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THE WEEK AHEAD IN FOREIGN EXCHANGE

 

Contributed by Blair Baker
Foreign Exchange Analyst and Strategist
Global Capital Investment, LLC

              

 

17 August 2001

19.00 GMT

   

The Week Ahead In Foreign Exchange
Saturday, 4 August – Friday, 10 August

WEEKLY HIGHLIGHTS AND WHAT TO WATCH


Weekly High: 123.18
Weekly Low: 119.08
Weekly Close: 120.28
The yen appreciated vis-�-vis the dollar this week as the greenback fell below the �120.00 figure and came within a few pips of testing the �119.00 figure. Trading conditions were thin on account of the Obon holiday thus moves were exaggerated. Koizumi�s re-election to the LDP�s presidency will promote reforms, as will the BoJ�s token quantitative easing this week, including additional monetization. The BoJ monthly report read "adjustments in economic activities are intensifying further, reflecting a substantial decline in exports and profits." BoJ�s Hayami warned against a depreciating yen saying it is "troublesome for China, Korea, and Taiwan if yen weakens too much." The government revised GDP data which means the government will avoid a technical recession and an anonymous LDP official said the BoJ�s move is "a step forward, but not enough." Part of the yen�s moves may be due to traders unwinding yen carry trades. The BoJ indicated it will give "careful consideration" to an LDP request for a debate on inflation targeting. 

Highlights: 

BoJ�s Policy Board agreed further quantitative easing:
1. Increased current account deposit target to �6 trillion from �5 trillion
2. Increased monthly outright purchase of JGBs to Y600 billion 
3. "Economic adjustments are deepening as (IP) is sharply declining"
4. "Weaker demand could intensify downward pressure on prices" 
5. MPM minutes saw "narrow path" for policy and some wanted weak yen 

Japanese policymakers:
Hayami: "Downside risks are becoming a reality"
"In principle, easing monetary policy would lead to � depreciation"
"Ready to take optimal steps" to spur some inflation
"Does not think BoJ will have to buy foreign currency assets"
"Difficult for one country to make unilateral" intervention
Consumer prices may recede further
Shiokawa: "Welcomed" BoJ�s move but wants further easing
"Expects yen will probably weaken"
Takenaka: "Hopes BoJ is aware of its responsibility as a �deflation fighter�"
Kuroda: Yen�s moves do not reflect fundamentals
"Inappropriate" for yen to appreciate after BoJ�s move
Mizoguchi: MoF will take "appropriate action" if necessary
Utsumi: Yen�s and dollar�s moves "a competition of weakness" 

Economic data: June current account surplus at �771 billion, off 40.5% y/y; April � June current account surplus at �2.09 trillion, off 36.1% y/y; corporate bankruptcies off 3.1% y/y; January � March GDP +0.1% q/q; personal spending +0.6% q/q; capital spending +0.9% from �1.0%; June leading indicators at 40.0 

IMF�s Saito said "inflation targeting helps greater transparency�in the short term, (reform) has to be accompanied by supportive policies � and one of them is further monetary easing by the BoJ" 

The Nikkei 225 stock index closed the week at � 11,445.54. 
E
Weekly High: 0.9203
Weekly Low: 0.8920
Weekly Close: 0.9172
The euro scored a rare victory vis-�-vis the dollar this week as the single currency reclaimed the $0.9100 figure and even tested the $0.9200 figure. The IMF issued a negative report on the dollar and O�Neill reiterated the U.S.�s strong-dollar policy. The FOMC will convene on Tuesday and is expected to ease policy by 25 bp and possibly shift to a neutral bias. Consumer price pressures in the U.S. are softening and many cite nascent deflationary pressures. Receding EMU-12 price pressures saw core HICP decline to +2.0% but the easing pressures may not be enough to get the ECB to ease this month. Buba�s monthly report evidenced a sharp contraction in GDP growth in Q2 to +1.0% y/y and Buba officials said labour costs must remain moderate. 

Highlights:

IMF�s annual report on U.S. economy was negative for dollar
1. Dollar is "at least" 20% above "medium-term equilibrium"
2. Dollar could fall if U.S. productivity "proves disappointing"
3. Sizable U.S. current account deficit is dollar-negative 

Eurozone officials
Poehl: Criticized "inflexibility and occasional ineptitude of ECB�s communication"
Weak euro or strong dollar?
French: Anonymously said they supported Trichet or Noyer as Duisenberg successor 

Eurozone data: German June retails sales off 1.3% m/m and 0.6% y/y; EMU-12 July HICP �0.1% m/m, +2.8% y/y; core HICP +2.0% y/y; French manufacturing +2.6% y/y; French industrial output +2.3% y/y 

U.S. data: July retail sales unchanged m/m, +0.2% ex-autos; June retail sales revised to unchanged m/m and �0.2% ex-autos; business inventories off 0.4% in June, May revised down to �0.2%; industrial production off 0.1% in July; capacity utilization at 77.0%; consumer price inflation off 0.3% in July, core CPI +0.2%; housing starts +2.8% to 1.672 million; initial jobless claims off 8,000 to 380,000; June trade gap widened 3.3% to US$ 29.4 billion; University of Michigan�s consumer sentiment index up to 93.5; Philadelphia Fed�s main business conditions index worsened to �25.3 from �12.2

U.S. officials
O�Neill: "U.S. has a continuing, continuous policy�same dollar policy"
U.S. economy on the "threshold of improvement" 

Weekly High: 1.4520
Weekly Low: 1.4167
Weekly Close: 1.4452
The British pound made an impressive move vis-�-vis the dollar this week as sterling tested the $1.4500 figure before paring some gains. RPIX decreased on account of lower food prices and input prices registered their largest annual decline since June 1999. The Daily Telegraph said Brown has Treasury researching the five economic tests that would precede a national referendum on acceding Economic and Monetary Union. The MPC�s August minutes evidenced a divergence of opinions in a "finely balanced" argument. CBI�s Jones said "with inflation figures coming in at 1.9% - all of that militates against any rise in interest rates and in fact calls for another cut" to "assist beleaguered industries." Unemployment remains low and retail sales evidenced very strong final private demand. Short sterling futures are predicting rates of 5.75% by end of 2002 

Highlights: 

MPC voted 6 � 3 in August for 25bp decrease in repo rate to 5.00% 

1. King, Clementi, and Plenderleith voted to keep repo at 5.25% 
2. At least two members voted for 50bp reduction 
3. "At time of increased uncertainty, gradualist strategy might be preferable" 

U.K. policymakers
Jones: "Not seeing growth in wage settlements in service sector"
"Unemployment is rising in manufacturing"
"Scope for at least one more cut of +0.25% to get rates down" 

U.K. data: input prices off 1.8% m/m and 0.3% y/y; crude oil prices off 11.8%; RPIX off 0.6% m/m, +2.2% y/y; RPI off 0.6% m/m, +1.6% y/y; July HICP +1.4%; claimant count fell 12,800; unemployment rate steady at 3.2%; average earnings in three months to June +4.8%; retail sales +0.6% m/m and +6.0% y/y 
Sfr
Weekly High: 1.6955
Weekly Low: 1.6531
Weekly Close: 1.6559
The Swiss franc appreciated vis-�-vis the dollar this week as the greenback slid several big figures. Swiss retail sales were reported strong and this could decrease the likelihood of an easing before the 20 September SNB policy statement. The SNB does not appear content with the franc�s appreciation vis-�-vis the dollar as suggested by the fact that it added overnight liquidity at 3.27% at the end of the week � above the SNB�s 3.25% three-month Swiss franc LIBOR target.

Highlights:

Swiss data: H1 2001 retail sales +2.0% y/y; July producer and import price index +0.2% y/y, off 0.1% m/m
SCHEDULE

Sunday, 19 August 2001

GMT

2301     UK    Q2 CBI pay settlement survey
 

Monday, 20 August 2001
GMT

NA        Switzerland     Q2 GDP
0300     NZ                 June quarterly capital goods price index
0500     Japan             BoJ 28 June and 16 July MPM minutes
0830     UK                 July MBBG lending
0830     UK                 July provisional M4
0830     UK                 July CML mortgage lending
0830     UK                 July public sector finances
0830     UK                 June/ July trade
1000     EMU-12         June industrial production
1230     Canada          June wholesale trade
1400     US                 July leading indicators
2301     UK                 RICS housing market survey
 

Tuesday, 21 August 2001
GMT 

N/A Switzerland Q2 industrial production
0830 UK Q2 business investment
1100 Canada July consumer price index
1230 Canada June retail trade
1815 US FOMC interest rate decision
2350 Japan June preliminary tertiary industry activity index
 

Wednesday, 22 August 2001
GMT 

0830     UK     Q2 revised GDP 

Thursday, 23 August 2001
GMT

1000     EMU-12  June current account balance
1000     UK         August CBI industrial trends
1230     US         Weekly jobless claims
1230     Canada   June employment insurance
1400     US         Philadelphia Fed quarterly Survey of Professional Forecasters
1800     US         FOMC minutes (26 � 27 June)
 

Friday, 24 August 2001
GMT 

1230     US     July durable goods
1400     US     June single family home sales

 
Global Capital Investment, LLC is a leading provider of professionally- managed foreign exchange investment services and offers a comprehensive online foreign exchange trading/ dealing platform for individual and institutional clients.

Blair Baker, the writer of this column,  is Global Capital Investment's Foreign Exchange Analyst and Strategist.  Blair may be contacted at blairbaker@globalcap.com.

 
DISCLAIMER: Global Capital Investment’s "The Week Ahead in Foreign Exchange" Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Global Capital Investment assumes no responsibility or liability from gains or losses incurred by the information herein contained.
 
 
 

 
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Last modified: August 19, 2001

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