U.S. Forex Market Commentary

The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4445 level and was supported around the $1.4205 level. The common currency reached its highest level since 21 October 2008 as traders chased riskier and higher-yielding assets. Data released in the U.S. today contributed to investors’ moves to assume more risk. First, the July ISM manufacturing index printed at 48.9, up from the June reading of 44.8. The ISM prices paid component rallied to 55.0 from 50.0 in June and other sub-indices also improved including the production and new orders components. Second, June construction spending rallied to +0.3% m/m from a revised May reading of -0.8% m/m, an unexpected improvement, while activity was off 10.2% y/y. Data released in the U.S. tomorrow include June personal spending and producer price inflation data. In eurozone news, EMU-16 July manufacturing PMI improved to 46.3 from 42.6 in June, more-than-expected albeit still below the “boom or bust” 50.0 level. Germany’s PMI manufacturing result printed at 45.7, up from 40.9 in June. Surprisingly, however, German retail sales were off a real 1.8% m/m and off 1.6% y/y. June producer price inflation data will be released tomorrow. The European Central Bank is expected to keep interest rates unchanged when it convenes on Thursday but there is some chatter the BoE could announce measures regarding an end to its quantitative easing program. Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.35 level and was supported around the ¥94.60 level. The yen was off sharply across the board as global risk sentiment continued to strengthen. Another indication of the improving risk appetite was a decline in the so-called TED spread, the difference between what financial institutions and the U.S. Treasury pay to borrow funds for three months, to 29.4 basis points – its lowest level since 26 March 2007. The opposition political party, Democratic Party of Japan, reported “Japan cannot adopt political that would prompt a drastic drop of the dollar or make other changes during a global recession.” The DPJ is mounting a serious challenge to the Liberal Democratic Party’s decades-long stronghold on power and may overtake the LDP at the polls later this month. Data released in Japan overnight saw total cash earnings off 7.1% y/y in the year to 30 June, the largest decline on record and the latest indication of deflationary pressures in the Japanese economy. The Nikkei 225 stock index lost 0.04% to close at ¥10,352.47. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥137.55 level and was supported around the ¥134.55 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥161.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥90.10 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8288 in the over-the-counter market, down from CNY 6.8291. China reported its CLSA PMI figure improved to a twelve-month high.