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$ 1.5780 level and was capped around the $1.5875 level. The common currency moved to intraday lows early in the North American session following the release of a mixed bag of U.S. economic data. First, it was reported that the New York Federal Reserve Bank’s Empire State manufacturing index rose to 0.63 in April from a record low of -22.23 in March, above expectations. Second, the March headline producer price index increased to 1.1% m/m while core PPI was up 0.2% m/m and 2.7% over the previous twelve months – the fastest pace since July 2005. Third, February net foreign acquisition of long-maturity U.S. securities totaled US$ 60.1 billion, up from US$ 42.2 billion in January while monthly net TIC flows – a broad measure of net foreign capital inflows – registered US$ 64.1 billion. In eurozone news, the German April ZEW business confidence survey fell to -40.7 from -32.0 in March. European Central Bank member Garganas hawkishly reported “Restraining inflation remains the main goal of the ECB. The current direction of ECB monetary policy will be focused on inflation, with the goal of restraining inflation over the medium term.” Garganas’s comments were seconded by Ordonez who noted “We are always more concerned with inflation, and our number one objective is inflation. However, if things change we can change.” ECB President Trichet reported “inflation is certainly a problem, as said by the G7 as well as IMF.” France’s finance ministry reported inflation is likely to stabilitze and even decline before the year-end. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the ¥101.55 level and was supported around the ¥100.80 level. Economic and Fiscal Policy Minister Ota reported the risks of a U.S. economic recession are increasing on account of declining consumption and employment. Both Bank of Japan and the Japanese government have recently noted increasing economic risks in the U.S. and their negative effect on Japan’s economy and this suggests the central bank will not be raising the overnight call rate from 0.50% anytime soon. Data released in Japan overnight saw Tokyo March condominium sales off 17.8% y/y while Osaka condominium sales were off 26.6% y/y. Finance minister Nukaga reported Japan has “no intention on changing our thinking on foreign exchange reserves.” The Nikkei 225 stock index climbed 0.57% to close at ¥12,990.58. 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 ¥160.50 level and was supported around the ¥159.70 level. The British pound came off vis-à-vis the yen as sterling tested bids around the ¥198.50 level while the Swiss franc appreciated vis-à-vis the yen and tested offers around the ¥101.35 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9925 in the over-the-counter market, down from CNY 6.9990.

STERLING

The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9615 level and was capped around the $1.9790 level. Technically, today’s intraday low was right around the 76.4% retracement of the move from $1.9360 to $2.0395. Data released in the U.K. today saw March consumer price inflation print at 2.5%, below expectations but above the central bank’s target. Traders reacted to the weaker-than-expected print by selling sterling on the premise there may be room for additional monetary easing by the Bank of England. Also, BRC reported March like-for-like retail sales were off 1.6% y/y, the first decline in two years. Additionally, RICS reported the March house price balance was at its worst level since 1978. The U.K. government noted February annual house price inflation decelerated to 6.7% from 8.0% in January. Collectively, today’s data point to a decelerating U.K. economy. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8065 level and was supported around the ₤0.8000 figure.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0040 level and was supported around the CHF 0.9955 level. Data released in Switzerland today saw the UBS business cycle indicator indicate Q1 GDP growth of 3.7% y/y while Q2 economic growth is expected to decelerate to 3.0% y/y. U.S. dollar offers are cited around the CHF 1.0375 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5850 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 1.9605 level.

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