EURO
The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4810 level and was capped around the $1.4915 level. Group of Twenty officials convened in St. Andrews, Scotland this weekend and did not offer any fresh support for the beleaguered U.S. dollar. Additionally, the International Monetary Fund issued a report at the G20 that indicated the U.S. dollar is moving closer to “medium-term equilibrium” but added the dollar “still remains on the strong side” – all but a green light to short the dollar further. Data released in Germany today propelled the common currency higher as September industrial production rose 2.7% m/m, but was off 12.9% y/y. G20 officials vowed to keep their fiscal and monetary stimuli in place until the global economic recovery adopts a more solid footing. Investors reacted by pushing equities and other assets higher on the premise that liquidity will remain ample in the investment markets. The IMF also reported a higher prevalence of the U.S. dollar being used in so-called carry trades where the dollar is shorted to invest in higher-yielding assets. The euro has borne most of the dollar’s downward adjustment and European officials continue to talk up the U.S. government’s official strong dollar policy. The Federal Reserve today reported that nine of ten U.S. bank holding companies that were reportedly low on capital in May have raised additional reserves to counter the risks of slower economic growth and rising unemployment, with GMAC being the notable exception. Other data released in the eurozone today saw the EMU-16 November Sentix investor confidence index increase to -7 from -12.6 in October. Also, Germany’s September trade surplus increased to ₤10.1 billion from ₤8.1 billion in August. Traders are still talking about Friday’s October non-farm payrolls data that saw U.S. unemployment escalate to a 26-year high of 10.2%. Euro bids are cited around the US$ 1.4445 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.25 level and was supported around the ¥89.70 level. A media report today suggests Japan is purchasing more U.S. Treasuries than any other official foreign investor, including China. Japan experienced a long bout of deflation in the 1990s and their continued purchase of U.S. government securities suggests they could have a deflationary view about the U.S. economy. Notably, Japan’s foreign reserves increased to a record high for the third consecutive month in October, principally on account of rising gold prices. Senior vice finance minister Noda reported Group of Twenty officials who convened in Scotland over the weekend didn’t debate foreign exchange rates “at all” at their main meeting.
Minutes from the Bank of Japan Policy Board meeting from 13-14 October were released last week in which policymakers noted they’d work to make sure investors realize the removal of some emergency stimuli program does not mean official interest rates will rise. The minutes noted the central bank plans to “maintain the accommodative financial environment.” BoJ Governor Shirakawa last week reported it is “unlikely that the decline in prices will induce downward pressure on economic activity.” On interest rates, Shirakawa added “The Bank of Japan declared an end to the state of emergency, but it will stand pat until the economy returns to normal. The bank will probably continue its super-low rate policy through early 2011.” BoJ’s Policy Board recently predicted core consumer prices will decline 1.5% in the year ending March 2010, decline 0.8% in the fiscal year ending March 2011, and decline 0.4% in the fiscal year ending March 2012. The central bank recently reported it will stop its purchase of corporate debt and commercial paper at the end of 2009. BoJ Policy Board’s next interest rate decision is scheduled for 19 November. The Nikkei 225 stock index climbed 0.20% to close at ¥9,808.99. 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 ¥135.05 level and was supported around the ¥133.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥151.60 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 weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8260 in the over-the-counter market, up from CNY 6.8194. People’s Bank of China official Jiao last week reported new bank loans growth may accelerate in November and December. The Chinese media reported China called for stability in major reserve currencies to “prevent negative spillover effects.”
