EURO
The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4770 level and was capped around the $1.4925 level. Technically, today’s intraday high was right around the 23.6% retracement of the move from $1.4480 to $1.5060 while today’s intraday low was right around the 50% of the same range. Traders reduced exposure to the common currency after U.S. October consumer confidence printed at 47.7, far below the revised 53.4 result from September. Waning U.S. consumer sentiment also resulted in an unimpressive day for U.S. equities, further resulting in greater demand for the U.S. dollar. The employment outlook sub-index of the consumer confidence reported worsened. Next week’s October non-farm payrolls report will be closely scrutinized to see if the deceleration in job losses continues. Other data released in the U.S. today saw September building permits revised to -0.9% from -1.2. Additionally, the S&P/ Case-Shiller home price index was off 11.32% y/y, better than July’s revised -13.26% reading, and the October Richmond Fed manufacturing index printed at +7, down from a revised +14 in October. Treasury Secretary Geithner spoke today and said the U.S. economy will become stronger the more quickly Europe recovers. Speaking about the U.S. dollar, Geithner added the U.S. needs to maintain confidence in the U.S. dollar. In eurozone news, EMU-16 September private sectoe lending fell 0.3% y/y, down from August’s growth rate of +0.1%, and this marked the first decline in private-sector lending since the advent of the euro. Other data released in the eurozone today saw the M3 money supply rise 1.8% y/y. Euro bids are cited around the US$ 1.4445 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.70 level and was capped around the ¥92.30 level. An unexpected sharp decline in U.S. consumer confidence led to less demand for higher-yielding assets and to gains in the yen. The possibility of a double-dip recession could have a broad impact the yen and U.S. dollar, particularly if global investors are less willing to continue diversifying into riskier assets that offer more yield. Finance minister Fujii reported he will decide in December on whether additional economic measures are needed and said exports “should not drive” economic policymaking. Fujii added it is “appropriate” to have strong foreign exchange assets in its reserves portfolio, reiterated low U.S. interest rates are behind the dollar’s weakness, and suggested the Group of Seven “shares the view” that the U.S. dollar is weak – not the view that the yen is strong. Moreover, Fujii said he never voiced support for a stronger yen and said the “given state of the economy” means it is too early to discuss an exit policy from quantitative easing programs. The yen also gained ground on news that some overseas investment trusts are maturing, possibly leading to repatriation of yen assets. The big news involving Bank of Japan over the past few trading sessions is that Bank of Japan believes deflationary pressures will remain in Japan through at least 2011. The central bank now sees core consumer prices excluding fresh food falling 0.5% in the year starting 1 April 2011 with economic growth ramping up to 1.2%. It remains probable the central bank will not increase interest rates anytime soon. The discontinuation of BoJ’s emergency liquidity programs is sleighted for the end of December and any indication of a change in that time frame could impact the yen. It is also possible the BoJ will indicate its schedule for these changes as early as this week. In addition, Japan’s Policy Board may release its latest round of economic forecasts this week. The Nikkei 225 stock index lost 1.45% to close at ¥10,212.46. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥135.65 level and was capped around the ¥137.35 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥149.90 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥89.65 level. In Chinese news, the U.S. dollar weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8255 in the over-the-counter market, down from CNY 6.8275. People’s Bank of China deputy governor Yi Gang today said “inflation is not a big risk for the nation in the foreseeable future.” Yesterday, Zhou Hai, a division chief at People’s Bank of China in Harbin, released a report indicating the central bank should sell dollars for euro and yen and diversify its massive foreign reserves portfolio. While this represented Zhou’s personal opinion and not PBoC policy, it was enough to move the markets yesterday, especially given the size of China’s massive US$ 2.273 trillion foreign reserve war chest. There remains widespread speculation the central bank will accelerate the removal of monetary stimuli and liquidity from the system, possibly resulting in further yuan appreciation.
