By GCI Fx Research
€
The euro strengthened vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4725 level and was supported around the $1.4615 level. Group of Twenty officials are said to be preparing a statement that says they will continue to support the global economy and the U.S. dollar suffered as a result. There is also a report that G20 members will be required to have their economic policies reviewed by their peers. Data released in the U.S. today saw August headline durable goods orders off 2.4%, far below expectations and the revised 4.8% print in July, while the ex-transportaton component was flat at +0.0%, down from the revised +0.9% print in July. Also, September University of Michigan consumer sentiment came in stronger-than-expected at 73.5, up from the prior reading of 70.2. Additionally, August new home sales were up 0.7% m/m, a lighter-than-expected annualized 429,000 rate. In eurozone news, German GfK consumer confidence improved to 4.3 in October from 3.7 in September. Also, the EMU-16 M3 money supply expanded 2.5% y/y in August, less-than-expected. The Federal Reserve, European Central Bank, Bank of England, Bank of Japan, and Swiss National Bank yesterday announced they will extend their liquidity-providing facilities and operations through January 2010. The euro’s upside may be pressured by continued strong selling pressure against sterling. Bank of England Governor has been quoted as saying sterling’s recent weakness has been “helpful” in addressing economic imbalances. Euro bids are cited around the US$ 1.3900 figure.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.50 level and was capped around the ¥91.35 level. The yen rampaged across the board as the Group of Twenty meeting remained underway in Pittsburgh. Japanese finance minister Fujii met with U.S. Treasury Secretary Geithner last night and reported he is opposed to intentionally devaluing the yen or other currencies. This admission gave the yen a clear path to appreciate. Former MoF mouthpiece “Mr Yen” Sakakibara reported the government may not intervene even if the pair falls as low as ¥90. Fujii and the government may only decide to intervene if exchange rate imbalances become “abnormal.” Data released in Japan overnight saw the August corporate service price index printed at 92.2, off 0.4% m/m and 3.5% y/y. Bank of Japan announced it will extend liquidity provision measures through January 2010 to cushion money markets in concert with other central banks. Yen borrowing costs declined to a three-year low with three-month Libor at 0.34625, the lowest level since June 2006. Similarly, U.S. dollar three-month Libor printed at a record low of 0.28250. U.S. dollar rates have been below Japanese dollar rates since 24 August and that has resulted in the U.S. dollar being used as a carry trade funding currency. The Nikkei 225 stock index lost 2.64% to close at ¥10,265.98. 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 ¥131.55 level and was capped around the ¥133.85 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥142.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.15 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8235 in the over-the-counter market, up from CNY 6.8218. People’s Bank of China Deputy Governor Hu this week reported G20 nations should consider establishing an international wealth fund to invest a portion of members’ current account surpluses. There is continued speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar. PBoC official Xie Duo reported it is “closely watching” the direction and trend of the U.S. dollar.
Daily Market Commentary provided by GCI Financial Ltd.
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