Daily Market Commentary - GCI Financial

Written By GCI Financial

EURO

The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5515 level and was capped around the $1.5610 level. Traders eagerly await the outcome of today’s Federal Open Market Committee interest rate decision. Most traders believe the Fed will reduce the federal funds target rate lower by 25bps to 2.00% and is likely to move towards a more neutral policy stance from its current expansionary stance. The common currency clawed its way back from larger losses earlier in the North American session. Data released in the U.S. today saw the Q1 gross domestic purchase price index moderate to 3.5% from 3.7% in Q4, an indication that some inflation pressures may be waning. Also, Q1 GDP growth came in stronger-than-expected at an annualized 0.6% and the Q1 employment cost index printed at 0.7%. Other data released in the U.S. today saw ADP April net private sector jobs creation of 10,000 jobs. Many traders are upwardly revising their forecasts for Friday’s April non-farms payrolls report. Other data saw the April Chicago PMI index improve to 48.3 while the core personal consumption expenditures price index rose 2.2% in Q1, down from 2.5% in Q4. In eurozone news, EMU-15 provisional April inflation moderate to 3.3% from 3.6% in March and this has led to increased speculation the European Central Bank will move towards a more neutral policy stance and possibly lower interest rates by early next year. The European Commission reported its EMU-15 economic sentiment indicator receded to 97.1 from 99.6 in March. German data saw the April jobless rate down 94,000 to 3.414 million while March wholesale sales were off 1.4% m/m and 4.6% y/y. Additionally, EMU-15 March unemployment printed at 7.1%, unchanged from February. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥104.85 level and was supported around the ¥103.70 level. As expected, Bank of Japan’s Policy Board voted to keep the overnight call rate unchanged at 0.50% and shifted to a more neutral monetary policy bias. The BoJ’s semi-annual economic outlook concluded “it is not appropriate to determine the direction of future monetary policy” given the high uncertainty on prices and economic activity. BoJ Governor Shirakawa reported “We will examine incoming data more closely to assess the feasibility of a standard economic outlook, as well as the upside potential and downside risks, and take appropriate policy action.” BoJ also downwardly revised its GDP growth forecast to 1.5% from 2.1% for the fiscal year to March 2009. The overnight index swaps rate is now pricing in about a 59% chance the central bank will ease monetary policy before the end of December, down from 89% this year. Shirakawa added “given that accommodative financial conditions have been in place for a long time and are expected to continue, there remains a risk that a change in economic agents’ expectations of future growth may lead them to overextend themselves, resulting in a misallocation of resources in the long run. if consumer expectations about prices rise, there are chances that companies will change their price-setting stance.” Data released in Japan overnight saw orders received by the 50 largest Japanese contractors up 6.4% in March. Also, March housing starts fell 15.6%, March industrial output was off 3.1%, March household spending fell, and the March unemployment rate fell to 3.8%. Dollar bids are cited around the ¥101.35 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥162.80 level and was supported around the ¥161.60 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥206.70 and ¥100.80 levels, respectively. The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9875 in the over-the-counter market, up from CNY 6.9850.

STERLING

The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9800 figure and was supported around the $1.9625 level. Sterling moved sharply higher in the North American session. Data released in the U.K. today saw GfK April consumer confidence at its lowest level since 1992 at-24 while Nationwide reported house prices were down for over the year for the first time in nearly twelve years, off 1.0% y/y. Bank of England Monetary Policy Committee member Blanchflower reported the risks of a downturn in economic activity are “increasing substantially” and added “I think we may see some decline in sterling.” Cable bids are cited around the US$ 1.9505 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7855 level and was capped around the ₤0.7945 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0430 level and was supported around the CHF 1.0325 level. Data released in Switzerland today saw the KOF’s April economic barometer fall to 1.20 from a revised 1.40 in March. U.S. dollar offers are cited around the CHF 1.0550 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6230 and CHF 2.0690 levels, respectively.