The US dollar fell across the board after a surprise 25 basis point interest rate hike in Australia and rising equity prices reinforced expectations the global economy is recovering, diminishing demand for the greenback as a safe-haven. In other news, also adding pressure to the US dollar, was a British newspaper report that Gulf Arab states were in secret talks to abandon the US currency in oil trade. However, big oil-producing countries denied the report. The greenback has also recently been under pressure on growing speculation the US Federal Reserve would keep rates near zero for a prolonged period and that the greenback has become a funding currency for carry trades.
The euro climbed to its strongest level in almost two weeks versus the US dollar after Australia's central bank unexpectedly raised interest rates on signs of economic strength, spurring demand for higher-yielding assets. The single currency also pushed higher versus the dollar before a report likely to add to evidence that Germany, the 16-nation currency region's biggest economy, is shaking off the worst effects of the recession.
Sterling fell to a one-week low against the euro and erased early gains on the US dollar after an unexpected fall in UK manufacturing output raised doubts about the British economy's recovery prospects. The dramatic fall in UK industrial production followed a mixed bag of economic data in the past week, and raised the possibility that the economy may not return even to slight growth later in the year, as the UK government expects, should continue to pressure the pound.
The Japanese yen gained against the US dollar after the Japanese Finance Minister said he told officials from the Group of Seven nations meeting in Istanbul last weekend that governments shouldn't pursue policies that seek to devalue their currencies.
The Canadian dollar rose to its highest level versus the US dollar in nearly two weeks given the backdrop of higher prices for key domestic exports like oil and gold. Oil prices rose more than $1 to above $71 after the report, while the price of gold hit an 18-month high. The Canadian dollar's moves are often influenced by prices of these two commodities.
The Australian dollar climbed to a 14-month high against the US dollar after the Reserve Bank of Australia raised its key cash rate by 25 basis points to 3.25 percent, becoming the first major central bank to hike as the global financial crisis eases. Speculation has now increased that the Aussie may push higher on expectations of further monetary tightening. The New Zealand dollar also touched its highest level in 14 months as a rise in Australian interest rates prompted some investors to bet that New Zealand's central bank may soon follow.
10-Year Treasury Note Yield: 3.252%
Dow Jones Industrial Average: 9,733.82 + 134.59
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.