EURO
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2780 level and was supported around the $1.2675 level. The common currency reversed course and moved to its highest level this week after the release of better-than-expected U.S. second quarter gross domestic product data. It was reported the economy expanded an annualized 1.6% q/q in Q2, down from Q1’s 2.4% pace but stronger-than-expected on higher-than-reported personal consumption. Other data saw the Q2 GDP price index tick higher to 1.9% while the Q2 core PCE price index was up 1.1% q/q. Finally, the final August University of Michigan consumer sentiment survey moved lower to 68.9 from the previous print of 69.6. U.S. debt markets fell sharply today with the 30-year U.S. Treasury bond off more than three points, one of its most sizable declines in years. The common currency also moved higher after Federal Reserve Chairman Bernanke indicated the Fed “will do all that it can” to extend the U.S. economic recovery. Bernanke noted “the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.” Bernanke suggested the “preconditions” for economic growth in 2011 “are in place” and added the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” One strategy Bernanke alluded to was shifting the composition of its bond reinvestment strategy. On 10 August, the Federal Open Market Committee announced it would reinvest proceeds from maturing mortgage-backed securities into U.S. Treasuries. August non-farm payrolls data will be released next Friday and are forecast to have grown around 40,000 to 50,000 with the unemployment rate ticking higher to 9.6%. In eurozone news, the German July import price index was off 0.2% m/m and up 9.9% y/y while provisional August consumer price inflation for most German states moved lower, taking the national CPI index to 0.0% m/m and 1.0% y/y at the headline level and up 0.0% m/m and 0.9% y/y at the harmonized level. European Central Bank President Trichet spoke at the Jackson Hole symposium today and warned additional government spending would be “very dangerous,” adding fiscal consolidation need to be “ambitious.” Euro offers are cited around the US$ 1.3240 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥85.45 level and was supported around the ¥84.25 level. Prime Minister Kan stepped up the verbal rhetoric overnight, saying “We are ready when necessary to take bold measures” in the currency markets. Kan added he expects Bank of Japan to take action “swiftly,” noting he will speak with BoJ Governor Shirakawa after he returns from the U.S. BoJ’s Policy Board is scheduled to meet on 6-7 September and there is talk the central bank may meet earlier, leading to speculation policymakers may enact and implement additional monetary easing. Even if Japan does not conduct yen-selling intervention, it is likely the government will force the BoJ to expand monetary policy further. Prime Minister Kan is under pressure to implement more policies to improve the Japanese economy, especially ahead of next week’s election within the ruling Democratic Party of Japan. An outline of stimulus measures is expected to be released by 31 August. Japanese monetary authorities have not officially intervened in the foreign exchange market since March 2004. Data released in Japan overnight saw the July jobless rate tick lower to 5.2% from 5.3% in June while July overall household spending climbed 1.1% y/y. On the inflation front, July national consumer price inflation was off 0.9% y/y at the headline level and off 1.5% y/y at the ex-food, energy level. August Tokyo-area consumer price inflation narrowed to -1.0% y/y at the headline level and -1.4% y/y at the ex-food, energy level. The Nikkei 225 stock index climbed 0.69% to close at ¥8,906.48. U.S. dollar bids are cited around the ¥84.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥108.85 level and was supported around the ¥106.95 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥132.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.10 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7980 in the over-the-counter market, down from CNY 6.7996. Data released in China overnight saw the August MNI business conditions survey narrow to 62.16 from 64.94. Money market rates increased the most in two months ahead of Industrial and Commercial Bank of China’s bond sale. Sources indicate Chinese officials convened recently and it is “very unlikely” People’s Bank of China will raise interest rates this year. PBoC adviser Xia Bin reported China will not relax its 2010 lending target of CNY 7.5 trillion.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5440 level and was capped around the US$ 1.5540 level. Data released in the U.K. today saw Q2 gross domestic product up 1.2% q/q and 1.7% y/y, stronger-than-expected on higher private consumption. Q2 total business investment was off 1.6% q/q and up 1.9% y/y. Bank of England Monetary Policy Committee member Weale this week warned the U.K. economy faces a “significant” risk of falling into a double-dip recession. Mortgage lending has tumbled 18.5% in the U.K. over the past year yet inflation remains significantly elevated and may require official higher rates from the central bank. Cable bids are cited around the US$ 1.5385 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8230 level and was supported around the £0.8175 level.
SWISS
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0305 level and was supported around the CHF 1.0220 level. Swiss National Bank member Jordan today said he supports a capital surcharge for large banks, adding it is “crucial” to have more and better capital. SNB Chairman Hildebrand this week reiterated economic uncertainty remains elevated and said the central bank’s balance sheet has risks. Data released in Switzerland saw the August KOF Swiss leading indicator tick lower to 2.18. U.S. dollar offers are cited around the CHF 1.0980 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3120 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5990 level.
