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The euro lost significant ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4820 level and was capped around the $1.5000 level.  The common currency retraced recent gains after the release of U.S. non-farm payrolls data that saw November non-farm payrolls decrease a less-than-expected 11,000, down from a downwardly revised -111,000 in October.  The unemployment rate moved lower to 10.0% from 10.2% in October and average hourly earnings were off 0.1% m/m and 2.2% y/y.  On another positive note, November average weekly hours worked climbed to 33.2 from 33.1 and October factory orders came in stronger-than-expected at +0.6%, down from +1.6% in September.  Some economists believe the U.S. jobs data released today may be distorted by some seasonal factors including holiday hiring.  Many economists believe that while job losses are minimizing and may show gains, several million jobs have been lost over the past several months and the current U.S. economic recovery could remain a jobless one.  Today’s economic data have revised U.S. interest rate expectations as fed funds futures have moved lower in anticipation of rates moving higher earlier.  Still, most Fed-watchers believe it could be early 2011 before we see any appreciable rate hike by the Fed.  Fed funds futures are now pricing in a rate hike to 0.50% by Augus 2010, up from the current target range of zero per cent to 0.25%.  Fed funds futures for December 2010 imply a chance the benchmark rate could reach 1% by then.  U.S. Treasury Secretary Geithner talked up the U.S. dollar and U.S. assets today saying “When fear was at its most acute, when we were in mid-panic, the world brought its savings into Treasuries.  As confidence has started to return, you’re seeing some of that reverse and largely that’s a healthy development.”  In eurozone news, European Central Bank member Bini Smaghi reported “All the indicators are pointing to a recovery but consumption and domestic demand are likely to be quite moderate over the course of 2010 and in 2011 we have to think that parts of fiscal supporting measures will have to be withdrawn.”  The ECB yesterday announced to keep some emergency monetary policy measures in place until early April and reported the interest rate on twelve-month long-term refinancing operations will become index and floating rather than fixed.  Euro bids are cited around the US$ 1.4720 level.

¥/ CNY

The yen depreciated sharply vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.75 level and was supported around the ¥88.00 figure.  Deputy Prime Minister Nan verbally intervened and said “it would be good if the yen weakened a bit more.”  The pair’s ascent today was hastened by the better-than-expected U.S. jobs report and by ongoing verbal intervention from Japanese monetary officials.  The government also reported it will avoid issuing new deficit-covering bonds to finance stimulus spending.  Japan’s public debt is expected to reach 227% of gross domestic product in 2010.  The gap between six-month yen Libor and six-month U.S. dollar Libor rates moved to zero yesterday for the first time since 17 November and this has also been dollar-supportive.  Bank of Japan this week announced a plan to offer three-month loans to commercial banks at 0.1%, a ¥10 trillion program designed to counter deflationary pressures and reverse the yen’s strength.  The Nikkei 225 stock index gained 0.45% to close at ¥10,022.59.  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 ¥134.55 level and was supported around the ¥132.50 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.05 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.15 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8276 in the over-the-counter market, down from CNY 6.8280.  Chinese Commerce Minister yesterday reported “The focus of global attention shouldn’t be on the yuan’s exchange rate, but the dollar’s stability.” The State Administration of Foreign Exchange today reported the dollar’s depreciation is a long-term trend.

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The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6420 level and was capped around the $1.6670 level.  Some traders believe Bank of England’s Monetary Policy Committee will keep its bond-purchase plan at ₤200 billion next week when policymakers deliberate monetary policy.  BoE Chief Economist Spencer this week said the U.K. economy may be experiencing “renewed expansion.”  Data released in the U.K. this week saw the seventh consecutive monthly expansion in the U.K. services sector as PMI services printed at 56.6, down from 56.9 in October but above the boom-or-bust 50.0 level.  Cable bids are cited around the US$ 1.6290 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8990 level and was supported around the ₤0.9110 level.

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The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5095 level and was supported around the $1.4955 level.  The common currency reached its highest level since August as traders continued to speculate that global monetary authorities will not back up their dollar-supportive verbal intervention with actual dollar-buying intervention.  The Federal Open Market Committee yesterday released minutes from its 3-4 November policy-setting meeting.  The minutes revealed policymakers believe the maintenance of low rates could prompt “excessive risk-taking” or an “unanchoring of inflation expectations.”  Additionally, Fed policymakers noted further dollar depreciation could “put significant upward pressure on inflation” and “bear close watching.”  Fed Chairman Bernanke, Treasury Secretary Geithner, and European Central Bank President Trichet have also recently verbally intervened to support the U.S. dollar.  The continued release of decent U.S. economic data also worked against the greenback as traders speculated the global economic recovery will continue.  Data released in the U.S. today saw October personal income print at +0.2%, unchanged from September’s revised print, while October personal spending climbed +0.7%, a sharp reversal from September’s revised reading of -0.6%.  October core personal consumption expenditures were up 0.2% m/m and 1.4% y/y and the October PCE deflator was up 0.2% y/y.  Additionally, October durable goods orders fell 0.6% from a revised +2.0% in September while the ex-transportation component was off 1.3% , down from a revised +1.8% in September.  Other data saw weekly initial jobless claims decline to 466,000 while continuing claims moved lower to 5.423 million.  Moreover, October new home sales printed at an annualized 430,000, up from a revised 405,000 in September – a +6.2% m/m climb.  Finally, the final November University of Michigan consumer sentiment indicator printed at 67.4, up from the prior reading of 66.0.  With the exception of durable goods orders, today’s data evidenced a U.S. economy that remains positively on the mend, especially with regard to the U.S. housing market.  In eurozone news, German GfK December consumer confidence fell to 3.7 from 4.0 in November.  Reserve Bank of Australia Deputy Governor Battellino talked up global economic sentiment, reporting “With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet.”  Russia’s central bank today said it will diversify its currency holdings by adding Canadian dollars, probably at the expense of the U.S. dollar.  Euro bids are cited around the US$ 1.4720 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥87.40 level and was capped around the ¥88.65 level.  The pair came within about 25 pips of testing a year-long low.  Bids from semi-official names – possible overt intervention – were cited overnight but they have done little to stop this latest round of extreme dollar-selling.  There was massive verbal intervention overnight by Japanese monetary authorities.  Finance minister Fujii reported China’s currency is clearly undervalued and said the yuan’s dollar peg is “not necessarily good.” Bank of Japan Deputy Governor Yamaguchi reported “The global economy is improving, supported by fiscal and monetary measures.  Balance sheets of U.S. and European lenders are still deteriorating and their adjustment will take more time.  The global financial system still remains fragile.”  Data released in Japan overnight saw the October corporate service price index climb +0.1% m/m and decline 2.2% y/y.  Also, the October trade surplus printed at ¥807.1 billion.   Bank of Japan yesterday upgraded its economic assessment for the third consecutive month, noting the economy is “picking up…Japan’s economic conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being.”  Notably, the central bank reported the decline in business investment is decelerating and private consumption is improving.  Core consumer price inflation data will be released later this week and are likely to show the October reading was off 2.2% y/y.  There is increasing speculation BoJ will actually expand its quantitative easing policies by increasing its debt purchases.  Most BoJ-watchers believe the central bank will keep interest rates unchanged through at least most of 2010.  BoJ’s Policy Board recently predicted core consumer prices will decline 1.5% in the year ending March 2010, decline 0.8% in the fiscal year ending March 2011, and decline 0.4% in the fiscal year ending March 2012.  The Nikkei 225 stock index climbed 0.43% to close at ¥9,441.64.  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 ¥131.50 level and was capped around the ¥132.70 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥145.80 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.15 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8290 in the over-the-counter market, up from CNY 6.8260.  People’s Bank of China Deputy Governor reported the yuan will become a “more attractive currency” and added the central bank will increase surveillance of hot money flows. Vice Foreign Minister Zhang Zhijun yesterday said China will “increase the flexibility of the yuan exchange rate while maintaining stability in the market,” adding the increase will be “incremental and balanced.”  Zhang added China is moving toward a system “that is market-based and is a managed floating mechanism with respect to a basket of currencies.” Chinese Premier Wen Jiabao will meet European Central Bank President Trichet and Ecofin head Juncker on 29 November.  China’s banking regulator informed Chinese lenders they must comply with capital requirements or risk sanctions. There is increasing speculation China will strengthen its strict capital requirements.  Vietnam devalued its dong currency overnight for the third time in two years – the opposite direction that global policymakers want to see Asian currencies moving in.
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The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.6745 level and was supported around the $1.6575 level.   Bank of England Monetary Policy Committee member Sentance dovishly said “I think it’s premature at the moment to talk about policy tightening, we’ll have to judge that against the pace of growth and the outlook for inflation as we go through next year and beyond.  I believe we are in the early phases of recovery, but I would say that these are very early phases, business confidence and business sentiment are very fragile, and it’ll only perhaps be when the recovery is more well established that I think there’ll be a more widespread feeling that yes, the economy’s back on a growth track.  Most traders believe the BoE will keep interest rates unchanged for several months.  Data released in the U.K. today saw Q3 gross domestic product off 0.3% q/q and off 5.1% y/y.  On the political front, Chancellor Darling defended secret emergency lending provided to Royal Bank of Scotland and HBOS last year in the amount of ₤61.6 billion through BoE.  Cable bids are cited around the US$ 1.6430 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9055 level and was supported around the ₤0.8975 level.

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The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4950 level and was capped around the $1.5050 level.  U.S. Treasury Secretary Geithner today in Singapore said “(The U.S.) is likely to have to borrow substantially less than we initially anticipated to help repar the damage to our financial system.”  Geithner yesterday verbally intervened to support the U.S. dollar and his comments make it clear the U.S. is trying to be accountable to large holders of U.S. dollars and U.S. debt.  Data released in the U.S. today saw weekly initial jobless claims print at 502,000, down from a revised 514,000, while continuing jobless claims moved lower to 5.631 million. Philadelphia Fed President Plosser said the direction of U.S. interest rates will be “contingent on the path of the economy and of inflation.”  In eurozone news, the European Central Bank’s November bulletin indicated the eurozone economy is likely to be stronger than previously anticipated with inflation remaining well below their 2% ceiling target through 2011.  The ECB is clearly in no hurry to raise interest rates and will likely keep them unchanged through at least the first quarter of 2010.  Nonetheless, ECB President Trichet reported some of the central bank’s long-term financing auctions will end next month.  Data released in the eurozone today saw September EMU-16 industrial production climb 0.3% and was off 12.9% y/y.  Euro bids are cited around the US$ 1.4445 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.60 level and was supported around the ¥89.65 level.  Parliamentary Secretary of Finance Furumoto reported Japan supports a strong U.S. dollar and Japan “doesn’t plans to change the basic composition of our foreign reserves and most of them are held in the form of U.S. Treasuries.” Speaking about fiscal stimuli, he added “Japan’s economy is still far away from the stage of considering an exit strategy.  We cannot be optimistic about the Japanese economy at all.”  Data released in Japan overnight saw the October domestic corporate goods price index decline 0.7% m/m and 6.7% y/y.  President Obama will conduct his first state visit from tomorrow that will take him to Tokyo, Beijing, Shanghai, and Seoul.  U.S. Treasury Secretary Geithner met with Bank of Japan Governor Shirakawa yesterday and said a strong dollar is “very important” for the U.S.  Finance minister Fujii has reportedly indicated the Federal Reserve’s low interest rate policy is the reason for the U.S. dollar’s recent weakness.  BoJ’s Policy Board recently predicted core consumer prices will decline 1.5% in the year ending March 2010, decline 0.8% in the fiscal year ending March 2011, and decline 0.4% in the fiscal year ending March 2012.  The central bank recently reported it will stop its purchase of corporate debt and commercial paper at the end of 2009.  BoJ Policy Board’s next interest rate decision is scheduled for 19 November.  The Nikkei 225 stock index lost 0.68% to close at ¥9,804.49.  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 ¥133.90 level and was capped around the ¥135.00 figure.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.90 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.65 level. In Chinese news, the U.S. dollar weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8208 in the over-the-counter market, down from CNY 6.8219.  Pressure is increasing on China to further liberalize its yuan, especially with Obama’s pending visit.  Data released in China yesterday saw October industrial output up 16.1% while retail sales were up 16.2% and consumer price inflation was off 0.5%.  Additionally, it was reported that the October trade balance printed at US$ 24 billion.  State Information Centre official Zhu this week reported Chinese policymakers are unlikely to allow the yuan to appreciate this year and foreign pressures won’t make result in a policy shift by Chinese officials.

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The British pound fell vis-à-vis the U.S. dollar today as sterling tested bids around the US$ 1.6515 level and was capped around the $1.6625 level.  Sterling was off sharply yesterday after the release of the Bank of England quarterly inflation report suggested inflation could exceed 2% in two years even if the central bank were to lift rates now.  CML Q3 home repossessions fell but are expected to increase in 2010.  BoE Governor King yesterday reported he has an “open mind” on future increases to the BoE’s asset purchase program.  Cable bids are cited around the US$ 1.6410 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8975 level and was capped around the ₤0.9065 level.