Tuesday March 3, 2009 - 18:45:26 GMT
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Forex Market Commentary and Analysis (3 March 2009)
The euro depreciated
vis-√†-vis the U.S. dollar today as the single currency tested bids around
the US$ 1.2540 level and was capped around the $1.2675 level. Federal Reserve Chairman Bernanke testified
today and said the Obama budget plan is an ‚Äúambitious agenda.‚ÄĚ He also informed Congress that policymakers
must decide between financial stability and fiscal stimulus in the
medium-term. U.S. equity markets opened to the
high side and then faded back to the minus side during Bernanke‚Äôs
question-and-answer session. Bernanke also referred to AIG as an ‚Äúuncomfortable
situation‚ÄĚ in which an insurance company was essentially operating as a hedge
fund. Traders are already speculating
that Friday‚Äôs U.S.
February non-farm payrolls number is going to be horrendous. The Fed also announced the launch of the Term
Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and
Business Lending Initiative (CBLI). For
now, this facility will lend up to US$ 200 billion to certain owners of
AAA-rated asset-backed securities. U.S. Treasury Secretary testifies before the
House later in the North American session.
Data released in the U.S.
today saw the January pending home sales index off 7.7%. Boston Federal Reserve
President Rosengren reported ‚ÄúI
believe it would be desirable to move quickly to remove problem assets from
bank balance sheets, so banks can once again focus on future prospects rather
than past mistakes. Banks without troubled assets focus on avoiding further
losses and further depleting capital.‚ÄĚ
Policymakers are trying to avoid what the market is now calling ‚Äúzombie
banks‚ÄĚ ‚Äď banks that receive appreciable amounts of public liquidity injections,
aren‚Äôt nationalized, and aren‚Äôt being restored to a healthy position. In
eurozone news, many traders expect the European Central Bank will ease
interest rates by 50bps on Thursday.
European Union official Alumnia reported the EU will consider assembling
a second fiscal stimulus for the region.
The French government warned its 2009 public deficit will exceed 5% of
gross domestic product. Euro
bids are cited around the US$ 1.2475 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•98.15 level and was supported around the ¬•97.00
figure. The yen was given across the
board as some risk appetite returned to the markets following significant
losses in global equity markets yesterday.
There is ongoing speculation Japan may pursue a weaker yen in the coming
months to counter its eroding trade balance, historically a major contributor
to the country‚Äôs gross domestic product.
Bank of Japan Policy Board member Suda speaks overnight and may discuss
the central bank‚Äôs plans to purchase additional market assets such as Japanese
government bonds. The Nikkei 225 stock
index lost 0.69% to close at ¬•7,229.72. U.S. dollar offers are cited around the
¬•104.15 level. The euro moved higher vis-√†-vis the yen as the single currency
tested bids around the ¬•124.25 level and was supported around the ¬•121.70 level. The
British pound moved higher vis-√†-vis the yen as sterling tested offers
around the ¬•138.60 level while the Swiss
franc moved higher vis-√†-vis the yen and tested bids around the ¬•83.90
level. The Chinese yuan depreciated vis-√†-vis the U.S. dollar as the
greenback closed at CNY 6.8413 in the over-the-counter market, down from CNY
6.8438. People‚Äôs Bank of China Vice
Governor Su Ning reported China‚Äôs
foreign reserves are only invested outside of China to avoid inflation the
country‚Äôs money supply. Commerce Minister Chen said there is not a need for the
yuan‚Äôs exchange rate to depreciate slightly now.
British pound came off vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.3985 level and was capped around the $ 1.4155 level. Traders are poised for another interest rate
cut from Bank of England‚Äôs Monetary Policy Committee on Thursday. More importantly, however, traders expect BoE
will announce plans to conduct unstertilized asset purchases and expand its
balance sheet. This would be similar to
the Fed‚Äôs massive credit easing and will be designed to steer market interest
rates lower, especially in the asset-backed commercial paper market. CBI today reported 60% of companies have seen
the availability of credit worsen. Also,
it was reported that U.K.
February construction PMI worsened to 27.8.
Cable bids are cited around the US$ 1.3340 level. The
euro moved higher vis-√†-vis the British pound as the single currency tested
offers around the ‚ā§0.8995 level and was supported around the ‚ā§0.8930 level.
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