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U.S. Forex Market Commentary

Tue, Aug 19 2008, 20:10 GMT
by GCI Financial Team

GCI

EURO

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4790 level and was supported around the $1.4630 level.  The pair added to yesterday’s gains and this was partially fueled by a return to the $116 handle by NYMEX crude oil futures.  Data released in the U.S. today saw July housing starts fall 11% to an annualized 965,000 rate, the lowest level since March 1991.  Also, July headline producer price inflation was up 1.2% with the core rate up 0.7% m/m, the largest rise since November 2006. Core inflation is now up 9.8% y/y at the headline level and 3.5% at the core level.  In eurozone news, the German ZEW economic expectations index improved to -55.5 in August from -63.9 in July, exceeding expectations.  Also, German producer prices were up 2.0% m/m and 8.9% y/y, the sharpest acceleration since October 1981.  These data evidence the conundrum faced by the European Central Bank, specifically how to adjust monetary policy to reflect decelerating economic growth and accelerating inflation pressures.  Comments from Dallas Fed President Fisher will be closely watched later in the U.S. session.  Euro bids are cited around the US$ 1.4315 level.

 
JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the US$ 109.65 level and was capped around the ¥110.35 level.  The pair continues to orbit the ¥109.95 level, representing the 50% retracement of the move from ¥124.15 to ¥95.70.  As expected, Bank of Japan’s Policy Board voted unanimously to keep the overnight call rate unchanged at 0.50%.  The central bank decided to downgrade its assessment of the economy, noting economic growth is weaker on account of slower exports growth and elevated energy and raw materials prices.  BoJ Governor Shirakawa was not as dovish as some expected him to be and did not suggest Japanese interest rates would be coming down, indicating the chance of the economy “deteriorating sharply is low.”  The Nikkei 225 stock index shed 2.28% to close at ¥12,865.05.  Dollar bids are cited around the ¥106.40 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥161.90 level and was supported around the ¥160.85 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥205.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥99.85 level.  The Chinese yuan appreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8655 in the over-the-counter market, down from CNY 6.8760.

 
STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8675 level and was supported around the $1.8535 level.  Cable came close to establishing a new multi-year low dating to October 2006 before bouncing back.  Bank of England Monetary Policy Committee member Besley reported U.K. interest rates must be maintained at a “suitable level” until price pressures have lessened.  Besley added “This spiral has to be nipped in the bud and that means having interest rates at a suitable level until the threat of higher inflation has.  All being well, inflation will fall again next year and will be much closer to the two percent target by the end of 2009. But that will only happen if people don't chase inflationary wage increases.”  Minutes of the August MPC meeting will be published tomorrow and traders will pay very close attention to the vote tallies.  Cable bids are cited around the $1.8015 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7920 level and was supported around the ₤0.7870 level.

 
SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0910 level and was capped around the CHF 1.1030 level.  The pair reached its highest level since 18 February before coming off.  Swiss National Bank President Roth was quoted as saying the Swiss banking sector has not completely put the subprime crisis behind it yet but it has made advancements.  Roth also suggested SNB is unlikely to raise interest rates when it next convenes.  U.S. dollar offers are cited around the CHF 1.1135 level.  The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6145 level while the British pound weakened vis-à-vis the Swiss franc and tested bids around the CHF 2.0355 level.

Published on  Tue, Aug 19 2008, 20:11 GMT