By GCI Fx Research
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The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4365 level and was supported around the $1.4235 level. Weaker-than-expected U.S. economic data today paved the way for a stronger common currency. First, MBA mortgage applications were off 10.7%, down from a prior reading of 0.3%. Second, November personal income notched its largest increase in six months but failed to meet estimates, printing at +0.4%, up from a revised +0.3% in October. November personal spending decelerated to +0.5% from a revised reading of +0.6% in October and the the final December University of Michigan consumer sentiment indicator slid back to 72.5 from 73.4. Other data saw November new home sales off 11.3% m/m, a sharp reversal from the downwardly revised +1.8% reading in October. On an annualized basis, new home sales sank to 355,000 from a revised 400,000 in October. Other data saw the PCE deflator up 1.5% y/y, a sharp increase from the 0.1% revised October reading. At the core level, PCE was up 0.0% m/m and 1.4% y/y. Federal Reserve Chairman Bernanke appears poised to be reappointed to his position by the entire Senate. The most likely scenario for monetary policy in 2010 is the gradual removal of the Fed’s emergency liquidity programs and a possible marginal increase in the federal funds target rate in the second half of the year. In eurozone news, Moody’s Investors Service downgraded Greece’s sovereign debt rating yesterday, following recent moves by Fitch and Standard & Poor’s. Bank of Greece today reported Greek banks are well-capitalized with capital adequacy levels much higher than the European average. Data released in the eurozone yesterday saw the December GfK consumer confidence survey decline to 3.3 in December from 3.7 in November. The European Central Bank is expected to keep monetary policy relatively steady for the next several months. Euro bids are cited around the US$ 1.3885 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.30 level and was capped around the ¥91.85 level. Chartists are eyeing the ¥92.85/ ¥93.15 levels as upside price objectives. Bank of Japan’s newfound vigilance against deflation has pushed long-term rates to a 53-month low on speculation the central bank will not lift its unsecured overnight call rate target while consumer price deflation remains negative. The yield on five-year Japanese government bonds reached 0.425%, the lowest yield since July 2005. Bank of Japan Governor Shirakawa yesterday said economic policymaking should not be guided by short-term price movements. On Monday, Shirakawa reported the central bank will “persistently” keep interest rates at “virtually zero” per cent to combat deflation. Shirakawa pledged “to supply ample liquidity and maintain stability within the financial system…if it is deemed necessary to achieve that, we are always prepared to act swiftly and decisively.” Last week, Shirakawa stepped up the verbal rhetoric noting the BoJ “does not tolerate a year-on-year rate of change in the consumer price index equal to or below zero per cent.” Finance minister Fujii yesterday reiterated the government will cap its new debt issuance at ¥44 trillion in the next fiscal year. This figure includes a ¥2 trillion fund to support jobs that Prime Minister Hatoyama recently described. Final budget negotiations for the 2010 – 2011 fiscal year are expected by the end of this week. Former finance ministry official Sakakibara warned the dollar could fall to ¥80 and “cause stock losses and enhance deflation.” The government today reported the economy is “picking up” and kept its economic assessment unchanged for the fifth consecutive month. Notably, the government reduced its assessment of capital spending. The Nikkei 225 stock index climbed 1.91% yesterday to close at ¥10,378.03. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥131.30 level and was supported around the ¥130.55 level. The British pound moved lower vis-à-vis the yen as sterling tested offers around the ¥145.75 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.25 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8294 in the over-the-counter market, down from CNY 6.8295. People’s Bank of China reaffirmed its plans to maintain a “moderately loose” policy stance in 2010 and to restrict credit for industries that have excess capacity. China appears poised to register economic growth of 8% this year. Chinese lenders provided US$ 1.3 trillion in loans in the first eleven months of the year. Monetary policy adjustments are expected in 2010 to slow the pace of economic growth and inflationary pressures. People’s Bank of China Governor Zhou yesterday reported reserve ratios are an important policymaking tool and there is widespread speculation the central bank will lift reserve requirements for banks when policy is tightened further. People’s Bank of China advisor Fan Gang yesterday said the U.S. dollar may decline in the “very long term” and fluctuate in the short term. State Information Center member Zhu Baoliang reported “the yuan shouldn’t move against the dollar next year.” The Chinese government reported industrial output will have expanded 11% in 2009 when final data are tallied. A government think tank reported retail sales will likely expand 18.5% in 2010 with exports up 6% next year.
₤
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5990 level and was supported around the $1.5925 level. Sterling this week had traded at its lowest level since mid-October before U.S. dollar bulls booked some profits. BBA reported net mortgage lending by U.K. banks increased ₤3.3 billion in November, up from a ₤3.2 billion rise in October. Demand for consumer credit weakened last month as ₤300 million was repaid by borrowers, up from ₤200 million in October. BBA also reported that mortgage approvals rose to a two-year high of 44,713 in November. Minutes from Bank of England’s 9-10 December Monetary Policy Committee meeting were released today in which policymakers unanimously voted to keep the BoE’s asset purchase facility unchanged at ₤200 billion and its main Bank Rate unchanged at a record-low of 0.5%. Yesterday, Bank of England announced trading conditions in the secondary market remain “somewhat restricted” and noted it will move to expand liquidity in the first week of the year. Cable bids are cited around the US$ 1.5755 level. The euro moved higher vis-à-vis the British pound as cable tested offers around the ₤0.8995 level and was supported around the ₤0.8910 level.
CHF
The Swiss franc appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0360 level and was capped around the CHF 1.0495 level. There remains ongoing talk the Swiss National Bank is conducting franc-selling intervention. Swiss National Bank released its quarterly report on Monday and said it would be “premature” to begin raising borrowing costs, noting there are “downside risks” to the inflation outlook.” Trying to provide a balanced outlook, however, SNB reported “expansionary monetary policy cannot be maintained indefinitely.” On 10 December, SNB voted to keep its benchmark rate unchanged at 0.25% and noted it will end its corporate bond purchases as a first step to withdraw its emergency measures. On Monday, SNB reported it will “continue to act decisively to prevent any excessive appreciation.” U.S. dollar offers are cited around the CHF 1.0615 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4875 level while the British pound depreciated vis-à-vis the Swiss franc and tested bids around the CHF 1.6535 level.
Daily Market Commentary provided by GCI Financial Ltd.
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