EURO
The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4890 level and was capped around the $1.4990 level. Traders took back some of yesterday’s profits ahead of the release of the most recent Federal Open Market Committee meeting minutes later during the North American session. Traders are trying to determine how aggressive the Fed may become in unwinding its monetary stimuli in the coming quarters. St. Louis Fed President Bullard this week suggested the Fed may want to extend its asset purchase programs through their current March expiry to help support the economy. There is clearly dissention among Fed policymakers regarding the timing and mechanics of the unwinding of its massive credit easing program. The common currency also came off on rumours that Germany’s WestLB banking giant could become insolvent. The Federal Deposit Insurance Corp. today reported the number of distressed banks in the U.S. increased to its highest level in sixteen years. Many data were released in the U.S. today. First, third quarter gross domestic product growth printed at an unchanged 2.8%, down from 3.5% in Q2, while the Q3 GDP price index came in at +0.5%, down from the prior reading of 0.8%. Also, the core PCE index fell to 1.3% q/q from 1.4% q/q and the November consumer confidence index improved to 49.5 from 47.7 in October. Additionally, the Q3 S&P/Case-Shiller house price index receded 8.86% y/y, an improvement from the revised previous reading of -14.74%. Other data released today saw the Richmond Fed’s November manufacturing index print at +1, down from a prior reading of +7, while the September house price index came in at +0.0% m/m with the Q3 house price purchase index up +0.2% q/q. In eurozone news, the German Ifo November business climate index came in stronger-than-expected at 93.9, up from the prior reading of 92.0. Other data saw EMU-16 September new industrial orders up 1.5% m/m and down 16.5% y/y while French October consumer spending was up +1.1% m/m and 3.5% y/y. Also, German Q3 GDP was confirmed at +0.7% q/q and off 4.8% y/y. The improvement in German economic data suggest the bloc’s largest economy could be improving faster than some of its peers. 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 ¥88.35 level and was capped around the ¥89.05 level. Bank of Japan upgraded its economic assessment for the third consecutive month, noting the economy is “picking up...Japan's economic conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being.” Notably, the central bank reported the decline in business investment is decelerating and private consumption is improving. The yen shook off news that Mitsui sold its entire stake in Japan Airlines on a lack of confidence in the company’s restructuring. Finance minister Fujii reported deflation is a phenomenon for monetary policymakers to resolve, not fiscal policymakers. Core consumer price inflation data will be released later this week and are likely to show the October reading was off 2.2% y/y. There is increasing speculation BoJ will actually expand its quantitative easing policies by increasing its debt purchases. Most BoJ-watchers believe the central bank will keep interest rates unchanged through at least most of 2010. Referring to the economy, the central bank on Friday reported “Japan’s economy is picking up mildly due to various policy measures taken at home and abroad, although the momentum of a self-sustaining recovery in domestic private demand remains weak.” 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 Nikkei 225 stock index lost 1.01% to close at ¥9,401.58. 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 ¥132.00 figure and was capped around the ¥133.25 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥146.20 level while the Swiss franc moved lower vis-à-vis the yen and tested offers around the ¥87.30 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8260 in the over-the-counter market, down from CNY 6.8319. Vice Foreign Minister Zhang Zhijun today said China will “increase the flexibility of the yuan exchange rate while maintaining stability in the market,” adding the increase will be “incremental and balanced.” Zhang added China is moving toward a system “that is market-based and is a managed floating mechanism with respect to a basket of currencies.” Chinese Premier Wen Jiabao will meet European Central Bank President Trichet and Ecofin head Juncker on 29 November. China’s banking regulator informed Chinese lenders they must comply with capital requirements or risk sanctions. There is increasing speculation China will strengthen its strict capital requirements.
STERLING
The British pound lost ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6495 level and was capped around the $1.6615 level. Bank of England Governor King testified today and reported “Several factors will boost demand in the economy looking ahead. The depreciation of sterling...will encourage demand to switch towards U.K. produced goods and services both at home and abroad.” King also said the markets should not overanalyze the split in the MPC’s recent voting regarding the size of its asset purchase program, noting such differences take place around economic “turning points.” Data released in the U.K. today saw Q3 total business investment decline 3% q/q and 21.7% y/y while BBA October mortgage lending was unchanged m/m and BBA mortgage approvals increased. Cable bids are cited around the US$ 1.6430 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9055 level and was supported around the ₤0.9005 level.
