EURO

The euro weakened sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5380 level and was capped around the $1.5565 level. The common currency gave back all of yesterday’s gains as traders reacted to stronger-than-expected U.S. May import prices data that saw overall import prices rise 2.3% with April’s and March’s tallies upwardly revised to 2.4% and 3.0%, respectively. May overall import prices were up 17.8% y/y and May ex-petroleum import costs were up 0.5%. U.S. May export prices were up 0.3% m/m, the smallest increase since last September.

Collectively, these data will not be welcomed by the Federal Reserve policymakers who recently have moved to a hawkish stance. The Federal Open Market Committee will convene on 24-25 June and most traders expect the FOMC will acknowledge a higher level of inflationary pressures. Other data released today saw weekly initial jobless claims rise 25,000 to 384,000 while continuing jobless claims were up 58,000 to 3.139 million. Additionally, May retail sales were up 1.0%, more-than-expected, while April’s and March’s retail sales results were upwardly revised. Last, it was reported that April business inventories were up +0.5%.

These particular data evidence a resurgence in U.S. consumer spending and final private demand, although some of the spending may be attributable to tax rebate checks. The Fed’s Beige Book was released yesterday in which it was noted the economy remained “generally weak” heading into summer on account of rising food and energy costs.

In eurozone news, dealers are closely monitoring today’s Irish referendum on the Lisbon Treaty. A rejection of the Treaty would likely have a negative impact on euro sentiment as was the case following failed French and Dutch referenda in 2005. European Central Bank member Weber repeated the week-old ECB mantra about being in a “state of heightened alertness.” ECB member Bini-Smaghi also alluded to ECB President Trichet’s recent hawkish remarks. Data released in the eurozone today saw EMU-15 April industrial output rise 0.9% m/m and 3.9% y/y.

The ECB’s monthly bulletin was released today and were very cautious about wage inflation growth, noting “The euro-area indicator of negotiated wages shows signs of marked acceleration in 2008.” Germany’s RWI Institute lifted its 2008 GDP growth forecast outlook to 2.2% from 1.7%. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.00 figure and was supported around the ¥106.80 level. The pair extended yesterday’s gains and reached its highest level since 26 February. Most traders expect Bank of Japan’s Policy Board to keep its overnight call rate unchanged at 0.50% overnight. Remarks from BoJ Governor Shirakawa will closely be monitored overnight to see if he is more hawkish as his global counterparts as the Federal Reserve and European Central Bank have been recently.

BoJ is expected to keep rates steady for several months and most dealers expect Shirakawa will continue to stress downside economic risks. Group of Eight policymakers convening this weekend are not expected to give much attention to exchange rates in their communiqué. The Nikkei 225 stock index lost 2.08% to close at ¥13,888.60. Dollar bids are cited around the ¥103.00/ 101.35 levels.

The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥166.45 level and was supported around the ¥165.65 level.

The British pound gained ground vis-à-vis the yen as sterling tested offers around the ¥210.25 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥102.85 level.

The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9075 in the over-the-counter market, down from CNY 6.9184 and the pair’s lowest close since the yuan revaluation of July 2005. Data released in China overnight saw the May consumer price index print at 7.7% y/y, down from April’s level of 8.5%. Also, the end-May M2 money supply was up 18.07% and actual foreign direct investment was up 54.97% to US$ 42.778 billion between January and May.

STERLING

The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9435 level and was capped around the $1.9640 level. The pair reached its lowest level since 15 May. Bank of England reported that demand for its weekly repurchase operations reached its highest level since early October with the central bank allocating ₤16.15 billion. Some of the demand is related greater demand for liquidity as the half-year approaches.

Separately, the central bank reported the public believes the current rate of inflation is around 4.9%, above the 3.9% level seen in February. U.K. May consumer price inflation data are expected on Tuesday. It was also reported that April CML mortgage loans for house purchases rose 9% m/m to 50,700 while U.K. April new construction orders fell 2% y/y. Cable bids are cited around the US$ 1.9360/ 1.9100 levels.

The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7885 level and was capped around the ₤0.7930 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback closed at CHF 1.0490 level and was supported around the CHF 1.0300 figure. The pair retraced all of yesterday’s losses. U.S. dollar bids are cited around the CHF 1.0250 level.

The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6135 and CHF 2.0400 level, respectively.

Posted in Categories: Contributor, External Research, Forex.

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