U.S. Forex Market Commentary Thu, Sep 10 2009,

The euro extended recent gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4600 figure and was supported around the $1.4465 level. The common currency remains on the offensive as traders continue to react to multinational calls for the U.S. dollar’s dominance as the premier international reserve currency to end. European Central Bank President Trichet today called for “convincing” deficit cuts. Germany’s economics ministry reported the economy has bottomed out but warned “the risk of a worsening credit crunch still exists.” G20 officials will convene in Pittsburgh later this month and are likely to continue with rhetoric that reports the global economy is on the mend but there is still a need for caution and still a need to keep fiscal and monetary stimuli in place. Data released in the eurozone today saw German August consumer price inflation confirmed at +0.2% m/m and +1.8% y/y while German June corporate insolvencies were up 15.9% y/y. In U.S. news, the Federal Reserve’s Beige Book was released today and it revealed economic activity is was stabilizing or firming in all but one of the Fed’s twelve regions. Businesses reported they were “cautiously positive” about the economic outlook and this was an improvement from the previous Beige Book. Data released in the U.S. today saw 17.0% increase in MBA mortgage applications, up from the prior reading of -2.2%. Data to be released tomorrow include the July trsade balance and weekly initial jobless claims. Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥91.60 level and was capped around the ¥93.30 level. Some Japanese banks today predicted Japanese government bonds will appreciate on account of Bank of Japan’s likelihood to keep interest rates unchanged. Most BoJ-watchers believe the central bank will not exit its monetary stimulus measures anytime soon. BoJ Policy Board member Suda reported “the need for extraordinary measures is diminishing because corporate financing conditions have improved. We can’t underestimate the disadvantages (of those policies).” Suda’s comments suggest there may be a discussion on BoJ’s Policy Board regarding the exit strategy even though she said she has “no preconceptions about when the bank should discontinue the program.” Data released in Japan overnight saw August machine tool orders off 6.5% m/m and 71.3% y/y. Former MoF mouthpiece “Mr Yen” Sakakibara reported “The U.S. (dollar) will remain as the world leader for at least a few more decades,” referring to the multilateral calls to end dollar hegemony. Some Japan-watchers believe the new Democratic Party of Japan government may worsen Japan’s finances despite the DPJ’s statements that they’ll do not plan to dramatically increase supply of Japanese government bonds. The Nikkei 225 stock index lost 0.78% to close at ¥10,312.14. 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 ¥131.00 figure and was capped around the ¥134.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥152.75 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.40 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8243 in the over-the-counter market, up from CNY 6.8231. 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.