EURO
The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4105 level and was capped around the $1.4220 level. Most traders expect the Federal Open Market Committee to keep interest rates unchanged when its decision is announced on Wednesday. Many economists believe the FOMC will keep interest rates unchanged through at least 2010 on account of the global credit crisis. Traders are curious to see if the Fed changes any significant verbiage in its statement and gives any further clues about unwinding its massive monetary stimuli. The Fed’s balance sheet is currently right around the US$ 2 trillion level and has been declining over the past few weeks, an indication it is gradually reducing some of its quantitative easing programs. One program that traders are paying close attention to is the Fed’s purchase of U.S. Treasury securities. It is expected the Fed will allow its current US$ 300 billion purchase program to expire when that amount is reached, likely in September. There is speculation the Fed will be actively discussing pending problems in the U.S. commercial real estate market. There is an expectation the sector could worsen significantly early next year. Fed Chairman Bernanke recently noted the Fed is “paying very close attention” to the sector and highlighted “increased vacancy, declining rents, and falling prices.” San Francisco Fed President Yellen said commercial real estate is a “particular danger zone.” Even other segments of the economy improve, the overhang in the commercial real estate market may force the Fed to maintain its ultraeasy monetary policy. Data to be released in the U.S. tomorrow include Q2 non-farm productivity and Q2 unit labour costs followed by June wholesale inventories. In eurozone news, European Central Bank member Liikanen reported the “freefall in the eurozone economy has stopped…it will take time before we can speak about recovery.” Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥97.05 level and was capped around the ¥97.75 level. The yen clawed back some of Friday’s losses across the board as traders again shied away from risk. Data released in Japan on Friday saw June core machinery orders climb 9.7% m/m, much more than forecast. Data released overnight saw July preliminary machine tool orders off 72.2% while July corporate bankruptcy cases were up 6.5% y/y. Also, July bank lending moderated to +2.1% y/y and July M3 money supply growth was up 1.9% y/y with the June current account surplus up 144.4% y/y to ¥1.153 trillion. Bank of Japan’s Policy Board is not expected to change monetary policy when its meeting announcement is issued tonight with the overnight call rate remaining unchanged at 0.10%. Liquidity will be reduced later in the week during the Oban summer holiday. The Nikkei 225 stock index climbed 1.08% to close at ¥10,524.26. 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 ¥136.90 level and was capped around the ¥138.65 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥159.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥89.15 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8313 in the over-the-counter market, up from CNY 6.8288.
STERLING
The British pound lost significant ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6430 level and was capped around the $1.6715 level. Sterling remains under pressure following Bank of England Monetary Policy Committee’s surprise decision on Thursday to expand its asset purchase program by ₤50 billion, an unexpectedly significant amount. Cable bids are cited around the US$ 1.6215 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8600 figure and was supported around the ₤0.8490 level.
