K. General Election. Prime Minister Brown is expected to lose to Tory leader Cameron but Cameron may not be able to form a majority government if he wins, and this could lead to a weaker pound. Cable bids are cited around the US$ 1.4455 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the US$ 0.9110 level and was supported around the $0.9070 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0575 level and was capped around the CHF 1.0695 level. As expected, Swiss National Bank this week kept its three-month Swiss franc Libor target rate unchanged at 0.2% today. SNB reported ‘The Swiss National Bank is maintaining its expansionary monetary policy. It will act decisively to prevent an excessive appreciation of the Swiss franc against the euro.” SNB is forecasting the Swiss economy will expand about 1.5% this year. SNB Chairman Hildebrand said the main risks to Swiss economic growth are “external” and reiterated foreign exchange intervention remains one of its tools. January M2 money supply growth was an annualized 16.5%. U.S. dollar offers are cited around the CHF 1.1045 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4580 level while the British pound moved lower and tested bids around the CHF 1.6035 level.
