Daily Market Commentary - GCI Financial

EURO

The euro jumped higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5810 level and was supported around the $1.5685 level. The common currency was bid higher following yesterday’s release of the minutes of the Federal Open Market Committee meeting from 18 March. Fed policymakers expressed concern the U.S. economy would contract this year and most concluded a “substantial easing” was warranted. FOMC officials noted a deterioration in business and consumer spending and did not see any signs of a recovery in the U.S. housing market. Some policymakers noted there could be a “prolonged and severe economic downturn.” Another FOMC camp warned inflation expectations might “become less firmly anchored” and said some economic indicators revealed inflation expectations have “edged higher of late.” Data released in the U.S. today saw February wholesale sales off 0.8% while inventories were up 1.1%. The IMF today warned U.S. subprime write-downs could reach US$ 945 billion and said U.S. economic growth may not exceed 0.5% this year. In eurozone news, German Q1 GDP growth expanded 0.6% q/q while eurozone Q4 GDP was up 0.4% q/q, unchanged from provisional estimates. The European Central Bank is unlikely to change monetary policy tomorrow and traders will pay close attention to what ECB President Trichet says following the interest rate decision. Other data released in the eurozone today saw the February trade surplus print at €16.9 billion, down from €17.1 billion. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥101.75 level and was capped around the ¥102.80 level. As expected, Japan’s Diet accepted the nomination of Bank of Japan Deputy Governor Shirakawa as the next Governor of the central bank. Shirakawa, who has been the acting governor for a couple of weeks following the retirement of former BoJ Governor Fukui, has a hawkish reputation. Following the central bank’s decision to keep the overnight call rate unchanged at 0.50%, Shirakawa noted the Japanese economy said “uncertainties surrounding the Japanese economy are now high. It may be an exaggeration to describe the current financial environment in the U.S. as being as bad as the one during the Great Depression. But the current situation is unprecedented in the post-World War II period anyway.” He added it will take “some time before the ongoing correction in the global financial and capital markets is completed.” The central bank downgraded its overall economic assessment in its April monthly report on account of escalating energy prices and higher raw materials. Notably, the central bank did not use the word “expansion” in its monthly assessment for the first time since June 2006. Data released in Japan overnight saw March machine tool orders rise 2.9% y/y. The Nikkei 225 stock index lost 1.05% to close at ¥13,111.89. Dollar offers are cited around the ¥103.65 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥160.60 level and was capped around the ¥161.45 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥200.70 level while the Swiss franc gained ground vis-à-vis the yen and tested offers around the ¥101.75 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0017 in the over-the-counter market, up from CNY 7.0008.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9765 level and was supported around the $1.9650 level. Most traders expect Bank of England’s Monetary Policy Committee will reduce the repo target rate by 25bps tomorrow while a minority anticipate a 50bps reduction. Data released in the U.K. today saw BRC March shop prices up 0.2% m/m and 1.1% y/y. Also, February manufacturing activity was up 0.4% m/m and 1.9% y/y but it is likely that gains in the industrial sector will not compensate for recent declines in consumer spending and house prices. Additionally, it was reported that Nationwide consumer confidence fell last month while REC reported that U.K. wage inflation fell to a 2.5 year low in March. Cable bids are cited around the US$ 1.9605 levels. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.8020 level and was supported around the ₤0.7965 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9995 level and was capped around the CHF 1.0165 level. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5830 and CHF 1.9740 levels, respectively.

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