U.S. Forex Market Commentary Sun, Sep 13 2009,

The euro came off marginally vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4550 level and was capped around the $1.4635 level. Chicago Fed President Evans today said inflation is “under control,” in contrast to a recessionary period in the 1970s when inflation was rampant. Kansas City Fed President Hoenig reiterated the economy is ongoing while influential economist John Taylor warned the Fed may have to raise interest rates in early 2010. Taylor also warned the U.S. dollar will continue to depreciate if the U.S. does not improve its debt position. Data released in the U.S. today saw the August import price index climb 2.0% m/m and decline 15.0% y/y, an improvement from the revised July print of -19.2% y/y. Also, July wholesale inventories were off 1.4%, down from the revised June result of -2.1%, while the mid-September University of Michigan consumer sentiment indicator came in at 70.2, up from the prior reading of 65.7. In eurozone news, reportes that European Central Bank President Trichet is retiring were dismissed. ECB member Bini Smaghi said interest rates need to rise before inflation. Trichet reported the ECB needs to remain “alert” on price developments. ECB member Juncker noted the euro’s current level should not hurt the economy and said there are the “first signs of improvement” in the economy. ECB’s Paramo reiterated “all options” remain on the table for the ECB’s exit strategy. Central bankers continue to try and get eurozone commecial banks to lend more of the liquidity the central bank is plying into the system. Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.20 level and was capped around the ¥91.80 level. The pair weakened to its lowest level since February as traders continued to react to the Democratic Party of Japan’s electoral victory and the yen’s positive interest rate differential over the U.S. dollar. Notably, U.S. dollar interbank borrowing costs are now cheaper than yen interbank borrowing costs and the U.S. dollar is now being used more than yen in short carry trades to finance positions in higher-yielding currencies. The Ministry of Finance confirmed the government will continue its aggressive buyback of Japanese government securities. Finance minister Yosano reported there is not a full-fledged economic recovery yet. Data released in Japan this week saw the August corporate goods price index unchanged m/m and off 8.5% y/y while July core machinery orders were off 9.3% m/m and 34.8% y/y. Also, Q2 GDP was up 0.6% q/q, lower than the expected gain of +0.9% q/q but still enough to suggest Japan’s economy is no longer in a technical recession. Despite this week’s data that evidenced positive economic growth, BoJ-watchers believe the central bank will not exit its monetary stimulus measures anytime soon. The Nikkei 225 stock index lost 0.66% to close at ¥10,444.33. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥131.55 level and was capped around the ¥133.80 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥150.45 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.95 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8220 in the over-the-counter market, down from CNY 6.8234. People’s Bank of China adviser Fan Gang this week 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. China’s commerce ministry today said now is the time for Chinese companies to invest overseas.