By GCI Fx Research
€
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4250 level and was capped around the $1.4275 level. A couple of factors led to a move higher for the dollar. First, there was talk that troubled U.S. commercial lender CIT may have insufficient liquidity, dousing yesterday’s positive news that some bondholders may provide US$ 3 billion in emergency liquidity. The euro has been positively correlated with U.S. equity markets and an indication that a major financial company such as CIT could be in trouble is a setback for the euro. Second, U.S. assets reacted relatively positive to a Wall Street Journal commentary from Federal Reserve Governor Bernanke who outlined the steps the Fed may take to unwind its massive monetary stimuli and counter inflationary pressures after the economy begins to recover. Bernanke noted “We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy.” Bernanke was careful to note a change in policy is not expected “for an extended period.” Bernanke testified before Congress today and traders were left with the impression that the Fed will be responsive to any inflationary pressures that emerge as a result of the Fed’s stimuli, a relief to U.S. dollar asset owners who do not want to see the value of their investments erode. Data released in the U.S. today saw the June Chicago Fed’s National Activity Index print at -1.80, worse than expected but better than the previous print of -2.30. In eurozone news, European Central Bank member Draghi noted some “positive signs” on the Italian economy. ECB member Nowotny noted the ECB has a “clear” exit strategy to implement when the time is right, but added “now’s not the time.” Nowotny added he sees no risk of deflation and said economic growth in 2010 will likely be too weak to avoid rising unemployment. Euro bids are cited around the US$ 1.3435 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥93.30 level and was capped around the ¥94.40 level. The yen reclaimed some recent lost ground after it was reported that troubled U.S. commercial lending giant CIT Group may have insufficient liquidity to make upcoming bond payments. Minutes from Bank of Japan Policy Board’s meeting of 15-16 July were released overnight in which policymaker indicated the central bank should consider ways to end its quantitative easing policies. Notably, the central bank earlier this month decided to extend some emergency financing programs through the end of the year and indicated they would seek to end the programs if the economy continues to improve. On the political front, Prime Minister Aso dissolved Parliament today and a general election is expected before 30 August. The Nikkei 225 climbed 2.73% to close at ¥9,652.02. U.S. dollar offers are cited around the ¥104.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥132.40 level and was capped around the ¥134.50 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥153.10 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.35 level. In Chinese news, the U.S. dollar strengthened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8300 in the over-the-counter market, up from CNY 6.8298.
Daily Market Commentary provided by GCI Financial Ltd.
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