The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2605 level and was capped around the $1.2750 level. Traders are closely monitoring U.S. equity markets after it was announced Citigroup preferred equities would be converted into common equity and the U.S. government would take up to a 36% stake in the troubled banking giant in exchange for its bailout investment. This dilutive move will likely coincide with a partial or full suspension of dividends from Citigroup and some dealers are suggesting the price could fall below the US$ 1.00 figure soon. Data released in the U.S. today saw preliminary Q4 GDP growth off 6.2%, a very bad print, while the Q4 GDP price deflator reversed and moved higher +0.5%. It was also reported that personal consumption expenditures were up +0.8% q/q. Other data released in the U.S. today saw the Chicago Business Barometer improve to 34.2 in February while the final February University of Michigan consumer sentiment indicator fell to 56.3 from 61.2. In eurozone news, German consumer price inflation was up a stronger-than-expected 0.6% m/m and 1.0% y/y in January but economists do not believe this is the end of the strong disinflationary pressure in the eurozone's largest economy. On a European Union-harmonized basis, German consumer prices rose 0.7% from January and were up 1.0% from February 2008. The EMU-16 unemployment rate climbed to 8.2% in January from 8.1% in December, the fifth consecutive monthly increase, while Germany's jobless rate ticked higher to 7.3%. Additionally, EMU-16 consumer price inflation fell to 1.1% y/y in January from 1.6% in December, the lowest rate since July 1999. The higher unemployment and lower inflation data render it increasingly likely the European Central Bank will reduce its main refinancing rate by at least 50bps next Thursday. Euro bids are cited around the US$ 1.2475 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥97.10 level and was capped around the ¥98.60 level. The yen snapped back overnight as risk appetite at month's end withered. There is a growing perception the Aso government is trying to engineer a weaker yen to contend with Japan's beleaguered economy and some U.S. legislators are already verbally intervening against this perceived policy response. Data released in Japan overnight were quite weak. First, January overall housing starts were off 18.7% y/y. Second, January construction orders were off 38.3% y/y to ¥578.9 billion. Third, January industrial production was off 10.0% m/m and 30.8% y/y, underscoring the extremely weak condition of the manufacturing sector. Fourth, January overall retail sales were off 2.4% y/y. Fifth, the January jobless rate printed at 4.1%, down from 4.4% in December. Sixth, January all household spending was off 5.9% y/y. Seventh, the January core consumer price index was unchanged y/y, the weakest print in sixteen months and the latest evidence that deflation may be materializing. Core CPI for the Tokyo area rose a provisional 0.6% in February. The Nikkei 225 stock index climbed 1.48% to close at ¥7,568.42. 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 ¥122.65 level and was capped around the ¥125.50 level. The British pound moved higher vis-à-vis the yen as sterling tested bids around the ¥137.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.70 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8405 in the over-the-counter market, up from CNY 6.8361.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4110 level and was capped around the $ 1.4325 level. It was reported the U.K. government will be increasing its stake in Royal Bank of Scotland to 84%. Most traders believe Bank of England's Monetary Policy Committee will ease interest rates next Thursday. Additionally, traders expect the central bank will be granted operational authority from the government to monetize its balance sheet to finance asset purchases, a credit easing policy akin to recent policy directives from the Federal Reserve. Many dealers the London G20 meeting in April will be a seminal event for the global economy. Cable bids are cited around the US$ 1.2330 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8875 level and was capped around the ₤0.8945 level.
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1760 level and was supported around the CHF 1.1635 level. The pair came off during the North American session as demand for U.S. assets weakened. Swiss National Bank President Roth announced his retirement effective the end of the year and reported the current global financial crisis is -likely to be felt for a long time.- U.S. dollar offers are cited around the CHF 1.2130 level. The euro and British pound came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4765 level and the British pound tested bids around the CHF 1.6545 level.
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