EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4010 level and was supported around the $1.3890 level. Federal Reserve Chairman Bernanke was grilled in Congress today about his involvement in Bank of America’s acquisition of Merrill Lynch during stormy economic times last year. The Federal Open Market Committee yesterday voted to keep monetary policy unchanged and announced it will permit one of its emergency programs to expire – the first step to unwinding its massive provision of liquidity to shore up the economy and financial system. One emergency program is expiring and two others are being reduced in magnitude in which cash or Treasuries are provided to financial institutions and money market funds under “unusual and exigent circumstances.” The Fed also announced it is extending its currency swap agreements with some central banks by three months to 1 February 2010. The downsizing of emergency credit facilities are a stark contrast to some who believed the Fed would pump more liquidity into the system. The Fed also decided to postpone a decision as to whether it will extend its Term-Asset Backed Securities Loan Facility (TALF) through the current 31 December deadline. The Fed will, however, reduce the amount of credit auction under the Term Auction Facility that was established in 2007. Data released in the U.S. today saw gross domestic product decline a revised 5.5% in the January through March period, an improvement from the 5.7% decline reported one month ago. Also, it was reported that weekly initial jobless claims rose 15,000 to 627,000, defying expectations of a decrease, while continuing jobless claims were up 29,000 to 6.738 million. In eurozone news, French unemployment was up 1.5% in May to 2.543 million and a German government official warned tax hikes are inevitable after the September election. Eurozone money market rates declined to new lows today after the European Central Bank injected €442 billion in one-year liquidity yesterday. ECB member Noyer today said any additional losses for banks will reflect credit losses due to the global recession and not from toxic debt. ECB member Provopoulos said Europe can only counter the global recession by increasing banking lending. Other EMU-16 daya released today saw April new industrial orders off 1.0% m/m and 35.5% y/y. Euro bids are cited around the US$ 1.3435 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥96.55 level and was supported around the ¥95.60 level. Bank of Japan announced it will add six auctions of U.S. dollar liquidity in the third quarter of 2009 to help keep borrowing costs depressed. The central bank also said it is considering the extension of its yen swap agreement with the Federal Reserve until 1 February. The arrangement allows the BoJ to provide the Fed with up to ¥10 trillion if needed. BoJ’s Policy Board will next deliberate policy on 14-15 July. Finance minister Yosano verbally intervened to support the U.S. dollar overnight, saying Japan supports the U.S. dollar’s status as a key currency and said “trust in the U.S.’s strong dollar policy is unshakable.” The Nikkei 225 stock index climbed 2.15% to close at ¥9,796.08. U.S. dollar offers are cited around the ¥104.15 level. The euro rallied vis-à-vis the yen as the single currency tested offers around the ¥134.80 level and was supported the ¥133.20 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥155.95 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.30 level. In Chinese news, the U.S. dollar moved higher vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8337 in the over-the-counter market, up from CNY 6.8312.
