Daily Forex Commentary: US Dollar Weaker Against Euro And Yen

Euro

The euro moved higher vis-à-vis the U.S. dollar Friday as the single currency tested offers around the US$ 1.3415 level and was supported around the $1.3250 level.  The U.S. dollar was sold across the board after the U.S. Senate rejected a multi-billion dollar bailout for Detroit automakers.  It remains to be seen if the Bush administration will allocate TARP funding to the beleaguered sector. This is a very sensitive issue, particularly as General Motors indicates it is weeks away from bankruptcy.  Data released in the U.S.  saw October business inventories off 0.6% m/m while the University of Michigan consumer sentiment index rose to 59.1 in December from 55.3 in November.

Also, November headline retail sales declined for a fifth consecutive month, off 1.8% to US$ 355.66 billion, with the ex-autos component off 1.7%. Additionally, core November producer prices excluding food and energy costs were up 0.1% m/m and 4.2% y/y. 

In eurozone news, EMU-15 industrial output fell at its steepest rate in more than fifteen years in October, off 1.2% m/m and 5.3% y/y.  European Central Bank member Mersch reported the ECB still has some room to reduce borrowing costs further.  It was also reported that EMU-15 Q3 labour costs were up 4%, a record hike.  Data released in the U.S. saw the mid-December University of Michigan consumer sentiment indicator print at 59.1, up from 55.3 in November.  Euro bids are cited around the US$ 1.2135 level.

Japanese Yen

The yen appreciated vis-à-vis the U.S. dollar Friday as the greenback tested bids around the ¥88.60 level and was capped around the ¥91.85 level.  Finance minister Nakagawa indicated the dollar’s decline below ¥90 was “shocking” and said the rise was undesirable, adding he is watching it with “great interest.”  Nakagawa also pledged to take “appropriate action” if needed but said intervention is not currently being discussed.   Prime Minister Aso outlined wide-ranging tax cuts to counter the deepening recession and this is in addition to the already-announced ¥27 trillion economic package.  Data released in Japan overnight saw November retail sales slide 1.8% while the November consumer sentiment index registered a record low of 28.4.  Also, revised October industrial output was off 3.1% m/m.    The Nikkei 225 stock index lost 5.56% to close at ¥8,235.87.  U.S. dollar offers are cited around the ¥104.15 level.  

The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥118.20 level and was capped around the ¥122.50 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥132.55 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥77.50 level. 

The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8427 in the over-the-counter market, down from CNY 6.8513.  Data released in China saw November retail sales up 20.8% y/y.

British Pound

The British pound depreciated vis-à-vis the U.S. dollar Friday as cable tested bids around the US$ 1.4855 level and was capped around the $1.5115 level.  Tensions between the U.K. and Germany are rising with German finance minister Steinbrueck accusing the U.K. of being too lax with its fiscal stimulus plans.  Cable offers are cited around the US$ 1.5130 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8985 level and was supported around the ₤0.8855 level.

Swiss Franc

The Swiss franc appreciated vis-à-vis the U.S. dollar Friday as the greenback tested bids around the CHF 1.1750 level and was capped around the CHF 1.1865 level.  As expected, Swiss National Bank cut interest rates again yesterday, taking its three-month Swiss franc LIBOR target lower to 0.00% - 1.00% from its previous 0.50% - 1.00% target range.  Friday’s cut was SNB’s fourth cut in two months and the central bank warned the worsening global credit crisis may push Switzerland into a recession next year.  SNB President Roth there could be negative inflation in 2009 and SNB member Jordan said now is now the time for unconventional monetary policy measures.  Roth also warned the unemployment rate could reach 4.0% within one year.  U.S. dollar offers are cited around the CHF 1.2140 level.

The euro and British pound depreciated vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5685 and CHF 1.7535 levels, respectively.

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