EURO
The euro strengthened vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4045 level and was supported around the US$ 1.3955 level. Liqudity was very thin today as both the U.K. and U.S. markets were closed for market holidays. Data released in Germany today saw the May Ifo business sentiment index print at 84.2, above April’s print of 83.7 but shy of expectations. The expectations sub-index improved to 85.9 while the current condtions sub-index worsened to 82.5, a new cyclical trough. The greenback has been pressured significantly over the past couple of weeks. There is growing concern that the U.S. may lose its “AAA” credit rating and that the U.S. dollar could depreciate significantly as a result. Many U.S. data will be released tomorrow including Case-Shiller house price data and consumer confidence numbers. Euro bids are cited around the US$ 1.3435 level.
JPY / CNY
The yen appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.40 level and was capped around the ¥95.20 level. There was little market reaction to news that North Korea conducted a large nuclear test in the northeastern part of that country and test-fired three short-range missiles. This represented the country’s first nuclear test in three years. The Japanese government has promised “decisive measures” in response to today’s activities by North Korea. Japan’s proximity to North Korea and alliance with the U.S. render the yen susceptible to geopolitical forces resulting from North Korea’s activities. The Japanese government and Bank of Japan raised their overall economic assessments in May today for the first time since 2006, reporting exports and industrial production appear to be bottoming. “While the economy is in a difficult situation, the tempo of worsening has become moderate,” the government reported in stark contrast to April’s statement that it sees the economy ‘worsening rapidly while in a severe situation.” Similarly, Bank of Japan today reported “The pace of deterioration in Japan's economic conditions is likely to moderate gradually, leading to a leveling out of the economy.” Despite the government’s upgrade in its assessment, it added the word “severe” to characterize the labour market. Japan’s jobless rate was 4.8% in March and some economists believe it could reach 5.5% in the coming months. On Friday, BoJ Governor Shirakawa reported Japan will register positive gross domestic product growth in the April – June quarter. Finance minister Yosano reported “many downside risks remain.” The Nikkei 225 yesterday stock index climbed 1.31% to close at ¥9,347.00. 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 ¥133.40 level and was supported around the ¥132.05 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥149.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.80 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8265 in the over-the-counter market, up from CNY 6.8255. Chinese President Hu Jintao and Brazilian President Lula suggested bilateral trades should be settled in different currencies other than the U.S. dollar.
STERLING
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5835 level and was capped around the $1.5935 level. Liquidity was diminished on account of the market holiday and will return to normal overnight. Chancellor the Exchequer Darling cautiously said yesterday “I believe that we will see a return to growth by the end of the year. I said that in the budget and I haven't changed my view on that but...there is a lot of uncertainty out there.” Data released in the U.K. on Friday saw Q1 GDP contract 1%, the third consecutive month of declining output. Cable bids are cited around the US$ 1.5315 level. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.8820 level and was supported around the ₤0.8785 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0815 level and was capped around the CHF 1.0870 level. The franc was bid across the board, partially reflecting unease over North Korea’s nuclear test and missile launches. U.S. dollar offers are cited around the CHF 1.1165 level. The euro lost ground vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5160 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.7195 level.
