EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4375 level and was supported around the $1.4210 level. The common currency’s ascent to a weekly high put it within 70 pips of a multi-month high dating to December 2008. The catalyst for today’s gains was the release of positive August PMI manufacturing surveys in Germany and France along with the EMU-16 composite index that printed at 50.0, a record jump from July’s 47.0 print. Despite last week’s announcement of stronger German gross domestic product growth and today’s stronger-than-expected manufacturing data, the European Central Bank is likely to await for more traction in the economic recovery before announcing any details on a possible strategy to unwind its quantitative easing measures. In U.S. news, data released today saw July existing home sales print at 5.24 million, up from the prior June reading of 4.89 million. This represented a 7.2% increase and was significantly above expectations. Recent U.S. housing data have evidenced an improvement in that beleaguered sector. The Kansas City Fed’s Jackson Hole symposium is under way and Chairman Bernanke reported the global economy is beginning to emerge from its recession after “aggressive” action by monetary and fiscal authorities. He reiterated the recovery is “likely to be relatively slow at first with unemployment declining only gradually from high levels.” One major focus for the Fed will be strains in the commercial real estate loan sector where many economists believe the next credit crisis could emerge. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.70 level and was supported around the ¥93.40 level. North American dealers lifted the pair to a key technical level representing the 50% retracement of the move from ¥91.75 to ¥97.75. All eyes are on the last stretch of the campaign race in the 30 August general election with the Aso government and Liberal Democratic Party poised to lose. A Democratic Party of Japan victory could result in greater supply of Japanese government bonds and possibly a stronger yen. Three-month euroyen futures are currently pricing in stable interest rates through June 2010. Bank of Japan Policy Board officials were more dovish than expected in comments this week. Yields on yen deposits held outside Japan notched their largest weekly decline in nearly four months, an indication that traders believe disinflation and possibly deflation will continue. The Nikkei 225 stock index lost 1.40% to close at ¥10,238.20. 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 ¥135.45 level and was supported around the ¥132.90 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥156.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.40 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8269 in the over-the-counter market, down from CNY 6.8273. It was another down day for Asian equities with Chinese shares off on growing concern that People’s Bank of China may reduce capital rules for its financial institutions. A tightening of credit could reduce China’s ability to help steer the global economy out of its global recession.
STERLING
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6420 level and was capped around the $1.6625 level. Chancellor of the Exchequer Darling reported there is still need for caution on the economic recovery. Bank of England has purchased about ₤133.5 billion in securities through its quantitative easing program so far. The big news in the U.K. this week was that BoE Governor King unsuccessfully lobbied for a larger-than-decided expansion of the BoE’s bond purchase plan, an indication a minority of MPC policymakers believe a sustainable economic recovery may prove elusive. Cable bids are cited around the US$ 1.6215 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8700 figure and was supported around the ₤0.8630 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0550 level and was capped around the CHF 1.0655 level. KOF, the Swiss economic research institute, today reported the Swiss economy will shrink less in the third quarter after a significant contraction in the second quarter. Notably, Swiss manufacturers are not forecasting their order books will decline, the first such forecast in more than one year. Today’s price activity resulted in the pair’s weakest showing in more than two weeks. SNB reported the M3 money supply expanded 7.7% y/y in July, up from 5.9% y/y in June. U.S. dollar offers are cited around the CHF 1.0640 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5185 level while the British pound moved lower vis-à-vis the Swiss franc as sterling tested bids around the CHF 1.7415 level.
