U.S. Forex Market Commentary

Tue, Apr 8 2008, 18:53 GMT

GCI

EURO

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5675 level and was capped around the $1.5800 figure. The common currency failed to sustain intraday gains and was pulled lower by a very weak British pound. German Deputy Finance Minister Mirow spoke about this weekend’s G7 meeting saying “I am very optimistic that we will agree on a very convincing, substantial response, a joint G7 response to the financial-market developments over the past eight months.” Regarding exchange rates, Mirow added “Every G7 ministerial meeting also addresses exchange rates. Washington won't be any exception.” Traders are closely awaiting the release of the Federal Open Market Committee’s minutes from its most recent policymaking meeting. Most Fed-watchers expect the minutes will evidence concern with the ongoing liquidity and housing crises but will evidence some dissent about reducing official interest rates too much. The FOMC is expected to lower the federal funds target rate again on 30 April, most probably a 25bps monetary easing. Data released in the U.S. today saw February pending home sales fall 21% y/y to 84.6. In eurozone news, dealers await tomorrow’s EMU-13 Q4 GDP data. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥102.70 level and was supported around the ¥101.75 level. Most traders expect Bank of Japan’s Policy Board to keep its overnight call rate target unchanged at 0.50% tonight. Opposition lawmakers in parliament paved the way for Bank of Japan Deputy Governor Shirakawa to become the new Governor of the central bank ahead of this weekend’s Group of Seven meeting in Washington, D.C. Shirakawa’s nomination will be formally voted on tomorrow but opposition lawmakers also rejected former MoF official Watanabe to become the new Deputy Governor of the BoJ. Finance minister Nukaga today said “I hope to exchange views frankly about the financial instability stemming from the sub-prime loan problem and its impact on the U.S. real economy, as well as on the situation in Europe,” stopping short of suggesting G7 officials would discuss actual intervention to prop up the U.S. dollar. Data released in Japan overnight saw the March economy watchers’ index improve for the second consecutive month with the current conditions measure improving to 36.9. Also, it was reported that corporate failures jumped 20.5% m/m in March. The Nikkei 225 stock index lost 1.49% to close at ¥13,250.43. 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 ¥161.70 level and was supported around the ¥160.45 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥204.10 and ¥101.55 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0008 in the over-the-counter market, down from CNY 7.0015. Many China-watchers believe China will allow the pair to trade with a CNY 6.99 handle this week to spotlight the yuan’s strong appreciation at the G7 meeting. Data released in China this week saw the Q1 entrepreneur confidence index print at 140.6. Goldman Sachs reported Q1 GDP growth will be around 10% with ongoing inflation pressures.

STERLING

The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9660 level and was capped around the $1.9925 level. The pair reached its lowest level since 26 February on account of two primary reasons. First, Prime Minister Brown was reported as saying “Because we've got low inflation, we can cut interest rates.” Bank of England’s Monetary Policy Committee is widely expected to reduce its headline repo rate by 25bps to 5.00% on Thursday. Second, Halifax reported house prices fell 2.5% m/m in March – the biggest drop since September 1992. Ongoing negative surveys on U.K. house prices suggest the BoE could have room to reduce borrowing costs. Other data released today saw CML February mortgage completions fall to a record low of 49,200. Cable bids are cited around the US$ 1.9605 levels. The euro moved higher vis-à-vis the British pound as the single currency tested bids around the ₤0.7895 level and was capped around the ₤0.7990 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0145 level and was supported around the CHF 1.0065 level. Swiss National Bank President Roth was recently quoted as saying Swiss inflation should subside in Q2 and this could lead to a weaker franc. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5880 and CHF 1.9885 levels, respectively.