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U.S. Forex Market Commentary

Wed, Dec 3 2008, 22:15 GMT
by GCI Financial Team

GCI

EURO

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2600 figure and was capped around the $1.2740 level.  Data released in the U.S. today were quite weak and this increased the chances the Federal Open Market Committee will respond with an aggressive rate cut on 16 December.  Fed funds futures are fully pricing in a 50bps rate cut to 0.50% this month and the implied probability of a cut of 75bps to 0.25% reached 54% earlier today from 38% yesterday.  Additionally, there is a small chance the Fed will reduce rates by 100bps to 0% but this seems unlikely given the current economic uncertainty. The Fed has recently been expanding its balance sheet, a de facto quantitative easing.  Today’s data saw the November ISM services index print at 37.3, the worst reading since the index’s inception in 1997.  Also, ADP’s National Employment Report for November evidenced a contraction of 250,000 private-sector jobs, portending a very weak November non-farm payrolls report on Friday.  Along the same lines, today’s ISM employment index decreased to 31.3 from 41.5 in October.  Some economists are speculating the Friday number could be as weak as -300,000 to -350,000 jobs with the unemployment rate around 6.8%.  Other data saw Q3 non-farm productivity expand at an annualized rate of 1.3%, down from 3.6% in Q2, while output fell a revised 1.9% in Q3, the largest decline since Q3 2001. Also, unit labour costs increased a revised 2.8% in Q3 following a 2.6% decline in Q2.  It was also reported that mortgage applications activity increased significantly over the past week. The Wall Street Journal reported Treasury Secretary Paulson is considering asking Congress for the next US$ 350 billion in the US$ 700 billion bailout.  The Fed’s Beige Book was released today and as expected, reported a significant decline in economic activity across the nation.  In eurozone news, a draft of the European Union’s communiqué that will be issued next week revealed a plan to enact fiscal spending of about €200 billion (around 1.5% of EU GDP) provided the European Central bank pursues “a monetary policy that takes full account of the context of the economic recession.”  Most traders expect the ECB will cut rates tomorrow by 50bps or 75bps.  Data released in the eurozone today saw EMU-15 October retail sales fall 0.8% m/m and 2.1% y/y, the fifth consecutive annual drop.  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 ¥92.50 level and was capped around the ¥93.60 level.  The media reported the Japanese government is said to be spending an additional ¥10 trillion over three years to stimulate the job market but the Aso administration is not acknowledging the story.  This follows recent announcements the Aso administration is compiling a second fiscal stimulus package to increase government spending and counter the economic recession.  A Reuters survey predicts Bank of Japan’s quarterly tankan survey will evidence a major pullback in big manufacturers’ sentiment when the data are released on 15 December.  Economic minister Yosano called on the government to maintain its target for achieving a balanced budget.  The Nikkei 225 stock index climbed 1.79% to close at ¥8,004.10.  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 ¥116.80 level and was capped around the ¥119.25 level.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥136.30 and ¥76.15 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8830 in the over-the-counter market, down from CNY 6.8870. 

STERLING

The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4665 level and was capped around the $1.4930 level.  U.K. Prime Minister Brown reported his government will announced a scheme that would allow the jobless or those facing a “significant” loss of income to defer mortgage interest payments for up to two years.  Eight leading banks, encompassing about 70% of outstanding U.K. mortgages, have signed on for the plan.  Traders closely watched the Queen’s Speech that identified the government’s legislative agenda for 2009.  A Banking Bill is being proposed that will offer Bank of England additional powers including a “statutory financial stability objective” designed to allow the central bank to intercede when banks get into financial trouble.  Data released in the U.K. today saw the November CIPS services sector index decline at its fastest pace since the series began in 1996, falling to 40.1 from 42.4 in October.  Also, the BRC shop price index posted a 2.7% yearly increase in November.  Cable bids are cited around the US$ 1.4315 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8605 level and was supported around the ₤0.8510 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2170 level and was supported around the CHF 1.2050 level.  Swiss business body economiesuisse reported it is forecasting economic growth of 0% in 2009.  Swiss National Bank President Roth said the central bank’s monetary policy has to be “decisively expansive,” a clue the central bank may reduce interest rates again on 11 December.  SNB is now forecasting a contract in Q4 GDP followed by a further economic pullback in H1 2009.  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 1.5400 figure while the British pound weakened vis-à-vis the Swiss franc and tested offers around the CHF 1.7765 level.

Published on  Wed, Dec 3 2008, 22:17 GMT