Friday November 7, 2008 - 06:56:45 GMT
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Forex Market Commentary and Analysis (7 November 2008)
The euro moved higher vis-√†-vis the U.S. dollar today as the single
currency tested offers around the US$ 1.2780 level and was supported around the
$1.2650 level. Yesterday, the European
Central Bank reduced its main refinancing rate by 50bps to 3.25%. Many traders signaled disappointment with the
50bps move, noting BoE reduced rates by 150bps yesterday and even Swiss
National Bank cut rates by 50bps in an unexpected move. ECB President Trichet yesterday reported ‚ÄúI
don't exclude that we could decrease rates again. We are not pre-committed in any respect.
We'll do whatever is necessary to take into account the situation as it will
unfold progressively.‚ÄĚ The ECB discussed
a 75bps rate cut yesterday and possibly a 25bps cut as well. Trichet added the ECB may reach the ECB‚Äôs
inflation target of ‚Äúclose to 2%‚ÄĚ in 2009.
EONIA rate futures are now pricing in an additional 50bps of easing in
December. In U.S. news,
traders await today‚Äôs U.S.
October non-farm payrolls data with most economists expecting around a 200,000
decline in non-farm payrolls. Futures
contracts are fully discounting a 25bps easing by the Federal Open Market
Committee in December with around a 26% chance of a 50bps easing. The Fed may work to ease pressures on
AIG. Fed Governor Warsh sees tentative
signs of credit market improvement. The U.S.
will host a global summit on 15 November to discuss the ongoing global credit
crunch and economic slowdown. In
eurozone news, Germany‚Äôs
cabinet agreed on Wednesday to a fiscal stimulus package that will give that
country‚Äôs economy a ‚ā¨50 billion jolt, comprised of tax breaks and
infrastructure spending. The German
economy ‚Äď the eurozone‚Äôs largest ‚Äď remains on the brink of an economic
recession. Euro bids are cited around the US$ 1.2135 level.
The yen appreciated vis-√†-vis the U.S.
dollar today as the greenback tested
bids around the ¬•96.75 level and was capped around the ¬•97.75 level. Bank of Japan Policy Board meeting minutes
from the 6-7 October were released yesterday and offered no indication they‚Äôd
cut rates by 30bps on 31 October.
Finance minister Nakagawa said Japan will loosen banks‚Äô capital
rules. Many economists now expect Japan‚Äôs economy will enter a
technical recession in the third quarter.
Bank of Japan cut rates last week and reduced its GDP growth forecasts
for the fiscal year to March 2009, now predicting virtually no growth at
all. BoJ Governor Shirakawa will speak
on 26 November and Deputy Governor Nishimura speaks on 10 December. The Nikkei 225 stock index lost 3.55% to
close at ¬•8,583.00. U.S. dollar offers
are cited around the ¬•104.15 level. The euro moved lower vis-√†-vis the yen
as the single currency tested bids around the ¬•122.45 level and was capped
around the ¬•124.80 level. The British pound and Swiss franc weakened
vis-√†-vis the yen as the crosses tested bids around the ¬•150.25 and ¬•82.00
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.5710 level and was supported around the $1.5530 level. Yesterday, Bank of England‚Äôs Monetary Policy
Committee shocked the markets by reducing its headline repo rate by 150bps,
confounding MPC-watchers who anticipated a 25bps or 50bps move. The main rate now stands at 3.00% and some
economists believe the central bank will make another rate move lower next
month. Cable bids are cited around the
US$ 1.5275 level. The euro moved lower
vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.8115
level and was capped around the ‚ā§0.8150 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1740 level and was capped around the CHF 1.1795 level. Yesterday, Swiss National Bank reduced its
three-month Swiss franc LIBOR target by 50bps to the 1.50% - 2.50% range and
will aim for the mid-point of 2.0%. SNB
reported ‚ÄúThe global economic outlook has deteriorated more severely than
anticipated, which will impact growth in Switzerland in the next few
quarters; growth in 2009 might even be negative.‚ÄĚ SNB is currently forecasting
2008 economic growth of 1.5% to 2.0%.
U.S. dollar offers are cited around the CHF 1.1895 level. The
euro and British pound gained ground vis-√†-vis the Swiss franc as the
crosses tested offers around the CHF 1.5015 and CHF 1.8475 levels,
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