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U.S. Forex Market Commentary

Tue, Nov 25 2008, 22:06 GMT
by GCI Financial Team

GCI

EURO

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3080 level and was supported around the $1.2805 level.  The U.S. dollar extended recent losses as risk appetites continued to increase, especially after today’s announcement from the Federal Reserve that it is sponsoring a US$ 600 billion program to purchase mortgage-relate debt and securities and a US$ 200 billion facility to purchase consumer debt securities.  This is the Fed’s latest attempt to jump-start the economy through purchasing asset-backed securities.  Data released in the U.S. today saw preliminary Q3 GDP growth downwardly revised to -0.5% from the initial estimate of 0.3%, rendering last quarter the sharpest economic pullback since Q3 2001.  Other data saw November consumer confidence improve to 44.9 from 38.8 in October while the S&P/ Case Shiller November house price index fell a record 17.4% y/y.  In eurozone news, Eurogroup chairman Juncker estimates the European Union’s fiscal stimulus plan should add at least one per cent to GDP.  The French government will announce a major economic stimulus package within the next ten days and German finance minister Steinbrueck warned the economy may shrink 1% in 2009.  The European Commission is expected to formally propose an economic stimulus package tomorrow to help counter recessionary pressures.  ECB member Provopoulos remains optimistic deflation can be averted in the eurozone.  Data released in the eurozone today saw French business confidence fall more-than-expected in November to its lowest level since 1993 at 80 while the German GfK December consumer indicator came in a 2.2.  Euro bids are cited around the US$ 1.2135 level.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥95.15 level and was capped around the ¥97.40 level.  As expected, Bank of Japan lowered its economic assessment, noting exports and output are decreasing.  Last week, the central bank characterized the economy as “increasingly sluggish.”  BoJ officials will remain particularly sensitive to the increasing global threat of deflation, especially after Japan suffered from a decade-long crippling bout of price deflation.  Data released in Japan overnight saw the October corporate services price index fall 1.4% y/y, the latest indication that deflation is a mounting threat.  Japan’s output gap – a measure of the supply and demand balance – expanded to its most negative reading in three years in Q3 at -0.8%.  Prime Minister Aso is likely to propose a second extra budget early in 2009.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥122.60 level and was capped around the ¥126.20 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥143.75 and ¥79.35 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8260 in the over-the-counter market, down from CNY 6.8284.  The World Bank is forecasting Chinese GDP growth will decelerate to 7.5% in 2009.

STERLING

The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5395 level and was supported around the $1.4985 level.  Bank of England Monetary Policy Committee officials testified today and Governor King said U.K. banks must resume lending in order to avert a sharp recession.  King added the central bank “will take whatever action we feel is necessary on interest rates to steer the economy back into calmer waters.”  King also suggested minimum capital requirements may be reduced to ensure that banks have sufficient access to capital.  Moreover, he expressed support for the Brown government’s announcement yesterday that it is enacting a ₤20 billion stimulus package.  Deputy Governor Bean said the decline in VAT will accelerate some spending and warned the Bank Rate may need to be lowered “more aggressively” to achieve desired results.  Data released in the U.K. today saw October BBA mortgage approvals off 52% y/y. Cable bids are cited around the US$ 1.4315 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8465 level and was capped around the ₤0.8565 level.

Published on  Tue, Nov 25 2008, 22:08 GMT