Daily Market Commentary – GCI Financial
The euro gave back recent gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ $1.5845 level and was capped around the $1.5985 level. The common currency came within fifteen pips of testing the psychologically-important US$ 1.6000 figure before traders booked profits. Data released in the U.S. today saw the April Philadelphia Fed manufacturing survey fall to -24.9 in April from -17.4 in March while the March leading index moved higher 0.1% – the first increase in six months. It was also reported that weekly initial jobless claims climbed 17,000 to 372,000 while continuing jobless claims rose 26,000 to 2.984 million, the highest since June 2004. Federal Reserve Vice Chairman Kohn today suggested a more permanent “liquidity backstop” for primary dealers to maintain the orderly functioning of the U.S. securities market. In eurozone news, European Central Bank member Weber hawkishly reported the ECB’s staff may need to upwardly revised inflation expectations in June. The most recent assessment by the ECB in March projected an average inflation rate of around 2.9% for 2008. Eurogroup President Juncker verbally intervened against the euro’s rise today saw the markets should not underestimate the Group of Seven’s comments this past weekend about currencies. The ECB’s April bulletin was released today and reported temporarily high inflation rates may remain for some time, principally on account of elevated food and energy prices. EMU-15 economic data released today saw the EMU-15 trade surplus reach €800 million in February. Euro bids are cited around the US$ 1.5345 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥102.70 level and was supported around the ¥101.70 level. Traders dumped the yen across the board on a news report out of London that the British Bankers Association is investigating whether or not banks that set the fixing price of Libor have kept rates artificially low to mask demand for interbank liquidity. The evaluation of fixing practices may result in higher market interest rates and this could result in greater demand for overseas yield opportunities by Japanese accounts. Also, some U.S. companies have been posting higher-than-expected earnings results this week and this has led to additional demand from Japanese investors. Data released in Japan overnight saw February industrial output climb 1.6% m/m. The Nikkei 225 stock index climbed 1.92% to close at ¥13,398.30. 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 ¥163.20 level and was supported around the ¥162.15 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥203.35 and ¥102.25 levels, respectively. The Chinese yuan appreciated sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9838 in the over-the-counter market, down from CNY 6.9918, the pair’s lowest close since the yuan revaluation of July 2005.
The British pound moved sharply higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9925 level and was supported around the $1.9690 level. Sterling catapulted higher after the report surfaced that the British Banker’s Association is reviewing the way that Libor is fixed in the U.K. The gap between Libor and the federal funds target rate is now around 57bps, much higher than normal and there is speculation that fixing banks have been underreporting demand for liquidity in the U.K. interbank market, leading to artificially low Libor fixings. This could result in higher U.K. interest rates and increase demand for U.K. assets. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7985 level and was capped around the ₤0.8095 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0090 level and was supported around the CHF 0.9960 level. Data released in Switzerland today saw February retail sales up 7.6% y/y while the April ZEW expectations survey fell to -71.4 from -71.1 in March. 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 1.6005 and CHF 1.9985 levels, respectively.