By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3245 level and was supported around the $1.3140 level. As expected, the Federal Open Market Committee decided to keep interest rates unchanged. The FOMC reported “Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.” Kansas City Fed President Hoenig dissented with the majority and he argued that “continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.” President Obama will announce new Fed Board nominees tomorrow. Data released in the U.S. today saw MBA mortgage applications decline 2.9% from the prior reading of +13.6%. In eurozone news, data released today saw the EMU-16 April business climate indicator improve to -0.12 while EMU-16 April industrial confidence improved to -18 with consumer confidence remaining unchanged, economic confidence improved, and services confidence improved. German data saw April harmonized consumer price inflation decline 0.1% m/m and increase 1.0% y/y. All eyes remain on Greece, Portugal, and Spain. It is being reported that Greece may require €120 billion in financial assistance over the next three years. Spain’s credit rating was downgraded today and worsening sovereign credit conditions may exacerbate conditions in the eurozone. Euro bids are cited around the US$ 1.3175 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.05 level and was supported around the ¥93.00 figure. Bank of Japan’s Policy Board is expected to keep its monetary policy unchanged and its main unsecured overnight call rate unchanged at 0.1% on Friday. The central bank is also expected to upgrade its assessment of current economic conditions and raise its consumer price inflation forecasts. The government will continue to pressure the central bank to maintain an ultra-easy monetary policy and possibly adopt an inflation target of 2%. Data released in Japan overnight saw March retail trade climb 0.8% m/m and 4.7% y/y. Also, March large retailers’ sales were off 5.0%. The Nikkei 225 stock index lost 2.57% to close at ¥10,924.79. U.S. dollar offers are cited around the ¥96.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥124.55 level and was supported around the ¥122.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥141.70 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.85 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8254 in the over-the-counter market, down from CNY 6.8257. People’s Bank of China pledged to keep flexible policies to react to “new conditions.” PBoC added “The world economy may stage a recovery in 2010, yet the foundation is still fragile and complicated by the growth rates of various economies and shifts in the macroeconomic policies.”
Forex Daily Market Commentary provided by GCI Financial Ltd.
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