ASIA FX: Euro Above $1.2000 Level as Market Awaits ECB Later
SINGAPORE June 10 (MNI) - Euro-dollar traded within tight ranges in Asia for much of the morning session before topping the
$1.2000 level late in the session as the market awaited the European Central Bank meeting later in the day.
Euro-dollar started Asia around $1.1980 and then traded around that level for much of the morning before ticking up over
$1.2000 and gaining speed to $1.2020 by 11:50 here.
The rise was said to have been prompted by comments from China's pension fund chief, who reportedly said the euro will
weather the current crisis and swings in the currency are normal given the underlying debt troubles.
Dollar-yen also traded in a tight range, ending up the morning around Y91.17 from a start of Y91.22, with the market seemingly
ignoring better-than-expected GDP revision data.
Japan's economy expanded a solid 1.2% in real terms in January-March from the previous quarter, unrevised from the initial
reading released last month and posting the fourth straight quarter of growth, the Cabinet Office said. On an annualized basis,
GDP rose 5.0% in the first quarter of 2010, revised up slightly from a preliminary 4.9% growth.
The market had been expected a slight revision downward.
In other currency news, the Reserve Bank of New Zealand increased the Official Cash Rate by 25 basis points to 2.75%. The
kiwi was trading at $0.6781 late morning here after rising on the news from $0.6671 at the open.
The big event of the day is expected to be the European Central Bank's monthly press conference, which is likely to focus on the
assessment and future path of non-conventional policies, after the sovereign debt crisis forced the ECB to reverse course on its
planned exit from liquidity measures.
On Wednesday the ECB accidentally sent out an announcement saying the bank would issue debt certificates to mop up liquidity
for three months. The ECB said it was only a "test," but it now seems likely there will be an official announcement on that topic.
Observers of the press conference will also watch out for the new ECB staff macroeconomic forecasts and listen for the extent to
which the Governing Council endorses the fresh projections.
While new staff forecasts for 2010 are widely expected to be revised upwards for both growth and inflation, the introductory
statement's assessment of economic developments in the coming months may nonetheless be little changed.
Stronger global growth, the weaker euro and higher oil price assumptions should drive up the current forecast mid-points of 0.8%
for growth and 1.6% for inflation. The euro hovered near the psychological $1.2000 level, U.S. stocks retraced earlier solid gains
and oil prices settled up over $2 per barrel Wednesday ahead of several key interest rate decisions.
The ECB and the Bank of England, which also meets later, are expected to keep rates on hold.
The stresses in the European banking system are showing up in euro LIBOR, which moved sharply higher Wednesday.
Euro 3-month LIBOR rose 0.5 basis points on the day to stand at 0.6525%, with the 3-month LIBOR/OIS spread widening a
more modest 0.2 basis points.
Euro area banks have been depositing record amounts with the European Central Bank, with an all time high of E364.6 billion in
money deposited overnight with the central bank Tuesday.
Also Thursday, starting around 10:00 am EDT, U.S. Treasury Secretary Timothy Geithner will testify on U.S.-China relations to
the Senate Finance Committee in Washington.
This will be Geithner's report back from the Strategic and Economic Dialogue talks in late May.
Senator Chuck Schumer (Dem-NY) continued to be vocal in his call for China to level the playing field in terms of trade.
On Wednesday, Schumer demanded that U.S. authorities take "immediate steps to crack down on shady practices allowing illegal
Chinese honey into the U.S."