Daily Market Commentary - GCI Financial

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5435 level and was capped around the $1.5645 level. The common currency reached its lowest level since 25 March as traders continued to reduce their long euro exposure. There is a growing consensus that the U.S. economy may have weathered the economic fallout from the credit dislocations that have enveloped the global financial markets since last summer. This shift in sentiment has benefited the U.S. dollar. The Federal Open Market Committee yesterday reduced the federal funds target rate by 25bps to 2.00% and reported “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.” Notably, Dallas Fed President Fisher and Philadelphia Fed President Plosser voted for no change in interest rates. Ahead of the FOMC’s announcement, the markets were pricing in no change in policy at the FOMC’s next meeting. After the announcement, the odds of additional near-term interest rate cuts increased. July Fed funds futures are implying a 16% chance that the Fed’s target rate will be 1.75% after the next FOMC meeting on 24-25 June. Data released in the U.S. today saw April ISM manufacturing unchanged at 48.6 while the prices sub-index increased to 84 and March construction spending fell 1.1% m/m. Additionally, March personal spending expanded 0.4% m/m and March personal income was up 0.3% m/m. Moreover, the core personal consumption expenditures index was up 0.2% m/m and 2.1% y/y. It was also reported that weekly initial jobless claims were up 35,000 to 375,000 while continuing jobless claims were up 74,000 to 3.019 million, the highest level since April 2004. In eurozone news, most European markets were closed for the May Day holiday and liquidity will be significantly reduced until Monday. Euro bids are cited around the US$ 1.5345 level.
JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥104.20 level and was supported around the ¥103.55 level. Technically, today’s intraday low was just below the 61.8% retracement of the move from ¥108.60 to ¥95.70. Bank of Japan yesterday announced it would keep the overnight call rate unchanged at 0.50% and most traders believe the central bank will keep monetary policy unchanged through the end of the year unless the domestic economy slows considerably. The Nikkei 225 stock index lost 0.60% to close at ¥13,766.86. Dollar bids are cited around the ¥101.35 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥160.60 level and was capped around the ¥162.45 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥204.80 and ¥99.05 levels, respectively. In Chinese news, the yuan trading market is expected to reopen overnight.

STERLING

The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9710 level and was capped around the $1.9910 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from $2.0395 to $1.9600. Bank of England today reported that credit losses for U.K. banks could aggregate US$ 170 billion but noted the worst may be over. HBOS reported it will raise ₤4 billion through the sale of stock to existing shareholders. Data released in the U.K. today saw CIPS April manufacturing PMI decline while the prices sub-index moved higher. Also, Q1 construction orders fell 8% q/q and were off 8.0% y/y. Bank of England Monetary Policy Committee member Blanchflower said the balance of risks to the U.K. economy have “significantly” moved to the downside. Cable bids are cited around the US$ 1.9505 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7800 figure and was capped around the ₤0.7875 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0505 level and was supported around the CHF 1.0335 level. 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 1.6225 and CHF 2.0770 levels, respectively.

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