EURO
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4655 level and was supported around the $1.4580 level. Tensions over exchange rates flared over the weekend and today as European officials warned the common currency would not bear the brunt of currency adjustments to rebalance the global economy. Group of Seven officials convened in Istanbul over the weekend and while their official stance on exchange rates has not changed, the euro is probably a little too strong for their liking. Some traders interpreted the lack of change in the G7’s statement as a green light for further dollar depreciation. European Central Bank President Trichet said some currencies “have in the medium run to appreciate vis-à-vis the dollar and the euro” while French finance minister Lagarde said she does not want the euro “to take the flack for the others” or be the “ultimate recourse.” ECB member Tumpell-Gugerell said recent economic data are “encouraging” and said non-standard monetary policy is “still justified.” She also called on banks to pass on more liquidity to borrowers. Trichet also said now is not the correct time to unwind monetary stimuli. ECB’s Wellink reported there are “quite a lot” of economic uncertainties and is “enough slack” in the economy to avoid inflation fears. Data released in the eurozone today saw EMU-16 retail sales decline in August for the fifteenth consecutive month, off 0.2% m/m and off 2.6% y/y. In U.S. news, data released in the U.S. today saw the September ISM non-manufacturing index climb to 50.9 from 48.4 in August while the September employment trends index improved +0.3%, the first improvement since January 2008. Other data released today saw EMU-16 services PMI improve to 50.9 from 49.9 in August while the EMU-16 October Sentix investor confidence index improved to -12.6 from -14.6. Euro bids are cited around the US$ 1.4445 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.35 level and was capped around the ¥89.95 level. The yen was mixed across the board as finance minister Fujii further clarified his position on yen intervention, saying the government may indicate it there are “excessive” yen rises. Fujii’s latest comments are a reversal from his comments of a couple of weeks ago where he appeared to be comfortable with a stronger yen. One key level being cited by chartists is the ¥87.10 level, below which large stops are thought to be in place. Bank of Japan Governor Shirakawa reported the need for the central bank’s corporate bond purchase programs “has receded.” He added that if the crisis mode for major companies’ borrowing “is over, that’s an incentive for the (BoJ) to unwind its extraordinary measures.” BoJ’s Policy Board convenes 13-14 October and 30 October and is expected to keep borrowing costs unchanged. One possible outcome of the meeting, however, is that the central bank will confirm some of its emergency spending programs will expire without further extension. The Nikkei 225 stock index lost 0.59% to close at ¥9,674.49. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥131.65 level and was supported around the ¥130.45 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥142.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.45 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8243 in the over-the-counter market, down from CNY 6.8246. Chinese financial markets will be closed from 1 October through 8 October for the National Day’s holiday. Data released in Japan last week saw the September purchasing manager’s index rise to 54.3. People’s Bank of China this week announced it will continue its loose monetary policy. European Central Bank member Weber reported many Asian countries have an “excessively loose” monetary policy. Weber reported “Many Asian countries still have a strong link to the dollar and, therefore, correspondingly low interest rates at the moment. Through purchases of foreign exchange, monetary policy is more expansive than the actual economic situation allows (and) I expect that we will see further steps to make exchange rates more flexible.” Chinese officials who convened in Istanbul this weekend reported they will seek greater domestic economic growth, a move that could allow the yuan to appreciate.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5905 level and was capped around the $1.6020 level. Data released in the U.K. overnight saw the September services sector expand for the fifth consecutive month, reaching its strongest level in more than two years with the PMI reading at 55.3, up from 54.1 in August. This improvement suggests Q3 U.K. gross domestic product growth could surprise to the upside. Similarly, CBI reported the U.K. financial services sector notched its first increase in business volumes and profitability since 2007 in the third quarter. Bank of England Monetary Policy Committee member Tucker reported a levy may be placed on banks to finance future crises. Cable bids are cited around the US$ 1.5720 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9195 level and was supported around the ₤0.9140 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0305 level and was capped around the CHF 1.0355 level. Swiss National Bank President Roth reported he sees “positive signs” of a Swiss economic recovery and is now estimating Swiss GDP will decline 1.5% and 2.0% in 2009, adding the Swiss economy has been “quite resistant” to the global economic crisis. Data released in Switzerland last week saw September manufacturing PMI rise to 54.3 from 50.2 in August. There remains ongoing speculation the Swiss National Bank sold francs for euro last week via the Bank for International Settlements this week in its bid to stop the franc’s strength. U.S. dollar offers are cited around the CHF 1.0535 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5120 level while the British pound weakened vis-à-vis the Swiss franc and tested bids around the CHF 1.6435 level.
