Yen Advances as Credit Losses Damp Demand for Higher Yields

Yen Advances as Credit Losses Damp Demand for Higher Yields

Aug. 19 (Bloomberg) -- The yen increased to a three-month high against the euro on speculation financial firms will report more losses, reducing demand for higher-yielding assets funded by loans in Japan.

Japan's currency also advanced versus the dollar and the Australian dollar on concern Lehman Brothers Holdings Inc., the largest underwriter of mortgage bonds before the subprime market collapsed, may post $4 billion in credit writedowns. The dollar traded near a six-month high against the euro as U.S. wholesale prices increased in July twice the amount forecast.

``The downbeat assessment from big names in the investment community is weighing on the market,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``Risk aversion is coming back.''

The yen climbed 0.3 percent to 161.28 per euro at 10:32 a.m. in New York, from 161.82 yesterday, after touching 160.87, the strongest level since May 13. The yen advanced 0.3 percent to 109.78 per dollar, from 110.13. The dollar traded at $1.4692 per euro, compared with $1.4694, after reaching $1.4631, the strongest level since Feb. 20.

Japan's currency rose 0.5 percent to 95.16 per Australian dollar and advanced 0.5 percent to 204.45 versus the pound as concern that Lehman writedowns may deepen discouraged the carry trade, in which investors get funds in a country with low borrowing costs and invest where returns are higher. The Bank of Japan held its target lending rate at 0.5 percent today, the lowest among industrialized countries. That benchmark compares with 5 percent in the U.K. and 7.25 percent in Australia.

Outlook for Lehman

JPMorgan Chase & Co. predicted Lehman may lose $3.30 a share in the third quarter, more than three times the average analyst estimate in a Bloomberg survey. Financial institutions have posted more than $500 billion of losses and writedowns since the start of last year, according to data compiled by Bloomberg.

The Standard & Poor's 500 Index dropped 0.9 percent, while Europe's Dow Jones Stoxx 600 slid 2.1 percent. The MSCI Asia- Pacific Index of regional shares lost 2.1 percent.

Banks are being ``crushed by ballooning debts,'' said Tetsuhisa Hayashi, chief manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo, a unit of Japan's largest lender by market value. ``Risk aversion among investors will cause further yen buying,'' driving the Japanese currency to 100 per dollar by year-end, Hayashi said.

Producer Prices

The dollar briefly strengthened versus the euro after the U.S. Labor Department reported that producer prices climbed 1.2 percent in July after increasing 1.8 percent the previous month. The median forecast of 77 economists surveyed by Bloomberg News was for an increase of 0.6 percent.

``The market is seizing on any data that suggest interest rates need to go higher,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``Our view is that inflation won't be a major problem in the medium term. Once the market gets a chance to reflect on that, it should be less dollar-bullish.''

Futures on the Chicago Board of Trade show a 16 percent chance the U.S. central bank will raise the 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by its Dec. 16 meeting, down from 37 percent odds a week earlier. Policy makers next meet Sept. 16.

Dallas Fed President Richard Fisher said in a speech in Aspen, Colorado, that the U.S. economy may face a persistent rise in inflation as higher food and energy prices prompt companies to pass on cost increases.

Fisher's Dissent

Fisher's comments reflect his decision at the Aug. 5 meeting of the Federal Open Market Committee to dissent for a fifth time this year, preferring an increase in the benchmark interest rate. Central bank policy makers signaled two weeks ago a pause in any change in borrowing costs, noting falling employment and persistent financial market turmoil.

Crude oil for September delivery fell 0.2 percent to $112.65 a barrel on the New York Mercantile Exchange.

The Bank of Japan cut its economic assessment for a second straight month, acknowledging that threats to growth outweigh decade-high inflation as its chief concern. The world's second- largest economy shrank last quarter, putting it on the brink of the first recession in six years.

The revised BOJ outlook ``will place even less pressure on the yen to appreciate in the middle to long term,'' wrote Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former BOJ currency trader, in a research note today.

RBS pushed back its forecast for a BOJ rate increase to the fourth quarter of 2009 from the second quarter, Yamamoto said, confirming the contents of the report.

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Euro Trades Near 5 1/2-Month Low Versus Dollar as GDP Shrinks

Aug. 14 (Bloomberg) -- The euro traded near a 5 1/2-month low against the dollar after a report showed Europe's economy contracted for the first time since the 15-nation currency was introduced almost a decade ago.

Europe's currency has traded in a range of about $1.48 to $1.51 this week after dropping 3.6 percent last week, the biggest weekly decline since January 2007. The 14-day relative strength of the euro versus the dollar indicated the greenback's gains may have been too fast to be sustained.

``The bulk of the swift downward move in the euro-dollar is behind us,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York.

The euro fell 0.2 percent to $1.4885 at 10:17 a.m. in New York, from $1.4919 yesterday. It depreciated to $1.4816 two days ago, the weakest level since Feb. 26. The euro was at 163 yen, compared with 163.43 yesterday, when it reached a three-month low of 161.40. The dollar traded at 109.52 yen, compared with 109.53.

The euro's 14-day relative strength index against the dollar was at 20.8 today. A reading below 30 typically signals a change in price direction is imminent.

The pound was little changed at $1.8717 after touching $1.8619, the lowest level in 22 months against the dollar. The Bank of England cut its economic-growth forecast yesterday, signaling it may reduce interest rates.

Pound Versus Yen

Sterling may extend its decline to 192.48 yen after the currency dropped below so-called support of 211.25 yen, said New York-based Citigroup analyst Tom Fitzpatrick and London colleague Shyam Devani, who use charts to predict currency movements, in a research note yesterday. The pound was little changed at 204.91 yen today. A support level is where buy orders are concentrated.

Traders have reduced bets the European Central Bank will raise interest rates a second time this year. The implied yield on the December Euribor futures contract was at 4.95 percent today, compared with 5.04 percent at the end of July.

Europe's gross domestic product shrank 0.2 percent in the second quarter, after growing 0.7 percent in the first three months of the year, the European Union's statistics office said today in Luxembourg. The German economy, Europe's largest, contracted for the first time in almost four years, the Federal Statistics Office said in Wiesbaden.

``We expect the euro zone to move into an outright recession,'' said Ian Stannard, a London-based currency strategist at BNP Paribas SA. ``We see a multi-year euro downtrend now developing. And data we are getting is consistent with that view.''

U.S. Jobless Claims

More Americans than forecast filed initial claims for jobless benefits last week, signaling further weakness in the labor market. The number of first-time applications decreased to 450,000 in the week ended Aug. 9, from a revised 460,000 the prior week that was higher than previously estimated. The median forecast of 41 economists surveyed by Bloomberg News was for a drop to 435,000 from a previously reported 455,000.

Bank repossessions in the U.S. almost tripled in July, and foreclosure filings increased 55 percent from a year earlier as falling prices cut homeowner equity, said RealtyTrac Inc., a seller of foreclosure data.

The yen may rise against the dollar on speculation Japanese investors will repatriate some of their earnings on investments in U.S. Treasuries, traders said. The U.S. will pay $38.8 billion in principal and coupons on government debt tomorrow. Japan is the largest foreign owner of Treasuries, according to U.S. government data.

Japanese Bondholders

Japanese investors sold 461.3 billion yen ($4.2 billion) more overseas bonds and notes than they bought last week, the second week of sales and the most since the period ended April 18, the Finance Ministry said today in Tokyo.

``There's a great chance that the yen will appreciate,'' said Akira Takei, general manager in Tokyo for international bonds at Mizuho Asset Management Co., which oversees the equivalent of $37.3 billion. ``People want to avoid risks. Repatriation will play some part in yen strength as there is some comfort in holding funds in your own currency.''

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Dollar Snaps Five-Day Rally Versus Euro on Bets Gains Excessive

Aug. 12 (Bloomberg) -- The dollar snapped a five-day winning streak against the euro on speculation the currency's recent gains are too fast to be sustained.

The greenback has rallied 4.3 percent versus the euro this month on speculation the U.S. economic slowdown is spreading to Europe and as commodity prices have tumbled. The ruble rose the most in seven years against the dollar as Russia called off military operations in Georgia.

``The dollar's rally was overextended,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``It has been such a one-way street.''

Against the euro, the dollar traded at $1.4910 at 11 a.m. in New York, compared with $1.4909 yesterday. It touched $1.4816, the strongest since Feb. 26. The dollar decreased 0.3 percent to 109.75 yen, from 110.06 yesterday, when it touched the seven-month high of 110.40. The euro fell 0.2 percent to 163.77 yen after touching 163.26, the lowest since June 5.

The euro has dropped 7 percent against the dollar since reaching the all-time high of $1.6038 on July 15. The 14-day relative strength index of the euro against the dollar was 22.40 today. A reading below 30 suggests a change in price direction is imminent.

The ruble was one of the biggest gainers versus the dollar after President Dmitry Medvedev ordered a halt to its offensive in Georgia, saying the military had achieved its goal. Russia's currency rose as much as 1.2 percent to 24.1447 per dollar, its biggest jump since Jan. 4, 2001. Against the euro, the ruble rose as much 1.4 percent, the steepest gain since 2005.

The currency dropped 2.3 percent against the dollar on Aug. 8 after Russian Prime Minister Vladimir Putin said war with Georgia had started.

Dollar Index

The Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, was little changed at 76.135. It touched 76.616, the highest level since Feb. 12. The index rose 1.7 percent on Aug. 8, the biggest jump in six years.

``It's just time for a bit of correction,'' said MatthewKassel

, director of proprietary trading at ING Financial Markets LLC in New York. ``The dollar's rally is exhausted.''

The dollar surged 2.1 percent against the euro on Aug. 8, the biggest one-day gain since January 2001.

The yield on three-month Euribor contract for June decreased 0.05 percentage point to 4.48 percent today, indicating investors bet the European Central Bank may lower its main refinancing rate from a seven-year high of 4.25 percent by the second quarter of 2009.

Germany's Economy

Germany's economy, the largest in the 15-nation region that uses the euro, probably contracted in the second quarter for the first time in almost four years, according to the median forecast of 41 economists surveyed by Bloomberg News. The government is due to report the data on Aug. 14.

In Japan, a report tomorrow may show gross domestic product shrank at an annual rate of 2.3 percent in the three months ended June 30, following 4 percent growth in the previous quarter, according to a separate Bloomberg News survey.

``The market has become less bearish about the U.S. and, comparatively speaking, much more bearish about what's going on in the rest of the world,'' said Mike Moran, a senior currency strategist at Standard Chartered Bank in New York, in an interview on Bloomberg Television.

forex news

Euro Little Changed as ECB Official Cites Risk of Inflation

Aug. 11 (Bloomberg) -- The euro was little changed against the dollar after a European Central Bank policy maker said the bank remains focused on inflation and traders judged last week's 3.6 percent drop to be excessive.

ECB council member Klaus Liebscher said policy makers remain focused on the ``worrying'' level of inflation, Market News reported today, citing an interview. The Russian ruble declined to the lowest level against the dollar since February as armed clashes between Russia and Georgia in South Ossetia and Abkhazia deterred investors from holding the currency.

``Inflation remains a threat, and the ECB will keep reminding the market of that,'' said Adam Cole, the head of global currency strategy in London at RBC Capital Markets.

The euro traded at $1.4990 at 10:19 a.m. in New York, compared with $1.5005 on Aug. 8. It touched $1.4907, the lowest level since Feb. 26. The 15-nation euro dropped 0.3 percent to 164.87 yen, from 165.38 at the end of last week. It reached 163.65 yen, the weakest level since June 5. The dollar declined 0.2 percent to 109.98 yen, from 110.18.

The 14-day relative strength index of the euro versus the dollar fell to 21.82, the lowest since the European currency's 1999 debut. A relative strength index level below 30 suggests a currency's decline is extreme and a reversal may be imminent.

Russia's ruble fell as much as 1.6 percent to 24.618 per dollar, the weakest since Feb. 20, after Russia stepped up its bombing of Georgia, rejecting a proposed cease-fire agreed upon by Georgian President Mikheil Saakashvili. Against the euro, it declined 0.5 percent to 36.537.

Swiss Franc

The Swiss franc rose against most of the major currencies as concern the conflict will escalate prompted investors to seek a haven. The franc rose 0.3 percent to 1.6192 against the euro and advanced 0.3 percent to 1.0794 versus the dollar.

Liebscher said the ECB was right to raise interest rates in July and price risks haven't waned in recent weeks and months, although the decline in oil prices is a ``relief'' and ``welcome,'' Market News reported. The extent of the weakening in economic data ``is only a limited surprise,'' he was quoted as saying.

``There is of course no bias for the future, and there is no pre-commitment, but what really has to be done in the future depends on the data available,'' said Liebscher, according to Market News. ``For us it's not either-or, growth or price stability. It is price stability. We have to do at a given moment of time what is necessary.''

ECB Rate Outlook

Traders raised bets that the ECB will lift rates this year after leaving the main refinancing rate at 4.25 percent last week. The implied yield on December interest-rate futures, an indicator of interest rate expectations, increased 2 basis points, or 0.02 percentage point, from Aug. 8, to 4.95 percent.

The European single currency sank the most in almost eight years against the dollar on Aug. 8 as traders pared bets the ECB will raise interest rates as the economy slows. The weekly decline was the most since January 2005.

A government report showed French industrial production dropped 0.4 percent in June, the National Statistics Office in Paris. Economists in a Bloomberg survey had predicted an increase of 0.6 percent.

Moody's Investors Service said defaults on loans included in European commercial mortgage-backed securities rose 80 percent in the second quarter, sparking concern the financial turmoil in the region is deepening.

`Weaker Growth'

``We clearly have weaker growth outside the U.S.,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in an interview on Bloomberg Television. ``With the rest of the world's growth momentum declining, clearly that's enough for the dollar to sustainably gain ground in relative terms.''

Negative economic news in the U.S. may not be over, according to Sophia Drossos, a strategist in New York at Morgan Stanley.

``I would not chase the dollar's strength versus the euro as the pair has moved beyond interest-rate support,'' said Drossos. ``The dollar is not out of the woods. It will take the market a while to come around to our point of view.''

Sales at U.S. retailers fell 0.1 percent in July after rising 0.1 percent in the previous month, according to the median estimate in a Bloomberg News survey. The Commerce Department will release the data on Aug. 13.

China's yuan weakened as much as 0.1 percent to 6.8663 per dollar, a six-week low. The yuan's 18 percent appreciation against the dollar over the past three years is grinding to a halt as government officials said supporting growth is as important as fighting inflation.

The People's Bank of China has kept the yuan little changed since June, after gains of 4.1 percent in the first quarter and 2.3 percent in the second. That raised speculation that currency policy will be adjusted to bolster exports as the trade surplus shrinks. Legg Mason Inc.'s Western Asset Management Co. is trimming bets on the yuan after it rose in July by the smallest amount in a year.

Euro Falls the Most in 8 Years on Reduced Bets for Higher Rate

Euro Falls the Most in 8 Years on Reduced Bets for Higher Rate

Aug. 8 (Bloomberg) -- The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.

The euro is poised for its biggest weekly loss since January 2005 after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. Crude oil fell to a three-month low.

``This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``The decline of oil prices is a significant driver behind this dollar rally because it enables other central banks to turn their eyes away from inflation and focus on growth.''

The euro declined 1.95 percent to $1.5032 at 10:23 a.m. in New York and reached $1.5005, the lowest level since Feb. 27, from $1.5325 yesterday. It dropped as much as 2.08 percent, the biggest one-day drop since Sept. 6, 2000. Against the yen, the European currency traded at 165.84, from 167.70. The dollar rose 0.5 percent to 109.97 yen after touching 110.08, the strongest since Jan. 10.

Moving Average

The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.

The euro has declined 3.1 percent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the U.S. currency has advanced 2.1 percent, heading for its biggest weekly gain in almost two months.

``The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets,'' said David Woo, global head of currency strategy at Barclays Capital Inc. in London. ``None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical driven move.''

The South African rand led losses among the most-traded currencies as the prices of gold and platinum dropped, reducing prospects for export earnings from the country's biggest exports. The greenback rose to a six-month high against the Australian dollar, and advanced to the highest since September against the New Zealand dollar on speculation the central banks will cut borrowing costs.

Russia's Ruble

The Russian ruble fell by the most in 2 1/2 years against a dollar-euro basket used by the government after Georgia's Interior Ministry said four Russian fighter-jets entered Georgian airspace and bombed the towns of Gori and Kareli, boosting the risk of war. The ruble dropped as much as 0.8 percent against the basket.

The pound fell below $1.93 for the first time since March 2007 as the Bank of England kept its main interest rate steady at 5 percent yesterday after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9210, its biggest weekly drop in three years.

The Dollar Index on the ICE futures exchange reached 75.713 today, the highest since Feb. 21.

`No Bias'

Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''

European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.

Traders pared bets the ECB will lift rates a second time this year after increasing its main rate by a quarter-point last month. The implied yield on the December interest rate futures, an indication of expectations, retreated 2 basis pointsto 4.94 percent today.

The New Zealand dollar slumped as much as 2.2 percent to 69.84 U.S. cents, the biggest loss in two months. Australia's dollar dropped 1.7 percent, falling for a fourth day, to 89.10 U.S. cents, from 90.66 cents yesterday. The Reserve Bank of Australia said it may lower borrowing costs, after keeping its benchmark interest rate at a 12-year high of 7.25 percent this week.

Oil, Metals, Crops

Crude oil, metal and crop prices fell as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $118.15 a barrel since touching the record of 147.27 on July 11.

The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

``Oil prices have turned out to be much more supportive of the dollar than I expected,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``It does temporarily relieve some concern that the U.S. economy will weaken further. This is a plus for sentiment.''

Dollar Falls as GDP Trails Forecast, Jobless Claims Increase

Dollar Falls as GDP Trails Forecast, Jobless Claims Increase

July 31 (Bloomberg) -- The dollar fell for the first time in three days against the euro as reports showed the U.S. economy grew less than forecast in the second quarter and initial jobless claims rose last week to a five-year high.

The euro advanced earlier against the dollar as European inflation accelerated to the fastest pace in 16 years. The pound dropped against the euro after reports showed British consumer confidence declined this month to a record low and house prices fell the most in almost two decades.

``The economic backdrop is far less robust than people thought,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``Today's numbers provide a platform to send the euro-dollar to new highs.''

The dollar dropped 0.4 percent to $1.5641 per euro at 10:33 a.m. in New York, from $1.5576 yesterday. The U.S. currency declined to the record low of $1.6038 on July 15. The euro increased 0.2 percent to 168.71 yen, from 168.41. The U.S. currency dropped 0.3 percent to 107.85 yen, from 108.13.

Today's decline pared the greenback's gain versus the euro this month to 0.8 percent. The dollar has advanced 1.6 percent against the yen, while the euro has gained 0.9 percent versus Japan's currency.

Sterling declined 0.2 pence to 78.73 pence per euro today after the London-based market-research firm GfK NOP said its index of consumer confidence fell to the lowest since the data began in 1974. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, said Nationwide Building Society, Britain's fourth-biggest mortgage lender.

Fed Rate Outlook

Futures contracts on the Chicago Board of Trade showed a 32 percent chance of the Fed raising its 2 percent target rate for overnight loans between banks by at least a quarter-percentage point by Sept. 16, down from 38 percent odds yesterday. Most traders expect policy makers to keep borrowing costs unchanged when they next meet Aug. 5.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter after revised 0.9 percent growth in the first three months of the year, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News was for an advance of 2.3 percent.

Initial jobless claims rose to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists in a Bloomberg survey had forecast a drop in claims. The total number of initial filings last week was the highest since April 2003.

Company Hiring

The U.S. currency touched a one-month high against the euro yesterday after a private report showed companies unexpectedly added jobs this month.

``The dollar's rally was built on a shaky foundation,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``Today's numbers just highlighted there's more downside risk to growth. The jump in jobless claims puts a brake on the dollar's rally.''

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast 0f 79 economists surveyed by Bloomberg News. The Labor Department's report, which includes government hiring, is due tomorrow.

The euro strengthened versus the dollar as the European Union statistics office reported that the euro zone's inflation rate rose to 4.1 percent this month, the biggest increase since April 1992. The European Central Bank raised its main refinancing rate to 4.25 percent on July 3, the highest level since 2001.

European Inflation

``We're going to see inflation moving further to the upside,'' said Jeremy Stretch, a senior strategist in London at Rabobank International, the third-largest Dutch bank. ``That might just lead the market to think that even with the downturn in economic data, the ECB might turn toward tighter monetary policy. That's providing a little support for the euro.''

South Africa's rand rose as much as 0.9 percent to 7.3291 versus the dollar, the strongest since Feb. 4, after a report showed the country's trade deficit unexpectedly narrowed in June. The rand has increased 6.2 percent this month for the best performance among the world's major currencies.

Turkey's lira advanced to a six-month high after the Constitutional Court rejected yesterday a call by prosecutors to ban the party of Prime Minister Recep Tayyip Erdogan, which is seeking to introduce Islamic law in secular Turkey. The lira climbed as much as 2.4 percent to 1.1555 per dollar, its strongest since Jan. 15. It has gained 5.4 percent versus the dollar this month.

Fundamental Outlook at 1400 GMT (EDT + 0400)

Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro extended yesterday’s losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5615 level. The common currency reached its lowest level since 24 June as traders continued to price in the likelihood of a further slowdown in the eurozone economy. Traders also increased their exposure to the U.S. dollar after ADP private sector jobs unexpectedly increased 9,000 in July, defying expectations of a sizable decline. Some economists are upwardly revising their forecasts for the July non-farm payrolls report that will be released on Friday. In other U.S. news, the Federal Reserve announced actions to enhance its existing liquidity facilities including an extension of the Fed’s Primary Dealer Credit Facility and Term Securities Lending Facility through 30 January 2009. The Fed noted there remains “continued fragile circumstances in financial markets” and the Fed will also launch an 84-day Term Auction Facility from 11 August, complementing the 28-day facility it already offers. The European Central Bank and Swiss National Bank reported they are planning to extend the maturity of their liquidity operations, essentially availing U.S. dollars to European banks over a longer period of time. In eurozone news, EMU-15 July economic sentiment fell to 89.5, its worst level in more than five years. Some traders believe the ECB will reduce its assessment on economic growth at next week’s Governing Council meeting. Banco de Espana reported the eurozone faces higher upside inflation risks. Other data saw German June new machinery, plant orders off 5.0% y/y while EMU-15 retail PMI improved to 46. Euro bids are cited around the $1.5585/ 1.5230 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.35 level and was supported around the ¥107.70 level. The pair reached its highest level since 25 June as traders continued to speculate the Japanese economy will weaken further. Most traders believe Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. Data released in Japan overnight saw June industrial output fall 2.0% m/m, worse-than-expected, and was up 0.2% y/y. Traders are waiting for this week’s likely cabinet shuffle by Prime Minister Fukuda to see if decision-makers at the finance and economy ministries are replaced. The Nikkei 225 stock index gained 1.58% to close at ¥13,367.79. Dollar bids are cited around the ¥106.40 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥167.95 level and was capped around the ¥168.60 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥214.35 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥102.85 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8272 in the over-the-counter market, up from CNY 6.8264.

₤

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9845 level and was supported around the $1.9745 level. Technically, today’s intraday low was just below the 23.6% retracement of the move from $2.1160 to $1.9335. Traders are awaiting details of a possible government-sponsored program to swap mortgage assets for gilts. Cable bids are cited around the $1.9360 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7875 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0520 level and was supported around the CHF 1.0440 level. The pair traded at its highest level since 13 June. Data released in Switzerland today saw the KOF leading economic barometer fall to 0.9 in July from a revised 0.99 in June, its lowest level in give years. U.S. dollar offers are cited around the CHF 1.0515/ 1.0625 levels. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6335 and CHF 2.0785 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

(Bid Price) (Today’s Intraday Range)

EUR/ USD 1.5541 1.5615, 1.5521
USD/ JPY 108.25 108.33, 107.68
GBP/ USD 1.9770 1.9843, 1.9745
USD/ CHF 1.0505 1.0520, 1.0439
AUD/ USD 0.9423 0.9527, 0.9410
USD/CAD 1.0258 1.0268, 1.0218
NZD/USD 0.7325 0.7400, 0.7314
EUR/ JPY 168.25 168.61, 167.94
EUR/ GBP 0.7861 0.7878, 0.7857
EUR/ CHF 1.6328 1.6333, 1.6285
GBP/ JPY 214.00 214.18, 213.24
CHF/ JPY 103.00 103.40, 102.87