Daily Market Commentary – GCI Financial
The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5885 level and was supported around the $1.5670 level. Traders lifted the common currency on doubts that concerted global foreign exchange market intervention would materialize from this week’s Group of Seven communiqué in which policymakers surprised markets by acknowledging there have been “sharp fluctuation in major currencies” since the last G7 meeting. Policymakers added they are concerned about the implications for economic and financial stability but the markets doubt there will be sufficient follow-through in actual intervention. The shift in sentiment in the G7’s communiqué underscores the extent to which exchange rate fluctuations have moved beyond “disorderly.” The greenback also erased early intraday gains following a surprise announcement that U.S. banking giant Wachovia lost money in Q1. Data released in the U.S. today saw March retail sales rise 0.2% m/m and 2.0% y/y while the ex-autos component was up 0.1%. Also, February business inventories came in around expectations at +0.6%. In eurozone news, European Central Bank member Noyer was quoted as saying recent price increases have risen to levels that are “clearly outside our price stability objective… we must ensure that actions do not maintain inflation at the abnormally high level that it has reached for what should be a short period.” Traders interpreted Noyer’s comments as an indication that the ECB will not be reducing interest rates anytime soon. Similarly, ECB’s Quaden reported eurozone inflation will remain over 2% for months. Data released in the eurozone today saw EMU-15 February industrial output up 0.3% m/m and 3.1% y/y. It was also reported that core EMU-15 PPI was up 0.4% m/m and 3.1% y/y. Euro bids are cited around the US$ 1.5345 level.
The yen appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥100.30 level and was capped around the ¥101.50 level. Minutes from Bank of Japan’s Policy Board meeting from 6-7 March were released overnight in which policymakers stressed the need to monitor downside Japanese economic risks caused by the U.S. economic slowdown and global financial turbulence. There was no explicit statement from policymakers that they may consider a rate cut but comments from the central bank have become noticeably more pessimistic in recent weeks. Vice finance minister Tsusa said he would “refrain from elaborating” on exchange rates, indicating the G7 adequately covered the topic in its communiqué. The Nikkei 225 stock index lost 3.05% to close at ¥12,917.51. Dollar offers are cited around the ¥103.65 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥159.95 level and was supported around the ¥158.25 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥200.80 and ¥101.30 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9990 in the over-the-counter market, down from CNY 7.0065. Data released in China today saw the March consumer price index rise 8.3%, down from February’s 8.7% level. Q1 economic data will be released by China on Wednesday.
The British pound moved appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9890 level and was supported around the $1.9650 level. Data released in the U.K. today saw March factory gate prices escalate at their fastest rate since April 1991, up 0.9% m/m and an annualized 6.2% from 5.9% in February. The increase in producer prices renders it more difficult for Bank of England to reduce interest rates. Prime Minister Brown announced he will meet business leaders tomorrow to discuss ongoing financial market dislocations ahead of a trip to the U.S. Cable bids are cited around the US$ 1.9605 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7960 level and was capped around the ₤0.8010 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9925 level and was capped around the CHF 1.0075 level. Swiss National Bank President Roth was quoted as saying the central bank will be more firm in the future in warning about possible future threats to the financial system. U.S. dollar offers are cited around the CHF 1.0375 level. The euro weakened vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5760 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the 1.9835 level.