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U.S. Forex Market Commentary

Tue, Dec 2 2008, 22:10 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$ 1.2765 level and was supported around the $1.2560 level.  Traders continue to speculate how large Thursday’s interest rate cut by the European Central Bank will be.  Most dealers anticipate at least a 50bps cut with more eyeing a larger cut.  European Union finance ministers convened yesterday to discuss a proposal that would permit member governments to spend an extra 1.2% of gross domestic product from their budgets to improve investment and consumer demand.  Some countries, including Germany and France, are displeased with a proposed requirement that the European Commission will vet state aid to banks.  Data released in the eurozone today saw October producer price inflation decline 0.8% m/m and rise 6.3% y/y.  These data were weaker-than-expected and increase the chances of a sizable rate cut by the ECB this week.  In U.S. news, Federal Reserve Chairman Bernanke yesterday said more rate cuts in the federal funds target rate below 1.0% are “feasible.”  The Fed is likely to reduce rates around 50bps on 16 December.  Philadelphia Federal Reserve Bank President Plosser speaks today along with Treasury Secretary Paulson.  Euro bids are cited around the US$ 1.2135 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥93.80 level and was supported around the ¥92.65 level.  As expected, Bank of Japan’s Policy Board kept the overnight call rate unchanged at 0.30% but agreed on ¥3 trillion in new measures to provide additional liquidity to the financial system and improve corporate funding.  The central bank will accept a wider range of corporate debt as collateral and will launch a new program to render it easier for banks to make loans to companies.  BoJ Governor Shirakawa reported “These measures alone cannot determine the shape of the economy but they will have an effect in improving corporate finance, which has been worsening. The severity of financing conditions for small to mid-sized firms is higher than that of big companies. But financing at big companies is becoming more severe as conditions for funding via markets with corporate bonds and commercial paper are deteriorating. Since September, the BOJ has been implementing a series of measures, starting with the provision of dollar liquidity. Those measures are still in effect and I expect the impact of the new steps that were decided today to begin to show in addition to those earlier measures. We will, of course, continue to carefully examine economic conditions, but we think we have taken the best possible action at this point. All the recent indicators including industrial output, employment and personal consumption turned out bleak, and we have the December tankan coming out on Dec 15. Based on these economic indicators, what we hear from companies and financial market moves, we will thoroughly examine the economy's underlying conditions and outlook at a policy meeting on Dec 18-19.”  Data released in Japan overnight saw the November monetary base up 1.9% y/y.  Also, the Reuters Tankan was released overnight and reported that confidence among Japanese manufacturers fell at its sharpest pace on record, suggesting the official BoJ Tankan on 15 December will be drastic. The Nikkei 225 stock lost 6.35% to close at ¥7,863.69. U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥119.45 level and was supported around the ¥116.55 level.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥140.90 and ¥78.00 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8870 in the over-the-counter market, up from CNY 6.8848.  A government think tank said it is “normal and natural” that the yuan is depreciating because “the yuan has risen about 20 per cent against the dollar. It's quite normal to see some adjustment. Adjustment is inevitable, but how to adjust is unclear.”  Top Chinese economic officials will convene next week to determine what policies are needed to derive 8% economic growth in 2009.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5065 level and was supported around the $1.4775 level.  Data released in the U.K. today saw the November CIPS construction index decline to 31.8 from 35.1 in October.  Most traders expect Bank of England Monetary Policy Committee will reduce rates by at least 100bps on Thursday.  Cable bids are cited around the US$ 1.4315 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8550 level and was supported around the ₤0.8435 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2095 level and was supported around the CHF 1.1995 level.  Data released in Switzerland today saw November consumer price inflation fall 0.7% m/m with the annual rate falling sharply to 1.5% from 2.6%. U.S. dollar offers are cited around the CHF 1.2350 level.  The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5360 level while the British pound weakened vis-à-vis the Swiss franc and tested offers around the CHF 1.8145 level.

Published on  Tue, Dec 2 2008, 22:13 GMT