EURO
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3315 level and was supported around the $1.3180 level. North American dealers lifted the pair to intraweek highs, extending selling pressure on the U.S. dollar that was evident during the early European session. Some traders lifted the common currency higher after European Central Bank member Ordonez reported Spanish banks are in better shape than the markets believe, adding banks have “forgotten” how well Spanish banks did in last summer’s European Union stress tests. Ordonez also reported the Spanish economy will return to higher rates of economic growth than its larger eurozone peers. Ordonez was clearly attempting to talk down the market’s perception that Spain will require a bailout from the European Financial Stability Fund, a view many traders also share about Portugal. Bundesbank today reported German economic growth will lessen after a “further robust expansion” in the fourth quarter. ECB member Mersch called on the European Union this weekend to make greater political strides to overcome the current debt crisis. Similarly, ECB member Stark said European governments, and not the European Central Bank, need to resolve the bloc’s sovereign debt crisis. Stark also said the eurozone needs tougher and “automatic” fiscal rules and not an “E-bond” to resolve its financial problems. ECB member Noyer warned policy differences within the Group of Twenty may be exacerbating foreign exchange volatility. Data released in France today saw the October current account deficit narrow to -€2.5 billion while Q3 wages were up 0.3% q/q. In U.S. news, the Federal Open Market Committee’s last scheduled interest rate announcement of the year is due tomorrow and the Fed is not expected to shift monetary policy at this time. The Fed remains highly criticized by many for announcing it may purchase up to US$ 600 billion in additional U.S. Treasury debt by the middle of 2011 to help keep a lid on market interest rates and stimulate U.S. employment. U.S. Treasury interest rates have backed up with the 10-year Note now yielding around 3.34% and 30-year Bonds now yielding around 4.43%. China’s decision to not hike rates at this time led to greater demand for riskier assets and less demand for U.S. assets including the dollar. Euro bids are cited around the US$ 1.3075 level.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥84.35 level and was supported around the ¥83.90 level. Technically, today’s intraday low was just below the 61.8% retracement of the ¥85.95 – 80.25 range. The yen was generally weaker across the board after China refrained from raising interest rates this weekend. Bank of Japan Governor Shirakawa was interviewed over the weekend and reported the central bank maintains a “cautious view” on U.S. and European economic growth, adding emerging market economies risk overheating. Shirakawa suggested “an over decade-long decline in the trend rate of growth” is to blame for Japan’s extended bout of deflation. Additionally, Shirakawa said the central bank “has few tools at its disposal for lifting (Japan’s economic) growth potential.” Bank of Japan Policy Board member Morimoto last week reported the yen’s appreciation could have an “adverse effect” on domestic corporate activity and economic growth. He also said the move higher in recent long-term interest rates will not harm the economy. Former MoF official “Mr Yen” Sakakibara last week pessimistically noted “The world is set for a long-term structural slump reminiscent of the 1870s” and further predicted the slowdown could last as many as eight years. Data to be released in Japan overnight include October industrial production and capacity utilization along with November Tokyo-area condominium sales. The Nikkei 225 stock index climbed 0.80% to close at ¥10,293.89. U.S. dollar offers are cited around the ¥84.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥111.55 level and was supported around the ¥110.65 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥132.05 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.95 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.6628 in the over-the-counter market, up from CNY 6.6553. Data released in China on Friday saw the November trade balance decline to +US$ 22.89 billion as imports climbed 37.8% y/y. Also, the M2 November money supply was up 19.5% y/y and November new yuan loans came in at CNY 564 billion. Also, November producer prices were up 6.1% y/y while November consumer prices were up 5.1% y/y with November retail sales up 18.7% y/y. Moreover, November industrial production was up 13.3% y/y. Despite the sharper-than-expected increase in Chinese CPI, People’s Bank of China did not raise interest rates this weekend. PBoC extended a temporary 50bps hike in the reserve requirement for some Chinese banks. Some economists, however, expect PBoC will raise interest rates early in 2011 to counter mounting inflationary pressures and their hesitation to do so now may reflect a determination to not let the yuan appreciate too much. China is said to be targeting 8% GDP growth and 4% inflation growth in 2011 along with 16% M2 money supply growth.
STERLING
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5720 level and was capped around the US$ 1.5805 level. Technically, today’s intraday high was right around the 50% retracement of the $1.5295 – 1.6300 range. Data released in the U.K. today saw November input prices at the producer level climb more-than-expected at +0.9% m/m and +9.0% y/y. Many data will be released over the next day including November RICS house prices, October DCLG house prices, November consumer prices, and November retail prices followed by employment data on Wednesday. Bank of England reported the U.K.’s economic recovery is threatened by banks’ reluctance to lend to businesses and households. BoE Deputy Governor Bean warned an extension of the BoE’s bond-purchase program may be required if the eurozone sovereign debt crisis worsens. Bean added upside inflation risks are “worrying” and cited “very significant” downside economic risks. Cable bids are cited around the US$ 1.5685 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8440 level and was supported around the £0.8345 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9735 level and was capped around the CHF 0.9850 level. Technically, today’s intraday low was right around the 23.6% retracement of the CHF 1.0625 – 0.9460 range. Swiss finance minister Widmer-Schlumpf reported the franc will remain under upward pressure vis-à-vis the euro as eurozone debt problems continue, adding Swiss National Bank has done what it could to prevent franc appreciation. SNB is expected to keep interest rates unchanged this week when its quarterly monetary policy decision is announced. Data released in Switzerland today saw November producer and import prices off 0.2% m/m and up 0.1% y/y. SECO will release its latest 2010 economic forecasts tomorrow. U.S. dollar offers are cited around the CHF 1.0180 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3005 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5370 level.
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