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$ 1.4280 level and was capped around the $1.4360 level. The common currency failed to sustain intraday gains after it was reported that eurozone industrial new orders registered their strongest gain in nearly nineteen months in June. European Central Bank President Trichet was rather cautious in his remarks this weekend at the Kansas City Federal Reserve’s annual Jackson Hole symposium. Trichet reported “we see some signs confirming that the real economy is starting to get out of the period of freefall” but added this “does not mean at all that we do not have a very bumpy road ahead of us.” Some ECB policymakers are thought to be questioning the sustainability of the recent improvement in eurozone economic data. ECB’s Liikanen said there is “no need” for the ECB to reassess its policy stance and added unemployment will rise more. In U.S. news, the Chicago Fed’s Midwest manufacturing index improved 2.6% in July, the first monthly gain since June 2008, and was off 22.8% y/y. Fed Chairman Bernanke was more optimistic than Trichet in his remarks at the Jackson Hole symposium. Vice Chaiman Kohn reiterated “the commitment to low rates is designed to keep inflation from falling and falling persistently below what we might want it to be for a long time.” Data to be released in the U.S. tomorrow include the June S&P/ Case Shiller home price index. Euro bids are cited around the US$ 1.3900 figure.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.05 level and was supported around the ¥94.25 level. The yen was mixed across the board as risk appetite improved somewhat, encouraging some to chase higher-yielding assets. A greater resumption of risk appetite could result in more demand for short yen carry trades in which the yen is used as a financing vehicle to invest in assets with greater yield spreads. Vice finance minister Tango reported Japan needs to limit Japanese government bond sales as much as possible. Tango’s comments are topical because the Liberal Democratic Party of Japan may lose this weekend’s general election with the Aso government conceding the LDP’s stronghold on power to the rival Democratic Party of Japan. DPJ leader Hatoyama was on the tape earlier saying the DPJ does not plan to increase JGB issuance, contrary to public chatter that the liberal DPJ will expand public works projects. Bank of Japan Governor Shirakawa spoke at the Fed’s Jackson Hole symposium this weekend and said monetary policy “should avoid inflating asset bubbles by keeping interest rates low for too long.” The Nikkei 225 stock index climbed 3.35% to close at ¥10,581.05. 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 ¥135.00 figure and was capped around the ¥136.05 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥154.80 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.90 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8267 in the over-the-counter market, down from CNY 6.8269. Chinese Premier Wen said the markets need to avoid being “blindly optimistic” about the global economic recovery and added China must maintain its “moderately loose” monetary policy and “active” fiscal policy.
Daily Market Commentary provided by GCI Financial Ltd.
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