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U.S. Forex Market Commentary

Mon, Oct 6 2008, 00:54 GMT
by GCI Financial Team

GCI

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3770 figure and was capped around the $1.3900 figure.  The common currency yesterday reached its lowest level since September 2007 as the U.S. House of Representatives inched closer to voting on the US$ 700 billion bailout bill.  Most dealers believe the House will pass the legislation today and provide a much-needed infusion of confidence on Main Street and much-needed infusion of capital on banks’ balance sheets.  Data released in the U.S. today saw September non-farm payrolls shed 159,000 jobs, more than expected, while the unemployment rate printed at 6.1%.  There was a 4,000 cumulative upward revision to August’s and July’s jobs tallies and average hourly earnings were up +0.2%.  Notably, the September jobs loss tally was the worst since March 2003.  Economists are increasingly adopting the view the U.S. economy is likely in a full-blown recession.  Remarkably, the U.S. dollar has remained fairly well-bid despite the massive problems in the U.S. economy and many dealers attribute this to ongoing elevated interbank borrowing rates.  In eurozone news, EMU-15 retail sales growth rose 0.3% m/m in August. In contrast, EMU-15 September PMI services was near a five-year low last month and this suggests the eurozone economy could be in a recession.  Euro bids are cited around the US$ 1.3320 level.

 
JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥104.45 level and was capped around the ¥105.45 level.  The markets continue to speculate Bank of Japan and other central banks may enact a coordinated global interest rate cut but economics minister Yosano said “solely lowering the interest rate target, in reality, would not have much impact.”  BoJ’s Policy Board is likely to keep its overnight call rate unchanged at 0.50% next week. Finance minister Nakagawa called on major countries to “cooperate with each other.”  The Nikkei 225 stock index lost 1.94% to close at ¥10,938.14.  U.S. dollar bids are cited around the ¥102.45 level.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥144.55 level and was capped around the ¥146.45 level.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥184.85 and ¥92.40 levels, respectively.

 
STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7575 level and was capped around the $1.7735 level.  Technically, today’s intraday high was right around the 76.4% retracement of the move from $1.7440 to $1.8670.  Bank of England Monetary Policy Committee meets next week and many dealers believe the central bank will reduce its repo target rate by at least 25bps to 4.75%.  The central bank broadened its list of eligible collateral for repo transactions today in a bid to provide more liquidity to the financial system.  MPC member Blanchflower reiterated he will vote for a rate cut next week and it is notable he preferred a 50bps cut last month.  Data released in the U.K. today saw the CIPS services PMI survey fall to 46.0 in September from 49.2 in August, the worst reading in twelve years.  Additionally, BoE reported housing equity withdrawal turned negative in Q2 for the first time in a decade and this suggests final private demand could remain weak.   Cable bids are cited around the $1.7420 level.   The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7845 level and was supported around the ₤0.7810 level.

 
SWISS

The Swiss franc lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1375 level and was supported around the CHF 1.1260 level.  Data released in Switzerland today saw September consumer price inflation rise 0.1% m/m and 2.9% y/y while core inflation reached a twelve-year high at 2.1%.  U.S. dollar offers are cited around the CHF 1.1390 level.  The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5615 and CHF 1.9330 levels, respectively.

Published on  Mon, Oct 6 2008, 00:55 GMT