The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4325 level and was supported around the $1.4180 level. The common currency improved on weaker-than-expected U.S. July retail sales data that saw a 0.1% decline, down sharply from a revised reading of +0.8%, while the ex-autos component was off 0.6%, down from the revised June reading of 0.5%. Also, the July import price index was off 0.7% m/m, down significantly from the 2.6% prior reading, and off 19.3% y/y. Other data saw weekly initial jobless claims print at 558,000, up 4,000, whole continuing jobless claims were off 141,000 to 6.202 million. Other data saw June business inventories off 1.1%. July consumer price inflation will be released tomorrow. The euro was also supported by stronger than expected eurozone economic data that saw EMU-16 gross domestic product fall a mere 0.1% in the second quarter, up dramatically from a 2.5% decline in the first quarter. Notably, both the German and French economies notched growth of 0.3%, suggesting the two largest eurozone economies are no longer in a technical recession. These data may prompt the European Central Bank to begin unwinding its expansionary monetary policy measures earlier than previously believed. Eonia interest rate futures are now predicting a 25bps interest rate hike to 1.25% by May 2010, while overnight index swaps indicated the ECB will raise its benchmark rate in February 2010. Euro bids are cited around the US$ 1.3900 figure.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥95.05 level and was capped around the ¥96.50 level. The yen moved higher as the U.S. dollar was given across the board on increasing risk appetite and a positive day for U.S. equities markets. Yesterday, Bank of Japan Governor Shirakawa reported a built-in mechanism is required to end the central bank's unconventional monetary policy and ensure smooth functioning of markets. He specifically reported It would be important to have an appropriate built-in exit mechanism which reduces the incentive to use the (unconventional fund provision) facility as market functioning recovers, so that market players don't become reliant on those steps and hurt the market's functioning. The central bank, like other central banks, continues to discuss an exit strategy from its significant amount of monetary stimuli. Shirakawa was in the news again today for criticizing economists' suggestion that the central bank should establish an inflation target to overcome deflation. The central bank's monthly report of recent economic and financial developments was released yesterday in which the BoJ reported economic conditions have stopped worsening but noted business fixed investment has declined substantially and private consumption has remained generally weak. The Nikkei 225 stock index climbed 0.79% to close at ¥10,517.91. U.S. dollar offers are cited around the ¥104.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥135.55 level and was capped around the ¥137.85 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥157.35 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.95 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8306 in the over-the-counter market, down from CNY 6.8321.