Forex Market Commentary and Analysis (19 March 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3500
figure and was capped around the $1.3625 level. Bank of Spain yesterday reported that bad
loans at Spanish banks have reached their highest level since 1996, reaching
5.6% of total credit.There are new
details in the ongoing saga concerning Greece‚Äôs fiscal woes. Germany all of a
sudden is said to favour a new policy framework that would have the
International Monetary Fund providing fiscal relief to Greece, a shift in
policy.France, on the other hand, is
said to resist involvement of the International Monetary Fund and if these
reports are true, they would pit Germany‚Äôs Merkel against France‚Äôs
Sarkozy.One school of thought suggests
Sarkozy may be resisting IMF involvement because his would-be political
competiton, Strauss-Kahn, heads the IMF.Data released in Germany today saw February producer price inflation
flat m/m and off 2.9% y/y.Data to be
released in Germany next week include Ifo business sentiment and PMI data.EMU-16 March consumer confidence data will be
released on Monday.In U.S. news, data to be released in the U.S. on Monday include the
February Chicago Fed‚Äôs national activity index followed by home sales data on
Tuesday.The Federal Reserve today
withdrew exemptions for banks it had granted in August 2007 as part of a move
to boost the provision of liquidity.This
exemption removal is the Fed‚Äôs latest maneuver to withdraw policy
accommodation.The Fed did not lift its
discount rate again yesterday, contrary to widespread speculation that
policymakers would imminently continue to shift policy without raising the
federal funds target rate.Euro
bids are cited around the US$ 1.3335 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•90.30 level and was capped around the ¬•90.70
level. National Strategy Minister Sengoku reported Japan has ‚Äúextremely little‚ÄĚ
room for additional fiscal stimulus.In
contrast, Financial Services Minister Kamei this week reported the government
should compile a stimulus package.Prime
Minister Hatoyama has indicated he has not considered an additional fiscal
stimulus package at this time.Japan‚Äôs
debt-to-GDP ratio is nearing 200%, among the highest of all industrialized
nations.Data released in Japan
overnight saw the January all-industry activity index climb to 3.8% m/m from
-0.3%.Sengoku also noted an easier
monetary policy may have only a ‚Äúlimited impact‚ÄĚ on overcoming deflation.Bank of Japan this week expanded monetary
policy further, doubling a three-month lending facility to ¬•20 trillion. BoJ
Policy Board member Momma said overnight that fiscal policy must ‚Äúearn the
trust‚ÄĚ of the markets.Other data
released overnight saw the retail investor sentiment index up +6 points.Bank of Japan this week kept its economic
assessment unchanged for a fourth consecutive month, reporting the economy is
‚Äúpicking up.‚ÄĚ The central bank also upped its assessment of business
investment, adding it is ‚Äúleveling out on the whole.‚ÄĚThe Nikkei 225 stock index climbed 0.75% to
close at ¬•10,824.72. U.S. dollar offers are cited around the ¬•94.75 level.The
euro moved lower vis-√†-vis the yen as the single currency tested bids around
the ¬•122.25 level and was capped around the ¬•123.35 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•135.60 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•85.10 level. In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8266 in the
over-the-counter market, up from CNY 6.8264. China reported its purchases of U.S.
Treasuries have helped stabilize the U.S. financial markets and urged the U.S.
to avoid politicizing China‚Äôs yuan policy.U.S. Ambassador to China Huntsman verbally intervened this week, saying
the U.S. ‚Äúhopes to see more flexibility on the exchange rate. I would be
misleading you if I left you with the impression that this wasn‚Äôt a very, very
important issue in the United States, and will continue to be. We‚Äôll see how
the next few weeks play out.‚ÄĚThe
central bank is expected to tighten monetary policy further imminently.
British pound depreciated sharply vis-√†-vis the U.S. dollar today as cable
tested bids around the US$ 1.4985 level and was capped around the $1.5255
level. Bank of England reported net business lending fell 9.3% m/m, the
sharpest decline since record-keeping began in 1999.Bank of England Monetary Policy Committee
member Sentance reported he‚Äôs ‚Äúbeen relatively encouraged by the turnaround
we've seen in the last year, both in the UK and in the global economy.You have to recognize there is some risk of a
double dip, but that's not the central forecast. You'd have to see some factors
bring that about: we've seen big shocks in the international economy over the
last couple of years, so you couldn't rule out some new shocks emerging on the
financial front which could set back the economy. But that's not my central
expectation.‚ÄĚBoE yesterday noted that
mortgage lending has ‚Äúrecovered somewhat.‚ÄĚCable bids are cited around the US$ 1.4455 level.The
euro moved higher vis-√†-vis the British pound as the single currency tested
offers around the US$ 0.9015 level and was capped around the ¬£0.8920 level.
franc weakened vis-√†-vis the U.S. dollar today as the greenback tested
offers around the CHF 1.0635 level and was supported around the CHF 1.0540
level. Traders continue to speculate the Swiss National Bank‚Äôs franc policy has
shifted and that policymakers will tolerate more appreciation of the
franc.Swiss National Bank member
Danthine noted it will continue to counter excessive foreign exchange
gains.Data released in Switzerland yesterday
saw Q4 industrial production rise 6.4% q/q and decline 1.1% y/y while the
February trade surplus declined to CHF 1.29 billion from CHF 2.42 billion.The euro/ Swiss franc cross came off to a
fresh sixteen-month low amid declining expectations of additional Swiss
National Bank intervention.Also, the
March ZEW expectations index climbed to 53.8 from 52.5 in February.The
euro came off vis-√†-vis the Swiss franc as the single currency tested bids
around the CHF 1.4315 level while the
British pound moved lower vis-√†-vis the Swiss franc and tested bids around
the CHF 1.5920 level.
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