EURO

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5750 level and was supported around the $1.5630 level. The common currency reached its highest level since 9 June as traders reduced their long U.S. exposure following the Federal Open Market Committee’s interest rate decision yesterday to hold the federal funds target rate unchanged at 2.00%. The FOMC was not as hawkish as many dealers had expected and many traders do not believe the Fed will raise interest rates any earlier than December.

The FOMC reported

“Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters. The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”

Notably, Dallas Fed President Fisher voted for a hike in rates. Data released in the U.S. today saw May existing home sales up 2.0% to an annualized 4.99 million pace. Also, final Q1 GDP growth was upwardly revised to 1.0%, the latest evidence that the U.S. economy avoided recession at the beginning of the year. Other data saw weekly initial jobless claims remain unchanged at 384,000 while continuing jobless claims were up 82,000 to 3.139 million.

In eurozone news, German provisional consumer price inflation data for June will be released tomorrow. Data released in the eurozone today saw May M3 money supply growth of 10.5% y/y, unchanged from April’s result. Also, German May import prices were up 2.4% m/m and 7.9% y/y. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.15 level and was capped around the ¥108.15 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥102.65 to ¥108.55. Bank of Japan Policy Board member Nakamura reported inflationary risks have become more heightened this month. Most traders expect BoJ will keep its overnight call rate unchanged at 0.50% for several months. Prime Minister Fukuda announced measures to help Japanese businesses deal with the high price of oil. Japanese officials and their G8 counterparts will discuss elevated energy and food costs next month at the Group of Eight summit in northern Japan. The Nikkei 225 stock index lost 0.05% to close at ¥13,822.32. Dollar bids are cited around the ¥103.00/ 101.35 levels.

The euro came off vis-à-vis the yen as the single currency tested bids around the ¥168.00 figure and was capped around the ¥169.45 level.

The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥212.10 and ¥104.05 levels, respectively.

The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8657 in the over-the-counter market, up from CNY 6.8653.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9895 level and was supported around the $1.9715 level. The pair reached its highest level since 2 May. Bank of England Monetary Policy Committee officials testified today and reported a rate hike was discussed at the June policy-setting meeting. BoE Governor King testified that his letter to Chancellor Darling that explained why inflation is more than 1.0% above the 2.0% inflation target was not intended to be dovish. MPC members Gieve, Tucker, Barker, and Besley testified they did not opt for a rate cut now because they wanted to evaluate how medium-term inflation risks developed. Policymakers view wage developments as being a critical determinant in future policymaking. Data released in the U.K. today saw Q1 business investment decline 1.8% q/q. Cable bids are cited around the US$ 1.9360/ 1.9100 levels.

The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7910 level and was capped around the ₤0.7950 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0220 level and was capped around the CHF 1.0390 level. The Swiss government reported it is expected to realize a budget surplus of CHF 1.4 billion in 2009. U.S. dollar bids are cited around the CHF 1.0135 level.

The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6110 and CHF 2.0320 levels, respectively.

Posted in Categories: Contributor, External Research, Forex.

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