Forex Market Commentary and Analysis (17 March 2010)
The euro depreciated vis-Ă -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3725
level and was capped around the $1.3815 level. As expected, the Federal Open Market Committee
yesterday kept its benchmark federal funds target rate unchanged at 0.25% and
global equity markets received the news well under the premise that inflation
will not be a problem for some time.The
markets are largely speculating the Fed will not begin to raise interest rates
until Q4 at the earliest with many economists expecting no change until 2011.Kansas City Fed President Hoenig dissented
again, reporting that continuing to express the expectation of
exceptionally low levels of the federal funds rate for an extended period was
no longer warranted because it could lead to the buildup of financial
imbalances and increase risks to longer-run macroeconomic and financial
stability.â€ť Fed Chairman Bernanke is expected to testify before Congress soon
and tell legislators that the Fed is the ideal oversight regulator for large
and small banks alike.Traders are also
awaiting to see if the Obama health care initiative can be passed by Congress
before the Easter break and how financial regulatory regulation materializes,
possibly encompassing the so-called â€śVolcker Rule.â€ťComptroller of the Currency Dugan said he has
â€śsignificant concernsâ€ť with Senator Doddâ€™s proposed financial regulation
overhaul.Data released in the U.S.
today saw MBA mortgage applications decline 1.5% while headline February
producer price inflation was off 0.6% m/m and up 4.4% y/y.The ex-food and energy core index was up 0.1%
m/m and 1.0% y/y.In eurozone news, EMU-16 construction output fell 2.2% m/m in January,
down from +0.5% growth in December, and was off 12.5% y/y compared with a 3.1%
y/y decline in December.Eurozone
finance ministers this week reiterated their plan to â€śtake coordinated actionâ€ť
but did not provide much additional information other than to suggest any
assistance would take the form of bilateral loans rather than loan guarantees.Euro bids are cited around the US$ 1.3335
The yen depreciated vis-Ă -vis the U.S. dollar today as the
greenback tested offers around the ÂĄ90.70 level and was supported around the ÂĄ90.00
figure. Bank of Japan expanded its quantitative
easing program overnight, as expected. The central bank doubled its three-month
lending facility to ÂĄ20 trillion.The
move is not likely to have a significant impact on the real economy and may
marginally increase liquidity.By and
large, the central bank made the move to satisfy ongoing calls from the
Japanese government to ease policy further.The governmentâ€™s ability to enact more fiscal spending to stimulate
final private demand is limited on account of Japanâ€™s massive
indebtedness.BoJ Governor Shirakawa
said the economy is â€śimproving a bit more than we expectedâ€ť but warned â€śThe
Bank of Japanâ€™s policy alone canâ€™t beat deflation.I wish there was a miracle, but all we can do
is persist with our efforts.â€ťThere were
two dissenters on the BoJ Policy Board.The central bank seems to be suffering from a â€śliquidity trapâ€ť whereby
there is little discernible benefit no matter how much liquidity the central
bank infuses.Data released in Japan
overnight saw the January tertiary industry index improve to +2.9% from
-0.9%.The Nikkei 225 stock index
climbed 1.17% to close at ÂĄ10,846.98. U.S. dollar offers are cited around the
ÂĄ94.75 level.The euro moved higher vis-Ă -vis the yen as the single currency
tested offers around the ÂĄ125.05 level and was supported around the ÂĄ124.05
level.The British pound moved higher vis-Ă -vis the yen as sterling tested
offers around the ÂĄ139.35 level while the
Swiss franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ86.15
level. In Chinese news, the U.S.
dollar depreciated vis-Ă -vis the Chinese yuan as the greenback closed at CNY
6.8259 in the over-the-counter market, down from CNY 6.8260. Peopleâ€™s Bank of China yesterday reported
inflation expectations are rising in a quarterly survey released today and this
could render it difficult for the government to meet its 3% annual inflation
target.Higher inflation expectations
will likely propel interest rates higher.The World Bank today called on China to reduce its stimuli programs so
that it does cause new asset bubbles.
British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers
around the US$ 1.5380 level and was supported around the $1.5205 level. Bank of England reported it is considering an
extension of the eligible collateral at its discount window.BoE MPC Fisher said the move would â€śenhance
facilities.â€ťMinutes from the March MPC
meeting were released today in which policymakers voted unanimously to keep its
asset-purchase program unchanged at â‚¤200 billion. Data released in the U.K.
today saw the February claimant count decrease to 4.9% from 5.0% in January
while the ILO three-month unemployment rate was unchanged at 7.8%.Bank of England Monetary Policy Committee
member Barker this week reported the U.K. economy could recede again, adding
the economic recovery will continue to be â€śbumpy and fragile.â€ťCable bids are cited around the US$ 1.4455
level.The euro moved lower vis-Ă -vis the British pound as the single
currency tested bids around the US$ 0.8950 level and was capped around the $0.9065
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