By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2175 level and was capped around the $1.2275 level. North American dealers lifted the common currency from its intraday lows. European Commission President Barroso called for the establishment of an independent European credit ratings agency. Iran’s central bank today reported it is selling €45 billion in reserves for U.S. dollars. Three-month U.S. Dollar Libor loans rose to 0.5375% today from 0.53625% yesterday. Its recent high was 0.53844% – reached on 27 May – and this was the highest level since 6 July 2009. Libor has more than doubled in 2010 on account of the deteriorating credit outlook for banks and the European sovereign debt crisis. European Central Bank member Noyer reported the current EUR/USD rate is “by no means unusually low.” Spanish Prime Minister Zapatero said he will approve a labour market rule change on 16 June and also noted financial markets are having a “serious difficulty.” Greece reported it is establishing a holding company to help sell its state assets and finance minister Papaconstantinou reported Greece will accelerate privatizations. Data released in the eurozone today saw EMU-16 producer price inflation up 0.9% m/m and 2.8% y/y. In U.S. news, data released today saw MBA mortgage applications decelerate to +0.9% while May Challenger job cuts were off 65.1% y/y. Also, April pending home sales were up 6.0% m/m and 24.6% y/y. Philadelphia Fed President Plosser said Fed policy will be impacted by the European Union financial crisis. Euro offers are cited around the US$ 1.2620 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.20 level and was supported around the ¥90.90 level. The major news in Japan overnight was the resignation of Prime Minister Hatoyama over his handling of the U.S. military base relocation on Okinawa. A successor has not yet been named but one possibility receiving a lot of attention is finance minister Kan. The market impact will probably be limited over the long-term as Japan does not have much room to issue more debt. If Kan becomes the new Prime Minister, it is possible that Vice finance minister Noda will become the new financial minister. Lower-house elections are forthcoming and the Democratic Party of Japan has a tenuous grip on power. Bank of Japan sources indicated the central bank may lend at least ¥1 trillion to commercial banks under its new loan program, details of which were announced in May. Japan continues to suffer from moderate deflation that monetary policy and fiscal policy have been unable to resolve. Data released in Japan overnight saw the May monetary base up 3.7% y/y and data to be released tonight include Q1 capital spending. The Nikkei 225 stock index lost 1.12% to close at ¥9,603.24. 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 ¥112.70 level and was supported around the ¥111.00 figure. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥135.40 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥79.70 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8298 in the over-the-counter market, down from CNY 6.8306. Former People’s Bank of China adviser Fan Gang reported China needs to implement local government debt quotas. Many dealers believe China faces a massive property bubble and needs to rein in further housing speculation. PBoC adviser Li today estimated China’s mainland inflation may reach 3.7% this year, noting China is “lightly overheating.” PBoC Governor Zhou reported China has “promptly” curbed its economic downturn.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4550 level and was capped around the $1.4770 level. Bank of England Governor King said the system must seize the opportunity for reform and banks should not be permitted to be “too big to fail.” King reiterated support for the BoE’s policy framework, reporting “Despite its volatility, inflation remains low by historic standards, and on track to meet the target in the medium term. The framework has proved resilient to the stress of the financial crisis. It guided our monetary decisions going out into the crisis, and it will guide them coming out of it.” Data released in the U.K. today saw April net consumer credit decline to -£100 million from the revised prior reading of +£100 million while April net lending secured on dwellings printed at £500 million, up from the prior reading of £200 million. April mortgage approvals grew marginally to 49,000 and the M4 money supply was up 0.0% m/m and 3.3% y/y. Finally, May PMI construction improved to 58.5. Cable bids are cited around the US$ 1.4220 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8375 level and was supported around the £0.8280 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1600 figure and was supported around the CHF 1.1525 level. Data released in Switzerland today saw April retail sales up 1.3% y/y, down from a revised 4.0% in March. Swiss National Bank member Leuthard on Friday reported the SNB is interested in a “stable euro,” adding the central bank’s euro reserves have risen to 52%. SNB has undertaken significant franc-selling intervention this year to address the depreciation of the common currency. U.S. dollar bids are cited around the US$ 1.1420 level. The euro lost ground vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4120 level while the British pound lost ground vis-à-vis the Swiss franc and tested bids around the CHF 1.6860 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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