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The euro moved sharply lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2775 level and was capped around the $1.2955 level. The common currency came within a few pips of testing a multi-week low dating to early December. Data released in the U.S. today saw Q4 2008 GDP print at a better-than-expected -3.8%, albeit the worst print since Q1 1982. Notably, the personal consumption expenditure price index printed at -5.5% in Q4, down from +5.0% in Q3 – a sizable reversal that evidences the massive bout of disinflationary pressures in the U.S. economy. Other U.S. data saw the final January University of Michigan consumer sentiment indicator rose to 61.2 from 60.1 in January while the January Chicago business barometer reached 33.3, a 27-year low. President Obama continues to steer his proposed US$ 819 billion stimulus plan through the Senate where Republicans including McCain are circulating their own version. In eurozone news, the French government said Monday’s unemployment data will not be as bad as November’s tally, but otherwise weak. Data released in the eurozone saw EMU-15 December unemployment reach 8.0% while inflation fell sharply to a ten-year low of 1.1% - down from 1.6% in December and 2.1% in November. This decrease in consumer prices may culminate in a rate cut from the European Central Bank as early as next week. Recently, European Central Bank President Trichet intimated that March will be the likely time of the next rate cut. Eurozone sources said policymakers there want the U.S. to cooperate more on exchange rate policies and will discuss this topic at the February Group of Seven meeting. ECB member Liikanen said the likelihood of deflation in the eurozone is less than the U.S. Euro bids are cited around the US$ 1.2475 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.15 level and was capped around the ¥90.15 level. Many data were released in Japan overnight. First, December industrial output was off 9.6% m/m, a staggering decline that underscores the severity of the Japanese recession. Second, December household spending was off 4.6% y/y. Third, the December jobless rate ticked higher to 4.4%. Fourth, December annual core consumer price inflation moderated to +0.2% from +1.0% in November, the lowest level since October 2007. Tokyo-area provisional January core CPI fell to 0.5% from 0.8% in December. Fifth, the January manufacturing PMI fell to 29.6 from 30.8 in December, the eleventh consecutive monthly contraction and a record low. Sixth, December housing starts were off 5.8% y/y. Bank of Japan reported “credit market spreads, including those for corporate bonds, remained high through the latter half of 2008. Liquidity in government bond markets has not improved, and volatility in share prices and currency rates remains at high levels.” The government confirmed it did not intervene in the FX market in January. The decline in industrial production will likely have a negative impact on Q4 GDP data and economists are closely watching the CPI data to see if Japan re-enters a phase of deflation. The Nikkei 225 stock index gained lost 3.12% to close at ¥7,994.05. 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 ¥114.60 level and was capped around the ¥116.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥129.95 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥76.85 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8405 in the over-the-counter market, up from CNY 6.8392.
₤
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4470 level and was supported around the $1.4185 level. Sterling closed the week on a strong note, retracing some of the losses of the past several weeks. U.K. data released today saw December mortgage lending improve from November’s all-time lows. Total net lending reached its highest level since July 2008 and net lending to individuals rose to ₤2.2 billion from ₤1.6 billion in November. Cable offers are cited around the $1.4720 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.8850 level and was capped around the ₤0.9080 level.
CHF
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1660 level and was supported around the CHF 1.1510 level. Swiss National Bank said UBS and Credit Suisse are the world’s largest banks. SNB President Roth added the central bank still has some “emergency ammunition” to content with the credit crisis. U.S. dollar offers are cited around the CHF 1.1800 figure. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4820 level while the British pound gained ground vis-à-vis the Swiss franc and tested offers around the CHF 1.6795 level.
