Daily Currency Briefing

June 23, 2011

QE3 off the agenda for now

G10 Currencies
USD: It has been a while since the USD was able to benefit from an FOMC meeting; but that is exactly what happened this time round, EUR-USD temporarily eased from over 1.44 to below 1.43. Obviously the Fed did not change key rates (they remained between 0.00% and 0.25%). It has also renewed its promise to keep interest rates at this low level for an extended period of time. The fact that the USD nonetheless received support is likely to be due to the fact that the Fed wants to take a monetary policy reprieve. The usual statement as well as the following press conference underlined that the Fed does not intend to take any additional stimulating measures. The economic data published since the last meeting was mainly disappointing. The market reaction in EUR-USD demonstrates that some market participants had already expected further Fed measures (QE3). Fears of QE3 are off the agenda for now. Even though the Fed commented in the statement that the economic recovery was somewhat more slowly than the Committee had expected, it sticks to its view that growth will take off over the coming quarters with unemployment slowly falling. Above all the Fed is concentrating increasingly on inflation risks. The usual reference to low core inflation was removed from the statement; the Fed no longer seems to worry about inflation rates being too low. This became clear during Bernankes press conference. He explained the differences between the current situation and that in August 2010 when the Fed announced QE2. At the time deflation had been a non-trivial risk and the situation on the labour market had improved despite recently weak data. Conclusion: QE3 is quite a way off. This does not constitute an exit from the Feds expansionary monetary policy (any fund inflow from maturing bonds will still be reinvested into Treasuries). FX markets have however taken it positively that the Fed is at least not getting bogged down any further. For some time now monetary policy has been the main negative factor for the greenback. The Fed is unlikely to have changed that yesterday. In the early European trade EUR-USD might ease a little further we do not expect a sustainable downtrend in EUR-USD though. The weekly initial jobless claims and new home sales are the most important data due for publication today. In both cases our economists are slightly more optimistic than consensus. From a chart technical point of view EUR-USD is in neutral territory in the 1.43 area. The low seen in the early Asian trade (1.4289) is likely to provide some support but there are no further obstacles until 1.4050/20. The first resistance is also located at 1.4500. EUR: At last no news from Greece. The meeting of the EU heads of government in Brussels is unlikely to provide any news regarding the aid packet. After all it is clear that the donor countries are going to wait whether the Greek parliament will pass the new savings measures. At that stage more funds are likely to flow. The new programme will only postpone Greeces default though. On the data front attention in the Eurozone is likely to focus on the June PMI, which is generally expected to record a slight fall. GBP: Yesterdays MPC minutes gave some clarity regarding the thinking of the BoE. The vote was 7-2 (the previous vote in May was 6-3) in favour of continuing the policy of keeping base rates at 0.5%. Sterling depreciated against the EUR and the USD almost immediately as it became clear that the BoE was in no mood to hike in the near term. The committee highlighted their expectation that inflation would rise above 5% before subsiding as the temporary impacts
Peter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com

Lutz Karpowitz +49 69 136 42152 lutz.karpowitz@commerzbank.com

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Daily Currency Briefing

of the increase in VAT, energy costs and the significant depreciation of sterling dissipate. The key downside risk was that the strength of demand would prove insufficient to eliminate spare capacity within the economy, therefore leading inflation to undershoot over the medium term. This is a particularly important point for price developments for sterling. This risk is not insignificant as the UK consumer has seemingly gone into hibernation, if recent retail sales data are anything to go by (May retail sales -1.6% vs expectations of -0.6%). In the coming days we will receive house price data and GDP data, both of which should give clarity about the overall shape of the UK economy. Should these figures disappoint, we expect GBP to come under further selling pressure. Levels to watch in EUR-GBP are 0.902 and 1.6050 in cable. NOK: Markets were taken by surprise: even though Norges Bank left key rates unchanged at 2.25% it suggested in its monetary policy report that it might take two further rate steps before the end of October rather than previously assumed until the end of the year. As a result it raised the key rate path for 2011 as we had expected but left it unchanged for 2012. This is mainly due to its optimistic view of the local economy and the expected rise in inflation. In the end we might even see three rate steps until the end of the year, should wage and price pressure increase. We feel confirmed in our view that Norges Bank will take action again in August and then in the autumn. Only negative effects of the debt crisis on the local economy would be able to prevent this, but Norges Bank seemed confident that the difficulties in Greece would be solved without problems of this nature. Following the decision EUR-NOK fell to around 7.84. As important indicators in the form of retail sales are only due next week market sentiment and the oil price are likely to become the main drivers in EUR-NOK again now. In our view a breach of the broad 7.75-7.95 range is not yet on the agenda though.
Antje Praefcke +49 69 136 43834 antje.praecke@commerzbank.com

Emerging Market Currencies

CZK: By regional comparison inflation in the Czech Republic is still relatively benign. Even though at 2% inflation rose slightly more notably in May than expected. This was mainly due to a rise in petrol prices. It is therefore hardly surprising that there is agreement once again today: the Czech central bank will keep key rates unchanged at 0.75%. In the absence of local momentum the koruna is therefore expected to be driven by global market sentiment. TRY: The Turkish central bank (CBRT) is likely to once again leave key rates unchanged today for the sixth consecutive time. As local lending remains well above the central banks target there is however a high likelihood that it will once again raise the short term minimum reserve requirements. This is unlikely to support the lira much. Since December it has been suffering as a result of the fight against a high current account deficit and the resulting uncertainty regarding monetary policy. We are still waiting for unambiguous signals regarding the first key rate rise. Due to the currently high risk aversion this is an uncomfortable environment for the Turkish currency.
Thu Lan Nguyen +49 69 136 82878 thulan.nguyen@commerzbank.com

23 June 2011

Daily Currency Briefing

Todays Events
Time 08:30 08:30 09:00 09:00 11:59 12:00 12:00 13:30 15:00 Region Indicator GER GER EUR EUR RUB CZK TRY USA USA PMI (Markit) PMI Services (Markit) PMI (Markit) PMI Services (Markit) FX and gold reserves CNB interest rate decision Interest rate decision Initial jobless claims New home sales Period Jun Jun Jun Jun Jun Jun Jun Jun May May Actual Our Forecast Survey 57,0 55,7 53,8 55,3 +0,75 6,25 415 310 -4,0 Last 57,7 56,1 54,6 56,0 528,0 +0,75 6,25 414 323 +7,3 Direction Cross

57,0 56,0 54,0 56,0

USD bn % % K K mom

0,75 6,25
410 320

Important Market Data

FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low Forwards / Options EUR-USD 3M Money Market Rate (%) Bonds / Bond Futures Yield (%), Price Equity Indices Closing Change Change (%) Oil / Prec.Metals $ per unit EUR-USD 1,4308 -0,74 1,4442 1,4342 EUR-SEK 9,1255 -0,39 9,1730 9,1276 EUR-AUD 1,3559 -0,23 1,3613 1,3539 EUR-RUB 40,1382 -0,18 40,3189 40,0714 Fwd 3M 1,4269 EURIBOR 1,53 10Y Bund 2,94 EuroStoxx50 2795,07 -6,92 -0,25 Oil, Brent 113,49 EUR-JPY 115,07 -0,46 115,77 115,14 EUR-NOK 7,8101 -1,22 7,9200 7,8071 EUR-NZD 1,7519 -1,22 1,7747 1,7600 EUR-RON 4,2112 -0,56 4,2551 4,2057 Fwd 6M 1,4230 $ LIBOR 0,25 10Y T-Note 2,97 DAX 7278,19 -7,32 -0,10 Oil, Nymex 94,20 EUR-GBP 0,8917 +0,49 0,8943 0,8878 EUR-DKK 7,4582 -0,01 7,4605 7,4567 EUR-BRL 2,2759 -0,43 2,2924 2,2758 EUR-CNY 9,2529 -0,71 9,3323 9,2695 Fwd 12M 1,4150 LIBOR 0,20 10Y JGB 1,12 Dow Jones 12109,67 -80,34 -0,66 Gold 1547,25 EUR-CHF 1,2048 -0,61 1,2147 1,2026 EUR-HUF 267,17 -0,10 268,16 266,69 EUR-MXN 16,8886 -0,50 17,0088 16,9136 EUR-SGD 1,7660 -0,56 1,7777 1,7687 Vol 1M 12,22 LIBOR 0,83 EUR-CAD 1,3924 -0,53 1,4039 1,3961 EUR-CZK 24,305 +0,26 24,333 24,216 EUR-TRY 2,3221 -0,04 2,3291 2,3127 EUR-KRW 1539,5122 -0,78 1553,5702 1542,1102 Vol 3M 12,65 $ index 75,05 +0,68 75,00 74,50 EUR-PLN 3,9847 +0,12 3,9933 3,9746 EUR-ZAR 9,7123 +0,35 9,7599 9,6428 EUR-THB 43,7175 -0,50 44,0222 43,6776 Vol 12M 13,35

CHF LIBOR CAD LIBOR 0,18 1,18 10Y T-Note Future 10Y Gilt Bund Future 3,19 126,21 123,83 Nikkei 225 9629,29 -0,14 -0,00 Palladium 762,25 Zinc 2196,0 FTSE 100 5772,99 -2,32 -0,04 Platinum 1733,50 Tin 25100,0 1287,14 -8,38 -0,65 Silver 36,28

S&P 500

Industrial Metals Aluminium Lead Copper Nickel $ per ton 2508,0 2455,5 9007,0 21875,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.

23 June 2011

Daily Currency Briefing

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