U.S. Forex Market Commentary Mon, Sep 7 2009,

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4360 level and was supported around the $1.4300 figure. European Central Bank President Trichet said economic stabilization is “something which seems to be confirmed at the global level…it’s not excluded that we would have a bumpy road ahead and of course alertness remains of the essence.” Trichet added “A number of projections had been slightly revised up, confirming that we’re probably in a large part of the economy, out of the period of freefall.” He also noted there is “a great unity of purpose” to deliver price stability even though most central banks are not yet ready to unwind their massive stimulus programs. Notably, yields on two-year Germab government debt reached a record low today as traders priced in the ECB’s commitment to not raise interest rates for at least one year. Two-year German Schatz treasury yields were as low as 1.05% today, down from 1.41% one month ago. Data released in Germany today saw July factory orders up 3.5% m/m, the fifth consecutive monthly increase and a positive sign for industrial production, but were off 19.8% y/y. Other data saw the EMU-16 September Sentix investor confidence index improve to -14.6 from -17. ECB member Noyer called for uniform global accounting rules and ECB member Draghi reported “conditions are improving.” Kansas City Federal Reserve Bank President Hoenig was quoted this weekend as saying not enough has beend one to reduce one underlying problem of too much public debt. Liquidity will return to normal overnight after the long U.S. holiday weekend. Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥92.80 level and was capped around the ¥93.30 level. The yen was mixed across the board as some risk appetite returned to the market but reduced liquidity limited the yen’s moves. Vice finance minister Tango reported the MoF will determine how much of this year’s extra budget has been utilized. Possible incoming new finance minister Fujii last week said the incoming Democratic Party of Japan government may reallocate as much as ¥5 trillion in stimulus spending currently allocated to “wasteful” programs. Bank of Japan Governor Shirakawa reported the global economic recovery is likely to be “moderate” and said it is “meaningful” to discuss a global exit policy from the massive monetary stimuli. Data released in Japan overnight saw the August monetary base decline 0.62%. The Nikkei 225 stock climbed 1.31% to close at ¥10,320.94. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥133.85 level and was supported around the ¥132.85 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥151.60 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.55 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8245 in the over-the-counter market, down from CNY 6.8253. People’s Bank of China adviser Fan Gang reported “macroeconomic policies must be preemptive. Some PBOC-watchers believe China is unlikely to lift interest rates or reserve requirements within the next six months.

STERLING

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6325 level and was capped around the $1.6445 level. Chancellor of the Exchequer Darling on Saturday said each country will determine when it is proper to implement exit strategies from stimulus measures but said now is the correct time to develop those exit strategies. Prime Minister Brown said leading global economies should keep policies enacted through 2010 if the global economy is to return to economic growth. Bank of England’s Monetary Policy Committee convenes on Thursday and is not expected to change interest rates at this time. Nonetheless, some BoE-watchers believe the BoE may increase its asset-purchase plan that currently stands at £175 billion. Cable bids are cited around the US$ 1.6030 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8780 level and was supported around the £0.8715 level.