EURO
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3025 level and was capped around the $1.3240 level. As expected, the European Central Bank reduced its main refinancing rate by 50bps to 2.00% and ECB President Trichet intimated the ECB’s next rate cut – an “important rendezvous” - would likely come in March, and not February. Trichet indicated he sees “broadly balanced” risks to price stability and added the eurozone economy is experiencing a “significant slowdown” with “the level of uncertainty remaining exceptionally high.” Moreover, he said the ECB does not want to fall into a “liquidity trap” where short-term rates would be near zero per cent with little to show for it. The German media is reporting the German government is predicting an economic contraction around 2.25% in 2009. It was also reported that Germany’s December consumer price index increased 0.1% m/m and 1.1% y/y. In U.S. news, weekly initial jobless claims rose 524,000 last week and continuing claims surged to a record 5.8 million last week, underscoring the severe nature of the weak U.S. employment picture. Also, the Philadelphia Fed’s January hiring sub-index reached its second weakest level since 1968. Additionally, December producer prices fell for the fifth consecutive month last month and this suggest deflationary pressures could be mounting. Producer prices were off 1.9% m/m and were off -0.9% y/y. The New York Fed’s Empire State factory index rose to -22.20 in January while the employment sub-index fell to -26.14. On the political front, the incoming Obama administration is pushing for the quick passage of a US$ 825 billion economic stimulus bill that includes US$ 550 billion in spending initiatives design to stimulate employment and US$ 275 billion in tax breaks to workers and businesses. Trader are also monitoring a story that Bank of American may be close to receiving billions in additional aid from the government in additional emergency assistance. Euro bids are cited around the US$ 1.3055 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥89.75 level and was supported around the ¥88.45 level. The yen came off after it was reported that November core machinery orders fell a record 16.2%., Also, December wholesale prices declined to a four-year low at +1.1% y/y and most economists expect annualized decreases in wholesale prices this quarter. The Japanese media reported Bank of Japan will consider the possibility of purchasing corporate bonds outright to enhance credit in the markets. This would follow the central bank’s December announcement that it is purchasing commercial paper outright. BoJ’s Policy Board next convenes on 21-22 January. Japan’s recent fiscal spending mean its budget is unlikely to be balanced for at least seven years. Former MoF mouthpiece “Mr Yan” Sakakibara reported “There will be a moderate appreciation of the yen” in H1 2009 and said the dollar’s “core range will be from ¥80 to ¥95, but depending on conditions, a break below ¥80 would be possible." The Nikkei 225 stock index lost 4.92% to close at ¥8,023.31. 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 ¥116.20 level and was capped around the ¥118.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥131.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥79.05 level. The Chinese yuan came off vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8363 in the over-the-counter market, up from CNY 6.8352. A senior Bank of China official reported “The property market will continue its correction, the share prices of financial institutions will still see big swings, liquidity will remain tight and the foreign exchange market will continue to fluctuate due to reallocation of funds in the world.”
