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Daily Forex Commentary

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The Day of Speeches

Thu, Sep 25 2008, 07:13 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandies Team

The Norwegian central bank kept its key policy rate at 5.75% at yesterday’s rate announcement. The decision was widely expected by the market (and us) and the projections of the key policy rate was also kept steady. The Norwegian currency has together with the Swedish been under pressure since the credit crisis escalated a few weeks back, but regained strength shortly when the central banks intervened and when the “rescue package” was put on the table. This is a logical market reaction in times of crisis as the two currencies will be viewed as too small (and thereby too risky) for the very large investors.
From this point of view, the two Scandinavian currencies remain a buy on dips until the dust settles. Otherwise, the G10 FX market was rather dull yesterday as the high-yielders traded with slightly bullish sentiment and funding traded with bearish sentiment, however, market fluctuation could have been overlooked. Today is the day of speeches since we have a gazillion (and that’s a lot) official speeches from various central bankers. The market participants will be pointing their antennas and tuning in on these speeches due to the last few weeks’ central bank activity. We are still expecting times of slightly negative sentiment as long as the details of the “rescue package” are uncertain. US politicians will be discussing the package in the media until it is voted through in Congress. Uncertainties are never creating positive sentiment in financial markets.

Emerging Markets

By the Emerging Markets Team

Markets remained fragile yesterday as everybody was waiting for news on the proposed US rescue package. The debate continued and it now seems that the 700 bn. USD will only be released little by little and that there will be a limit on how much CEOs in the financial sector can receive. Pres Bush expects to be able to present the final package on Friday and until then markets will remain fragile. Yesterday also saw room for a few local stories on EM in the form of rate announcement from Poland and CPI from Iceland. None of the events attracted much attention as focus in Iceland is rather on concerns for the health of the financial sector.
Credit spreads are still high and EURISK is still flirting with the 140 level. We remain neutral but the risk on ISK is clearly still on the downside. In Poland rates where left on hold but focus was more on the comments following the announcement and possible notes on the aim of adopting the Euro in 2012. Central bank Governor Skrzypek didn’t seem as enthusiastic as PM Tusk and said that 2012 was the first possible date for EMU entry and that it would require amendments to the Constitution. With regard to the monetary policy the MPC would not eliminate further tightening. We still expect one more hike of 25 bps. Today also has room for a few local stories with rate announcements from the Czech Republic and Romania. The former is likely to draw the most attention. CZK has seen support from renewed focus on the EU-convergence story but today’s rate announcement is likely to bring focus back to the new pace of monetary policy. Consensus is for rates to be left on hold but we see 25 bps cut as likely. If this materializes we should see some pressure on CZK. The general direction on EM will still be driven by news from the US.

Today’s Key Events

• 08:10 GfK Consumer Confidence, DEM

• 09:30 Producer Prices, SEK

• 10:00 M3, EUR

• 11:30 Producer Prices, ZAR

• 14:30 Durable Goods Orders, USD

• 16:00 New Home Sales, USD

• 17:00 ECB’s Bini Smaghi speaks, EUR

• 18:00 Bernanke testifies on Fannie Mae situation, USD

• 19:00 FED’s Warsh speaks, USD

• 00:45 GDP, NZD

• 01:30 Consumer Prices, JPY

• 01:30 FED’s Fisher speaks, USD

• 01:45 ECB’s Gonzalez-Paramo and Plosser speak, EUR

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Published on  Thu, Sep 25 2008, 07:28 GMT