Daily Market Commentary - GCI Financial

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5590 level and was capped around the $1.5695 level. The common currency gapped lower at the open and many traders are on the sidelines ahead of Wednesday’s Federal Open Market Committee interest rate decision. Most traders believe the FOMC will reduce the federal funds target rate by 25bps to 2.00% and many traders believe the Fed’s statement will signal an eventual end to the ongoing rate-easing cycle. In eurozone news, four German states reported a decline in April consumer price inflation and many economists believe German annualized inflation will be below March’s level of 3.3%. Traders are paying close attention to Wednesday’s flash inflation estimate for the entire eurozone. A weaker-than-expected German print could pressure the single currency. The European Commission reduced its EMU-15 2008 GDP growth forecast to 1.7% from its previous forecast of 1.8% and now sees 2009 GDP growth around 1.5%. The EC also upped its 2008 inflation forecast to 3.2% from the current 2.6% and sees inflation around 2.2% in 2009. European Central Bank member Liebscher hawkishly said policymakers must “do everything which is necessary to prevent any materialization of second-round effects and higher inflation rates.” ECB President Trichet reiterated “there is no reason to be complacent; the present circumstances continue to be very demanding.” Data released in Germany today saw the May GfK consumer climate index improve to 5.9 from 4.8 in April. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥104.80 level and was supported around the ¥104.30 level. Today’s intraday high was the pair’s strongest showing since 29 February. Most traders expect Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% on Wednesday, reduce its GDP growth forecast for the fiscal year to March 2009, and increase its inflation forecast. March industrial output data will be released on Wednesday. The Nikkei 225 stock index gained 0.22% to close at ¥13,894.37. Dollar bids are cited around the ¥102.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥162.85 level and was capped around the ¥163.85 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥208.60 level and was supported around the ¥206.75 level. The Swiss franc moved lower vis-à-vis the yen as the pair tested bids around the ¥100.70 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0014 in the over-the-counter market, down from CNY 7.0100. Data released in China overnight saw urban unemployment print at 4.0% at the end of March.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9950 level and was supported around the $1.9780 level. Traders are closely monitoring a strike at a crude oil facility in Scotland that is reducing global supply by as many as 700,000 barrels per day. Data released in the U.k, today saw Hometrack April average house prices off 0.9% y/y and 0.6% m/m, the seventh consecutive monthly decline. Also, Land Registry March house prices for England and Wales were off 0.4% m/m. Cable bids are cited around the US$ 1.9505 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7840 level and was capped around the ₤0.7905 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0300 figure and was capped around the CHF 1.0365 level. Swiss National Bank board member Jordan said the central bank’s current three-month Libor target range of 2.25% to 3.25% remains “appropriate” given current market conditions. U.S. dollar offers are cited around the CHF 1.0550 level. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6190 and CHF 2.0635 levels, respectively.

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