EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3205 level and was supported around the $1.2860 level. Technically, today’s intraday high was right around the 23.6% retracement of the move from $1.6040 to $1.2330. Data released in the U.S. today saw the Chicago Fed’s National Activity Index improve last month to -2.40 from a downwardly-revised -2.56 in November. In other U.S. news, National Economic Council head Lawrence Summers reported additional funds may be required to stabilize the financial system. Traders will pay close attention to Wednesday’s announcement from the Federal Open Market Committee to see what additional measures – if any – Fed policymakers announce to help ease credit strains. In eurozone news, European Central Bank member Gonzalez-Paramo reported “There is an interest rate level that should be taken as a reference and that is the historic minimum this institution has reached, which is 2 per cent. To go below the historic minimum must be justified by exceptional reasons. And what doubt is there that there is something exceptional in the events we have in front of us. For us, the important thing is that they have to be adequate rates that do not create problems that have to be resolved later on. At the moment we think interest rates are at an adequate level to anchor inflation expectations.” January flash EMU-16 consumer price inflation data will be released on Friday and some economists believe inflation may have fallen as low as 1.4%, the lowest level since late 1999. One reason for the euro’s earlier surge was news that Dutch financial giant ING would tap government guarantees. ECB member Mersch reported he does not want to see the main interest rate fall too far below the current 2% level and said the adoption of “quantitative easing” policies would be difficult. Additionally, ECB member Weber reported “The economic downturn is more powerful and more comprehensive worldwide than we expected it to be. It worries me that containing the financial market crisis hasn't yet succeeded. There are always new distortions, always more sectors affected and new losses which in turn lead to new requirements for write-downs.” Euro bids are cited around the US$ 1.2475 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥89.45 level and was supported around the ¥88.25 level. The yen gave back gains after some bids emerged in European equity markets following a surprise result from U.K. banking giant Barclays. Bank of Japan last week announced that it will purchase corporate bonds to ease credit strains and widened its list of eligible collateral to include real estate-backed debt. Economists now believe core nationwide consumer price inflation slowed sharply in December, possibly as low as +0.3%. Industrial production was off a record 9.0% last month and these data underscore the fragility of Japan’s economic situation. BoJ downgraded its economic assessment of the economy last week and sees the economy contracting up to 1.8% in the fiscal year to 31 March. The Nikkei 225 stock index lost 0.81% to close at ¥7,682.14. 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 ¥117.95 level and was supported around the ¥113.70 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥125.10 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥78.25 level. In Chinese news, the Chinese government reported “Our country's economic and social development faces some stark conflicts and problems. At present, the main ones are the impact of the international financial crisis and the clear slowing of world economic growth. Businesses are in hardship and unemployment problems are stark.”
STERLING
The British pound reversed recent losses vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.3995 level and was supported around the $1.3545 level. Cable moved higher after Barclays reported it will not need additional cash injections from the U.K. government at this time. Barclays also reported its 2008 pretax profits are expected to be ₤5.3 billion even after the ₤8 billion in write-downs is factored in. Bank of England Monetary Policy Committee member Blanchflower reported U.K. interest rates are approaching zero per cent and added they still have additional room to decline to reach U.S. levels. BoE Governor King last week reported the central bank may seek unconventional measures to provide additional liquidity to the financial system. Data released in the U.K. today saw Hometrack January house prices fall 1.0% m/m and 9.4% y/y. Also, BBA December mortgage approvals for house purchases moved higher from November’s record low and said net December mortgage lending was up ₤2.9 billion. Prime Minister Brown reported the government can ill-afford any sort of financial protectionism. Cable offers are cited around the US$ 1.4220 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9515 level and was supported around the ₤0.9340 level.
