Wednesday September 12, 2007 - 16:29:46 GMT
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Forex and Commodity Market Commentary and Analysis (12 September 2007)
The euro strengthened vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3895 level and was supported around the $1.3825 level. The common currency established a fresh lifetime high as traders reacted to remarks from U.S. Treasury Secretary Paulson who indicated the current financial market problems may last longer than the Asian and Russian financial crises of the 1990s. Further pressure on the U.S. is likely to materialize on account of growing pressure on the Federal Reserve to reduce interest rates next Tuesday. The federal funds futures market is pricing in between 25bps and 50bps of easing by the Federal Open Market Committee next week on account of subprime mortgage and housing sector problems. In eurozone news, European Central Bank President Trichet yesterday testified that monetary policy remains on the ‚Äúaccommodative side‚ÄĚ and most dealers believe the ECB will lift the repo rate by +25bps by the end of the year. Data released in the eurozone today saw July industrial production up 0.6% m/m and 3.7% y/y. Also, EMU-13 labour costs were up 2.5% y/y in Q2. Euro bids are cited around the US$ 1.3620 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•114.35 level and was supported around the ¬•113.75 level. Prime Minister Abe resigned today and the Liberal Democratic Party is set to name his successor on 19 September with Taro Aso looking like the most likely replacement. Abe‚Äôs resignation may be mildly yen-negative as will likely make it more difficult for Bank of Japan Governor Fukui to lift the overnight call rate to by +25bps to +0.75%. Many data were released in Japan overnight. First, the August wholesale goods price index rose 1.9% y/y, exceeding forecasts and the 42nd consecutive monthly rise. Second, August consumer confidence fell to its lowest level in 32 months, printing at 44.0 from July‚Äôs 44.4 tally. Third, August revised machine tool orders were up 12.6% y/y. Fourth, the July current account surplus gained 4.5% y/y, below forecasts. The Nikkei 225 stock index lost 0.50% to close at ¬•15,797.60. Dollar bids are cited around the ¬•112.55 level. The euro appreciated vis-√†-vis the yen as the single currency tested offers around the ¬•158.75 level and was supported around the ¬•157.75 level. The British pound moved lower vis-√†-vis the yen as sterling tested bids around the ¬•231.00 figure while the Swiss franc appreciated vis-√†-vis the yen and tested offers around the ¬•96.50 level. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5216 in the over-the-counter market, down from CNY 7.5232. Data released in China saw the M2 money supply up 18.09% at the end of August and these data will likely result in additional pressure on People‚Äôs Bank of China to tighten monetary policy again this year. Also, August retail sales were up 17.1% y/y, August wholesale prices were up 6.5% y/y, and August property prices in 70 cities were up 8.2% y/y.
The British pound came off vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0285 level and was capped around the $2.0365 level. Sterling reached its highest level since 9 August. Bank of England Governor King again defended the central bank‚Äôs reaction to the global credit market instability. King reported ‚ÄúThe current turmoil, which has at its heart the earlier under-pricing of risk, has disturbed the unusual serenity of recent years, but, managed properly, it should not threaten our long-term economic stability‚ÄĚ and conceded the problems have ‚Äúclouded‚ÄĚ the U.K.‚Äôs economic outlook. King‚Äôs remarks were partly responsive to the ongoing spike in three-month sterling Libor rates that have market borrowing costs at 6.90%, a full 115bps above BoE‚Äôs headline 5.75% target rate. Most traders are significantly paring back their expectations for another rate hike from the BoE this year. Data released in the U.K. today saw the August claimant count rate at 2.6%, the lowest level since April 2005 with the ILO unemployment rare steady at 5.4%. Also, average earnings growth including bonuses was up 3.5% in the three months to July. Cable bids are cited around the US$ 2.0160 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6840 level and was supported around the ‚ā§0.6805 level.
The Swiss franc gained ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1815 level and was capped around the CHF 1.1895 level. The pair has not been this week since April 2005 and the CHF 1.1740 level remains a key target for dollar bears. Swiss National Bank‚Äôs interest rate decision will be released tomorrow and many expect the central bank will lift its three-month Swiss franc Libor target by 25bps. Other traders, however, believe the SNB will keep rates on hold, much as other major global central banks have done recently. One reason why the SNB could lift rates is to prevent the Swiss franc from being sold-off further vis-√†-vis the euro. Data released in Switzerland today saw the country‚Äôs 2006 current account surplus escalate to CHF 74 billion from CHF 63 billion in 2005. Dollar offers are cited around the CHF 1.2120 level. The euro moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6465 level while the British pound came off vis-√†-vis the Swiss franc and tested bids around the CHF 2.3995 level.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8430 level and was supported around the $0.8325 level. Data released in Australia overnight saw the September Westpac consumer index up 4.2%. Australian dollar bids are cited around the US$ 0.8130 level. The New Zealand dollar moved higher vis-√†-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7155 level and was supported around the US$ 0.7045 level. New Zealand dollar bids are cited around the US$ 0.6760 level.
The Canadian dollar made strong gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0355 level and was capped around the C$ 1.0445 level. Bank of Canada Governor Dodge characterized the central bank‚Äôs current 4.50% base rate as ‚Äúappropriate.‚ÄĚ He added ‚ÄúThe actions that we took to provide liquidity to support the smooth operation of financial markets did not in any way signal a change in our monetary policy.‚ÄĚ U.S. dollar offers are cited around the C$ 1.0655 level.
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