EURO
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2760 level and was supported around the $1.2660 level. Dealers moved back into euro as risk aversion fell marginally overnight on two successful debt issuances by eurozone members. Simultaneously, however, yields on some credit default swaps for some eurozone countries expanded to all-time highs, evidencing jitters about sovereign credit quality. The Federal Reserve released its monthly Beige Book report today and cited “widespread signs of a deceleration” between mid-July and the end of August. Some regional Fed banks noted “economic growth at a moderate pace” while others saw “positive developments or net improvements.” This Beige Book adds to the view that even though growth in the U.S. is decelerating, “the preconditions for a pickup in growth in 2011 appear to remain in place.” Notably, today’s Beige Book contrasted with July’s Beige Book that suggested “economic activity has continued to increase, on balance.” U.S. economic data released today saw MBA mortgage applications decrease 1.5% while July consumer credit printed at –US$ 3.6 billion. In eurozone news, the European Central Bank will publish its September monthly report tomorrow and most traders expect the central bank will not begin to unwind monetary policy before Q1 2011 at the earliest. Data released in Germany today saw the July trade balance print at €13.5 billion while the July current account lessened to €9.5 billion. Also, German July industrial production was up 0.1% m/m and 10.9% y/y. French data saw August Bank of France business sentiment remain steady at +101 while the July trade balance worsened to -€4.2 billion. European Central Bank member Makuch reported the eurozone economy has entered a “self-sustaining growth path” while ECB member Weber said he expects a deal on Basel III regulations this weekend. 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 ¥84.05 level and was supported around the ¥83.35 level. As expected, Bank of Japan’s Policy Board maintained its economic assessment unchanged, noting economic growth may “temporarily” cool from its current “moderate recovery.” The central bank will publish its semi-annual outlook next month and is likely to be more bearish than in recent forecasts. Notably, the central bank reported exports growth and production growth have been decelerating. There is also speculation Bank of Japan may increase its outright purchases of Japanese government bonds despite reluctance from monetary policymakers. Traders reduced exposure to yen as they were encouraged by some eurobond debt sales including new issues from Portugal and Poland. Finance minister Noda said he is prepared to take “bold” steps on exchange rates if required. The Japanese government is expected to increase its GDP growth estimate for the currency fiscal year to an annualized 1.5% from the prior estimate of 0.4%. The BoJ predicted in July the economy will expand 2.6% in the year to March 2011. Traders are closely monitoring the DPJ leadership election between Prime Minister Kan and Ichiro Ozawa on 14 September. DPJ officials today called on Bank of Japan to abolish its self-imposed bond purchase limits so that the central bank can finance more stimulus spending. Data released in Japan overnight saw the August money supply grow more-than-expected while August bank lending was off 1.7% y/y. Additionally, July machine orders were up more-than-expected at +8.8% m/m and 15.9% y/y. Moreover, the July trade balance increased to ¥916.1 billion and the July current account total printed at ¥1.675 trillion. Other data saw August bankruptcies improve while the August economy watchers’ survey worsened significantly. The Nikkei 225 stock index lost 2.18% to close at ¥9,024.60. 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 ¥107.10 level and was supported around the ¥105.80 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥130.30 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7912 in the over-the-counter market, up from CNY 6.7877. The Chinese government this week reported “We firmly oppose politicizing trade and economic issues and our yuan exchange rate reform cannot be pressed ahead under external pressure.” White House National Economic Council head Summers has been in Beijing discussing economic issues with the government.
STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5530 level and was supported around the US$ 1.5340 level. Data released in the U.K. today saw August Halifax house prices up 0.2% m/m while July industrial production was up 0.3% m/m and 1.9% y/y. Also, July manufacturing was up 0.3% m/m and 4.9% y/y and the August NIESR GDP estimate came in at +0.7%. U.K. banking giant Barclays called on Bank of England to move to an inflation target range because the central bank’s current need to “turn a blind eye” to accelerated price increases is eroding its credibility. Notably, consumer price inflation has exceeded two per cent by more than one percentage point for the past five months. Some BoE-watchers are calling for the central bank to adopt a looser target of around 1% to 3%. Bank of England’s Monetary Policy Committee is expected to keep interest rates unchanged this week and is likely to keep its asset purchase target unchanged at £200 billion. The central bank remains in a predicament that finds it trying to deal simultaneously with elevated rates of inflation and depressed levels of economic growth. Cable bids are cited around the US$ 1.5115 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8200 figure and was capped around the £0.8270 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0060 level and was capped around the CHF 1.0140 level. Data released in Switzerland this week saw the August unemployment rate remain steady at 3.6%. August producer and import prices will be released on 13 August. This week, Swiss National Bank reported its foreign currency holdings fell to CHF 218.1 billion in August from CHF 219.5 billion in July, partially reflecting gains in the franc. In June, the SNB reported it will intervene less in the markets by selling fewer francs after its currency holdings quadrupled. The SNB has likely not officially intervened since June. 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 1.2920 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5690 level.
