Daily Market Commentary - GCI Financial

EURO

The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5730 level and was capped around the $1.5915 level. The common currency established a new lifetime high before ceding intraday gains. As expected, the European Central Bank kept its main refinancing rate unchanged at 4.00% and ECB President Trichet said policymakers’ sentiment “is the same as (the previous meeting on 6 March).” Trichet added rates are high enough to counter inflation pressures despite the fact that consumer inflation is currently around 3.5%. Trichet added the ECB “deplores” excessive currency volatility and noted “with great attention and interest” that the U.S. has reaffirmed its commitment to a strong U.S. dollar policy. Data released in the U.S. today saw weekly initial jobless claims fall 53,000 to 357,000 while continuing jobless claims rose 3,000 to 2.94 million, its highest level in more than 3.5 years. Also, the February trade deficit expanded 5.7% to US$ 62.3 billion. Most traders do not expect any momentous breakthroughs on exchange rates at this weekend’s Group of Seven and IMF/ World Bank meetings. G7 policymakers are expected to approve guidelines by the Financial Stability Forum to strengthen the international financial community. U.S. Treasury Secretary Paulson today reported the U.S. economy has “turned down sharply.” In eurozone news, Germany’s DIW sees Q2 GDP growth at 0.4%. 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 ¥100.00 figure and was capped around the ¥101.85 level. The yen had a bid to it after Japan’s parliament fully approved the nomination of Bank of Japan Deputy Governor Shirakawa to become the new Governor of the central bank. Shirakawa has a reputation of being somewhat hawkish on interest rates but most traders do not believe he will orchestrate a rate hike anytime soon. Many data were released in Japan overnight. First, March banking lending was up 1.2% y/y. Second, Japan’s money supply expanded 2.2% in March, below forecast. Third, Japan’s current account surplus expanded 2.9% in February, consistent with forecasts. Fourth, February core private sector machinery orders were 12.7% m/m lower to ¥1.06 trillion, the largest decline in more than four years. A government survey of private economists estimates Japan’s economy is likely to have expanded at an annualized rate of 0.76% in Q1. BoJ will release its semi-annual economic and prices outlook report later this month and it is probable the central bank will again downgrade its GDP growth estimate to around 1.5% from the 2.1% level it foresaw in the semi-annual report in October. The Nikkei 225 stock index lost 1.27% to close at ¥12,945.30. 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 ¥158.75 level and was capped around the ¥161.20 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥198.05 and ¥100.80 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9916 in the over-the-counter market, down from CNY 7.0017 and the pair’s lowest close since the yuan revaluation of July 2005. Notably, the fall below the psychologically-important CNY 7.0000 figure took place one day before the Group of Seven meeting begins in Washington, D.C. The Chinese government revised its 2007 GDP growth measure to 11.9% from 11.4%. It was also report that foreign direct investment was up 61.26% to US$ 27.41 billion between January and March while Q1 consumer confidence fell to 94.8.

STERLING

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9720 level and was capped around the $1.9840 level. As expected, Bank of England reduced its repo rate target today for the third time in five months, taking the headline rate lower by 25bps to 5.00%. Monetary Policy Committee members reported that upside inflation pressures remain but said a worsening of credit conditions and a decrease in the availability of credit warranted today’s move. Traders await the release of the minutes from today’s meeting on 23 April followed by the quarterly inflation report in May. NIESR estimates Q1 quarterly GDP growth reached 0.5% in the U.K. Cable bids are cited around the US$ 1.9605 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7965 level and was capped around the ₤0.8030 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0085 level and was supported around the CHF 0.9885 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from CHF 0.9645 to CHF 1.0250. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5865 and CHF 1.9895 levels, respectively.

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