EURO
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2865 level and was capped around the $1.2920 level. Liquidity was lighter-than-normal on account of the ongoing U.S. Labour Day holiday weekend and will normalize tonight. The common currency reached its strongest level since 18 August before giving back intraday gains. There are renewed concerns today about the eurozone sovereign debt crisis and these are negatively impacting the euro. Some traders are citing a significant chance of a Greek sovereign default following austerity measures implemented earlier this year. Dealers are also concerned about Ireland’s fiscal situation following that country’s support for its troubled banking sector including Anglo Irish Bank Corp. The common currency also came off on remarks from European Central Bank member Nowotny who reported policymakers will not discuss an exit from their accommodative monetary policies before December, adding “it’s certainly too early to take a clear position.” Nowotny also noted the possibility of the eurozone experiencing a long period of low growth and low inflation. ECB President Trichet this weekend called for additonal structural reforms and said the central bank has solidly anchored price stability. Data released in the eurozone today saw EMU-16 September Sentix investor confidence decline to 7.6. German July factory orders data will be released tomorrow. In U.S. news, the financial markets will reopen tomorrow after the holiday weekend. The Fed’s Beige Book will be released on Wednesday. Former Federal Reseve Vice Chairman Kohn reported the Fed should purchase more U.S. Treasury bonds if the economy falters. President Obama this weekend announced a six-year US$ 50 billion fiscal spending program to overhaul U.S. infrastructure. Euro offers are cited around the US$ 1.3240 level.
JPY / CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥84.05 level and was capped around the ¥84.50 level. Bank of Japan Policy Board’s interest rate decision will be released overnight and most dealers believe the central bank will keep monetary policy unchanged with the overnight call rate unchanged at 0.10%, its level since 2008. BoJ Governor Shirakawa is expected to reference last week’s rate intermeeting policy shift by the central bank in which it increased a lending facility by ¥10 trillion to ¥30 trillion. Shirakawa may also speak in Japan’s Diet on 8 September and 9 September. Many traders believe the central bank – after bowing last week to intense political pressure – will keep its policy unchanged for several weeks. Volatile moves in the yen will likely be the single largest determinant of additional BoJ action. The central bank’s ability to purchase additional Japanese government bonds is limited to rules that require the central bank to limit holdings in long-term bonds to the outstanding balance of banknotes in circulation. This means Japan’s ability to purchase JGBs fell to less than ¥20 trillion. Data to be released in Japan overnight include the July leading index and coincident index followed by August money supply data, August bank lending, July machine orders, and the July current account. The Nikkei 225 stock index climbed 2.05% to close at ¥9,301.32. U.S. dollar bids are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥108.25 level and was capped around the ¥108.95 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.20 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7877 in the over-the-counter market, down from CNY 6.8035. The pair weakened after it was reported that Lawrence Summers, head of the U.S. National Economic Council, met with Chinese officials in Beijing today. Speculation mounted that Summers and the Chinese discussed the possibility of the Chinese government permitting additional yuan gains. Data to be released in China overnight include the Q4 Manpower survey. China’s trade surplus with the U.S. amounted to US$ 119 billion in the first half of 2010. A People’s Bank of China official published a piece stating the central bank will “enhance the fine-tuning of monetary policy.” PBoC official Li Daokui reported ht is not concerned about the impact future property price decline will have on the Chinese banking sector.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5345 level and was capped around the US$ 1.5490 level. European dealers drove sterling lower during the European session and liquidity is expected to be choppy until tomorrow. Bank of England’s Monetary Policy Committee is expected to keep interest rates unchanged this week and is likely to keep its asset purchase target unchanged at £200 billion. The central bank remains in a predicament that finds it trying to deal simultaneously with elevated rates of inflation and depressed levels of economic growth. Data to be released tonight include the BRC August retail sales monitor followed by the BRC August shop price index tomorrow. Cable bids are cited around the US$ 1.5115 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8390 level and was supported around the £0.8325 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0115 level and was capped around the CHF 1.0180 level. Swiss National Bank reported its foreign currency holdings fell to CHF 218.1 billion in August from CHF 219.5 billion in July, partially reflecting gains in the franc. In June, the SNB reported it will intervene less in the markets by selling fewer francs after its currency holdings quadrupled. The SNB has likely not officially intervened since June. Data to be released in Switzerland tomorrow include the August unemployment rate. Data released in Switzerland last week saw August consumer price inflation up 0.0% m/m and 0.3% y/y. Also, Q2 gross domestic product was up 0.9% q/q and 3.4% y/y while July retail sales were up 4.8% y/y. Swiss National Bank member Jordan last week said the central bank is monitoring the Swiss franc “very closely” and said Switzerland’s monetary policy situation remains “very complex.” Jordan also cited a “small” short-term risk of deflation. Some traders believe SNB may be forced to resume its franc-selling intervention to stop the euro’s sharp decline on the cross. U.S. dollar offers are cited around the CHF 1.0980 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3025 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5565 level.
