Fundamental Outlook at 1500 GMT (EST + 0500)

GCI FX Research

The euro fell sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2715 level and was capped around the $1.2900 figure.  The markets reacted mostly favourably to President Obama’s speech last night and are closely scrutinizing Federal Reserve Chairman Bernanke’s testimony before the U.S. House of Representatives this morning.  Bernanke reported inflation is unlikely to be a problem over the next few years and dealers await details on the Fed’s upcoming new facility to stimulate consumer borrowing.  The major question on traders’ minds deals with the possible nationalization of some major banks.  Wall Street currently believes the Obama administration will revert to nationalization as a last resort, even after acquiring sizable minority equity positions in banks.  The markets are currently focusing on the possibility the government will acquire a 40% stake in Citigroup.  Data released in the U.S. today saw January existing home sales decline 5.3% to an annualized 4.49 million rate, nearly a twelve-year low.  The median house price declined 14.8% y/y and these data were weaker-than-expected.  In eurozone news, European Central Bank member Ordonez said the global recovery depends on the U.S.’s response to the crisis and said recent news and data have not been optimistic.  Bank of Italy’s EuroCoin economic growth indicator for February fell to -0.63% in February from -0.21% in January, indicating the eurozone economy has worsened over the past month.  Data released in Germany today saw Q4 GDP off 2.1% q/q.  The European Central Bank is expected to reduce interest rates by 50bps in March.  Euro bids are cited around the US$ 1.2475 level.

¥/ CNY

The yen lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥97.35 level and was supported around the ¥96.35 level.  Prime Minister Aso talked the yen lower through verbal intervention yesterday after meeting with President Obama, saying both leaders agree the U.S. dollar must remain the world’s key global currency.  He noted “If confidence in the dollar is damaged, it would cause significant effects.”  Aso also indicated the U.S. did not seek increased asset purchases from Japan.  Most traders expect Bank of Japan will increase asset purchases in the coming months to help steer market rates of interest lower.  The Nikkei 225 stock index gained 2.65% to close at ¥7,461.22.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥123.10 level and was capped around the ¥125.15 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥137.65 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥82.95 level.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8369 in the over-the-counter market, up from CNY 6.8368.

The British pound slumped substantially vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4230 level and was capped around the $1.4605 level.  Data released in the U.K. today saw Q4 gross domestic product growth decline 1.5$ q/q and 1.9% y/y, the largest decline in eighteen years.  Notably, consumer spending declined at its fastest pace since 1991 in the final three months of 2008.  Cable bids are cited around the US$ 1.4160 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8950 level and was supported around the ₤0.8810 level.

Daily Market Commentary provided by GCI Financial Ltd.

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