EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2780 level and was supported around the $1.2650 level. Yesterday, the European Central Bank reduced its main refinancing rate by 50bps to 3.25%. Many traders signaled disappointment with the 50bps move, noting BoE reduced rates by 150bps yesterday and even Swiss National Bank cut rates by 50bps in an unexpected move. ECB President Trichet yesterday reported “I don't exclude that we could decrease rates again. We are not pre-committed in any respect. We'll do whatever is necessary to take into account the situation as it will unfold progressively.” The ECB discussed a 75bps rate cut yesterday and possibly a 25bps cut as well. Trichet added the ECB may reach the ECB’s inflation target of “close to 2%” in 2009. EONIA rate futures are now pricing in an additional 50bps of easing in December. In U.S. news, traders await today’s U.S. October non-farm payrolls data with most economists expecting around a 200,000 decline in non-farm payrolls. Futures contracts are fully discounting a 25bps easing by the Federal Open Market Committee in December with around a 26% chance of a 50bps easing. The Fed may work to ease pressures on AIG. Fed Governor Warsh sees tentative signs of credit market improvement. The U.S. will host a global summit on 15 November to discuss the ongoing global credit crunch and economic slowdown. In eurozone news, Germany’s cabinet agreed on Wednesday to a fiscal stimulus package that will give that country’s economy a €50 billion jolt, comprised of tax breaks and infrastructure spending. The German economy – the eurozone’s largest – remains on the brink of an economic recession. Euro bids are cited around the US$ 1.2135 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥96.75 level and was capped around the ¥97.75 level. Bank of Japan Policy Board meeting minutes from the 6-7 October were released yesterday and offered no indication they’d cut rates by 30bps on 31 October. Finance minister Nakagawa said Japan will loosen banks’ capital rules. Many economists now expect Japan’s economy will enter a technical recession in the third quarter. Bank of Japan cut rates last week and reduced its GDP growth forecasts for the fiscal year to March 2009, now predicting virtually no growth at all. BoJ Governor Shirakawa will speak on 26 November and Deputy Governor Nishimura speaks on 10 December. The Nikkei 225 stock index lost 3.55% to close at ¥8,583.00. 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 ¥122.45 level and was capped around the ¥124.80 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥150.25 and ¥82.00 levels, respectively.
STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5710 level and was supported around the $1.5530 level. Yesterday, Bank of England’s Monetary Policy Committee shocked the markets by reducing its headline repo rate by 150bps, confounding MPC-watchers who anticipated a 25bps or 50bps move. The main rate now stands at 3.00% and some economists believe the central bank will make another rate move lower next month. Cable bids are cited around the US$ 1.5275 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8115 level and was capped around the ₤0.8150 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1740 level and was capped around the CHF 1.1795 level. Yesterday, Swiss National Bank reduced its three-month Swiss franc LIBOR target by 50bps to the 1.50% - 2.50% range and will aim for the mid-point of 2.0%. SNB reported “The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters; growth in 2009 might even be negative.” SNB is currently forecasting 2008 economic growth of 1.5% to 2.0%. U.S. dollar offers are cited around the CHF 1.1895 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5015 and CHF 1.8475 levels, respectively.
