Overall: Markets were still reverberating after Treasury Secretary Timothy Geithner sent the dollar tumbling yesterday with comments at a meeting of the Council on Foreign Relations about China’s ideas for overhauling the global monetary system. When asked about People’s Bank of China Governor Zhou Xiaochuan’s call for a new international reserve currency he said while he had not read Zhou’s proposal, he understood it as a plan “designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.” The dollar slid as much as 1.3% against the euro within 10 minutes of news accounts of Geithner’s remarks. He later modified his statement, saying “I think the dollar remains the world’s dominant reserve currency.”
The episode does go to show how sensitive markets remain however, as the strength of the G20 grows in relation to the G7 ahead of next week's summit. Any wording regarding a change in the make-up of Central Bank reserves, currently about two-thirds in dollars, is likely to have far reaching negative effects on the greenback.
In U.S. economic news, the final reading of Q4 GDP came in at -6.3% as corporate profits fell the most since 1953. Meanwhile, the number of people continuing to claim unemployment benefits increased by 122,000 to 5,560,000, the highest level since the government started keeping track in 1967 and a sign that layed-off workers are finding it very difficult to obtain new employment.
The Euro (Eur/Usd) traded in a very small range during the Asian and the European trading hours, approximately 40 pips. The pair traded lower in N.Y. even as stocks gained on the day, hitting a low on 1.3500.
The Euro zone M3 number hit the wires at 5.9% higher than what analysts had previously estimated. The number for the month of January was revised to 6.0%, slightly higher. The Euro area M3 was expanding at a very strong pace in the last few quarters, but it seems now the pace of growth is starting to slow. The consumer climate in Germany for the month of April 2009 fell unexpectedly. In the same time, the previous read, for March, was revised slightly lower, to 2.5.
The Pound (Gbp/Usd) rose strongly during the Asian session, but found resistance at 1.4635 and fell all the way to 1.4422 in N.Y. in reaction to Chancellor of the Exchequer Alistair Darling signaling he will limit the next round of fiscal stimulus for the U.K. economy to a few “targeted” measures, reining in Prime Minister Gordon Brown’s call for more spending.
“In the longer term, we have to have a sustainable position,” Darling said today in Parliament. “A substantial amount of money has gone into the economy already.
Retail sales in U.K. fell in February, following two months of unexpected increases, while the annual growth rate fell to 0.4% - the lowest since September 1995. Between January and February, total sales volume fell by 1.9%. This time, however, the declines were widespread over every sector.
The Aussie (Aud/Usd) traded in a 40-pip range during the overnight session and the pair remained range-bound in N.Y. between .6982 and .7030. Australian Prime Minister Kevin Rudd called U.S. Treasury Secretary Tim Geithner's plan to rid banks of troubled assets a welcome return of U.S. economic leadership but he warned of the risk that financial protectionism could occur without further national actions in Europe and elsewhere.
The leading index for Australia has decreased 0.6 percent for the month, falling to a reading of 111.2. This is the fifth consecutive decrease for the index. Contributing to the declines seen were building approvals, share prices, and the yield spreads. Retail sales have continued to make a large positive contribution for the index.
The Cad (Usd/Cad) tried to break below the neutral pivot point (1.2290) in the Asian session, but the pair was unable to move lower until the London open. The level was tested twice in N.Y. and managed to hold even as crude gained $1.23 on the day.
The Swissy (Usd/Chf) also struggled to break above the neutral pivot point (1.1235) overnight, but never succeeded. On the daily chart, the pair is stuck in a range between 1.1330 and 1.1140 as currency markets try to figure out the next move from the SNB.
The Yen (Usd/Yen) advanced after the Asian session open but traded sideways until the London open. On the daily chart, it looks to be making multiple tests of the 99.00 area, a break of which is bound to send the pair higher.
The corporate services price index fell to -2.6 percent for the month as commodity prices tumbled and a deepening recession caused companies to slow spending. Advertising agencies have been especially hard hit as demand wanes. This is the fifth month that the corporate services price index has fallen. Cheaper oil prices have reduced transportation costs which have caused Japan Airlines, and All Nippon Airways, which are two of Japans largest airlines, have plans to lower the cost of the fuel surcharge they charge.