By GCI Fx Research
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The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3875 level and was capped around the $1.4000 figure. Group of Eight officials are convening in Italy from Wednesday to discuss the global economy and representatives from major emerging market economies including Russia, China, India, and others will be present. There has been a significant amount of recent talk about the U.S. dollar being replaced as the main international reserve currency. Russian President Medvedev said the current U.S. dollar-based system is “flawed” but added “there is no alternative to the U.S. dollar or the European currency.” Indian Economic Advisory Council chairman Tendulkar said he is urging his country to diversify its foreign exchange reserves and reduce its holdings of U.S. dollars. European Central Bank President Trichet added “it’s extremely important that the U.S. authorities…say that a strong dollar is in the interest of the U.S.” Trichet also warned consumer confidence is lagging and said weakness in the labour sector may not be fully priced in. Data released in the eurozone today saw the July Sentix investor confidence index decline to -31.3 from -27. Trichet spoke about the eurozone banking system today, saying commercial banks should “restructure as much as possible their situation when needed” and said banks need to pass liquidity on to borrowers and not horde cash. ECB member Noyer verbally intervened in the FX market saying “we must ensure a bigger stability between currencies in the coming months” and said “we must avoid…the piling up of currency reserves.” ECB member Paramo reported current interest rate levels are appropriate and foresees EMU-16 economic growth by H1 2010. In U.S. news, the June ISM non-manufacturing composite index printed at a better-than-expected 47.0, up from 44.0 in May. Euro bids are cited around the US$ 1.3435 level.
¥/ CNY
The yen appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.65 level and was capped around the ¥96.10 level. Bank of Japan raised its economic assessment for all regions of the country for the first time since January 2006, primarily on account of an improvement in exports and production. BoJ noted “the pace of economic deterioration was slower in all regions compared with the previous assessments” but added “most regions, however, emphasized that their economies continued to be in a severe situation.” On a negative note, the central bank reported capital spending is “sharply falling” and reported consumer spending “remains weak.” BoJ Governor Shirakawa noted “Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening.” Data released in Japan today saw the May diffusion-based leading index improve to 60.0 in May from 50.0 in April while the composite-based leading index printed at 77.0 in May from 76.2 in April. The Nikkei 225 stock index lost 1.38% to close at ¥9,680.87. 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 ¥131.70 level and was capped around the ¥134.20 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥153.00 figure while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.75 level. In Chinese news, the U.S. dollar moved higher vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8334 in the over-the-counter market, up from CNY 6.8315. Chinese commerce minister Chen said China will likely continue to be negatively impacted by a slowdown in global trade, but said global trade volumes will “recover a little bit” before the end of the year. China launched a trial yuan settlement scheme today.
₤
The British extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6095 level and was capped around the $1.6325 level. Sterling came off today on market speculation that Bank of England will announce an extension of its quantitative easing program on Thursday when the Monetary Policy Committee’s interest rate decision is announced. Some traders believe the MPC may decided to purchase an additional ₤25 billion in government and other bonds as part of its credit easing program, adding to the ₤125 billion of the existing facility. Others believe the MPC could expand the program but will wait until August. The U.K. government is currently managing the public’s expectations regarding public-sector pay awards. Prime Minister Brown reiterated policymakers “cannot be complacent about the global economy.” Cable bids are cited around the US$ 1.5845 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8645 level and was supported around the ₤0.8550 level.
Daily Market Commentary provided by GCI Financial Ltd.
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