Forex Market Commentary and Analysis (22 June 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2250
level and was capped around the $1.2355 level. European sovereign debt concerns were back at
the forefront today and these led to a weaker common currency.European Union Economic and Monetary Affairs
Commissioner Rehn reported ‚ÄúContrary to what some people argue, Europe is not
suffocating growth by this strategy of fiscal consolidation. What we are doing
is putting our fiscal houses in order in a gradual, differentiated way: faster
where the doubts about fiscal sustainability have been biggest, and slower
elsewhere.‚ÄĚThere is talk that the U.S.
and Europe are at odds over a coordinated economic policy.The former is said to favour higher levels of
deficit spending to stimulate economic growth while the latter is said to
support reduced fiscal spending and would be comfortable with reduced economic
output.The European Union is currently
evaluating sanctions for ‚Äúinadequate debt trajectory‚ÄĚ and may consider a tax on
bond issues by highly-indebted countries.Eurogroup Chairman Juncker reported the economic recovery ‚Äúremains
fragile and loaded with risks.‚ÄĚThe
common currency‚Äôs standing in many central banks‚Äô reserve portfolios is
diminishing, a reflection of the currency‚Äôs recent volatility and the eurozone‚Äôs
significant debt woes.German Chancellor
Merkel reiterested Germany wants a stable euro and an independent European
Central Bank.European Central Bank
member Ordonez said Bank of Spain will publish banks‚Äô stress test results as
soon as possible.Data released in the
eurozone today saw the EMU-16 April current account print at -‚ā¨5.1 billion,
down from the revised prior reading of +‚ā¨1.5 billion, while EMU-16 June
consumer confidence improved to -17.German data saw the June Ifo business climate indicator improve to 101.8
while the expectations sub-index receded to 102.4.In
U.S. news, May existing home sales tumbled 2.2% m/m from an upwardly revised
8.0% in April to an annualized 5.66 million units, a surprise decrease.The April house price index climbed 0.8% and
the June Richmond Fed manufacturing index fell back to +23 from the prior
reading of +26.Most dealers believe the
Federal Open Market Committee will keep interest its federal funds rate target
unchanged at 0.25% tomorrow when its monetary policy decision is
announced.The Fed may also retain its ‚Äúextended
period‚ÄĚ rhetoric to describe the ongoing accommodation of monetary policy.Euro offers are cited around the US$
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•90.50 level and was capped around
the ¬•91.10 level. Traders pushed the yen
higher across the board, one day after the yen came off following China‚Äôs
announcement that it would be liberalizing its yuan exchange rate policy.Moody‚Äôs today affirmed its AA2 rating on
Japan and maintained its stable outlook on the country.Yields on 10-year Japanese government bonds
fell to 1.185%, their lowest level since 5 January 2009.There is some speculation the government
plans to nearly double its growth projection for the current fiscal year to
2.6% following January‚Äôs estimate of 1.4%.Notably, Japan‚Äôs economy contracted 2.0% during its last fiscal year and
3.7% the preceding fiscal year.The
government is expected to release new growth estimates as early as tomorrow.BoJ will soon release its June quarterly
survey of consumer sentiment and it is expected to evidence a fifth consecutive
quarter of improved confidence.Also,
big firms are expected to expand capital spending by 4.9% this fiscal year.Data released in Japan overnight saw May
supermarket sales off 5.3% y/y.The
Nikkei 225 stock index lost 1.22% to close at ¬•10,112.89.The
euro moved lower vis-√†-vis the yen as the single currency tested bids around
the ¬•111.05 level and was capped around the ¬•112.45 level.The
British pound moved higher vis-√†-vis the yen as sterling tested offers
around the ¬•134.75 level while the Swiss
franc moved higher vis-√†-vis the yen and tested offers around the ¬•82.20 level.
In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8130 in the
over-the-counter market, up from CNY 6.7969. Traders booked profits on previous short
dollar positions after China‚Äôs announcement that it would end its two-year U.S.
dollar peg ahead of this week‚Äôs Group of Twenty summit in Toronto.People‚Äôs Bank of China noted it will prevent ‚Äúexcessive‚ÄĚ
exchange rate movements.Today‚Äôs CNY
gains were the largest since July 2005 when China revalued the yuan.Notably, the twelve-month non-deliverable
yuan forward rose 1.1% to 6.6425 and this implies traders are speculating on a
2.3% yuan appreciation.People‚Äôs Bank of
China reported a stronger yuan will help curb inflation and focus investment on
service industries from export manufacturing industries.Most dealers expect the appreciation will be
relatively gradual with some forecasts calling for about a 4-5% appreciation
this year and around a similar amount next year.During the past two years, Chinese monetary
authorities bought dollars to prevent the yuan from strengthening too
much.The CNY appreciation some 21%
during the three years after China introduced its managed float against a
basket of currencies in July 2005.The
yuan has jumped some 16% vis-√†-vis the euro this year and that may temper the
yuan‚Äôs upside.PBoC is estimated to have
accumulated some US$ 2.4 trillion in foreign reserves while intervening in the
currency markets.May industrial profits
data will be released on 24 June.
British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers
around the US$ 1.4855 level and was supported around the US$ 1.4685 level. Chancellor of the Exchequer Osborne announced
the U.K. will raise more than ¬£2 billion per year by taxing banks that have
risky balance sheets.Both Germany and
France are expected to follow suit with a similar levy.Osborne‚Äôs Budget was presented today and the government
is now forecasting economic growth of about 2.3% in 2011.Also, the U.K. value-added tax was increased
to 20% from 17.5%, a policy shift expected to add an additional ¬£13 billion per
year in revenue.Cable bids are cited
around the US$ 1.4620 level.The euro depreciated vis-√†-vis the
British pound as the single currency tested bids around the ¬£0.8275 level and
was capped around the ¬£0.8365 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.1035 level and was capped around the CHF 1.1120 level. Data released in Switzerland today saw the May
trade balance decline sharply to CHF 820 million from the upwardly-revised
April total of CHF 2.06 billion.This
decline reflects the impact of the strong franc and the limited success Swiss
National Bank has had in blunting the impact of the stronger franc through euro-buying
intervention.SNB member Jordan said
deflation risks have largely gone away and said there is currently no need for
intervention.Swiss National Bank yesterday
reported that its foreign currency investments rose to CHF 239 billion in May
from CHF 153.6 billion in April, indicative of the significant amount of
franc-selling intervention the central bank has been conducting to protect the
Swiss export sector.U.S. dollar offers
are cited around the CHF 1.1470 level.The euro depreciated vis-√†-vis the
Swiss franc as the single currency tested bids around the CHF 1.3585 level
while the British pound moved lower
vis-√†-vis the Swiss franc and tested bids around the CHF 1.6295 level.
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