As signs point to a recovering global economy, the US dollar is steadily losing some of its safe-haven investors as they return to higher yielding investments. The dollar hit its lowest level in more than four months against a basket of major currencies today and bolstered assets perceived to have higher risk, such as emerging market currencies, including commodity-based units such as the Australian and New Zealand dollars.
The worldwide financial and economic situation has improved from a few months ago and that has hurt the USD and helped its major counterparty currencies, namely the euro and pound. Market participants said comments from Portugal 's finance minister that the European Union was not concerned about strength in the euro helped the single currency to extend gains.
Traders are now focusing their attention on the minutes from the Federal Reserve's policy-setting meeting on April 28-29, due later in the day.
Markets showed little reaction to German producer prices which fell 1.4% in April from the previous month, the sixth monthly decline. They were likely focused on the release of stronger than expected German ZEW figures. ZEW came in at 31.1, the highest reading in three years and well above expectations for a reading of 20. Analysts will look towards Thursday for the PMI report for further direction into the Eurozone economy. Look for the euro to continue to test the $1.40 level.
Today's comments by U.S. Treasury Secretary Timothy Geithner, who said the financial system was starting to heal after a period of severe trauma, helped to boost the euro to its 4-month peak.
The British pound climbed to a 5-month high against the USD, assisted by London 's FTSE index which was up 1.4% today. Helping the push higher was a sharp move in bank stocks as Britain held talks with investors to gauge their interest in buying a stake in the nationalized lenders.
The pound is being boosted by ongoing optimism that the UK economy is over the worst of the recession.
Meanwhile, a survey by the Confederation of British Industry, showed British manufacturing orders fell slightly more than expected but firms were more upbeat about the future than at any time since last September. Going forward, investors will be looking to UK retail sales and public finance data on Thursday.
The Japanese yen continued to trade within its recent ranges despite data released today showing Japan's economy shrank a record 4.0% in the first quarter as companies slashed investment and exports.
The Canadian dollar strengthened against the greenback as higher equities and stronger commodities supported the local currency. Look for the Canadian dollar to extend its rally as oil and gold remain well supported and risk appetite holds.
The Australian and New Zealand dollars continued to push higher with Aussie hitting a 71/2 month high against its US counterpart as rallying equities and rising commodity prices dominated the market.
The Aussie was able to recover after data showed a key measure of Australian consumer confidence fell in May, hurt by last week's debt-fuelled government budget and by worries about job losses. In line with the worsening mood among consumers, data also showed wages grew at a slower pace in the first quarter, and analysts predict more weakness in salaries as unemployment rises.
The New Zealand dollar has risen about 23% after hitting this year's low of $0.4895 in early March.
The Mexican peso strengthened sharply to a six-month high as investors remained optimistic that the worst of the economic slowdown was abating.
The peso gained ground for the third straight session and is trading at levels not seen since mid-November against the dollar.
10-Year Treasury Note Yield : 3.249%
Dow Jones Industrial Average : 8,573.45 + 98.36
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.