Euro Rockets Higher Today

EURO

The euro rocketed higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5580 level and was supported around the $1.5365 level. As expected, the European Central Bank voted to keep its main refinancing rate target unchanged at 4.00% for the twelfth consecutive month. Trichet put the euro bulls in motion when he reported the ECB “is in a state of heightened alert,” adding a “number of (policymakers) thought there was the case for raising rates.” Trichet said it is “possible” that monetary policy will be tightened at the ECB’s meeting on 3 July. Notably, the ECB lifted its 2008 inflation forecast to 3.4% from 2.9% and raised its 2009 inflation forecast to 2.4% from 2.1%. Similarly, the ECB raised its 2008 GDP growth forecast to 1.8% from 1.7% but reduced its 2009 GDP growth forecast to 1.5% from 1.8%. Trichet also indicated he “appreciated” Federal Reserve Chairman Bernanke’s comments this week regarding the inflation risks posed by a declining U.S. dollar. Data released in the eurozone today saw German April manufacturing orders off 1.8% m/m. Germany’s IfW Institute raises its 2008 German GDP growth forecast to 2.1% from 1.9%. In U.S. news, weekly initial jobless claims fell 18,000 to 357,000 while continuing claims were off 16,000. Federal Reserve Vice Chairman Kohn reported the central bank anticipates “weak earnings and further asset valuation writedowns and/ or significant credit costs in coming quarters.” Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen appreciated depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.40 level and was supported around the ¥105.20 level. The pair reached its strongest level since 28 February. Capital flows data saw foreign investors as net buyers of Japanese equities and bonds last week. There are no major Japanese economic data scheduled for release overnight. The Nikkei 225 stock index lost 0.65% to close at ¥14,341.12. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro appreciated vis-à-vis the yen as the single currency tested offers around the ¥164.95 level and was supported around the ¥162.25 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥207.50 and ¥102.05 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9465 in the over-the-counter market, up from CNY 6.9390.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9570 level and was supported around the $1.9460 level. The pair reached its lowest level since 19 May before moving higher. As expected, Bank of England’s Monetary Policy Committee kept its headline repo rate unchanged at 5.00% for the second consecutive month. Minutes from today’s meeting will be released on 18 June. Data released in the U.K. today saw Halifax May house prices fall 2.4% m/m and 3.8% y/y. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.7965 level and was supported around the ₤0.7885 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0370 level and was capped around the CHF 1.0520 level. The pair reversed course after ECB President Trichet talked eurozone interest rates higher. U.S. dollar offers are cited around the CHF 1.0760 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6190 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 2.0275 level.

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