USD - The recent flow of strong US data continued last week. The personal spending report for March shows that real private consumption expanded by 0.5% m/m for a second month. Not only did this imply a 3.5% q/q AR growth rate in Q1, but it also sets the stage for an equally solid Q2. Unexpectedly, consumers have been pushing the savings rate lower over the past few months to a level of 2.9%. The senior loan officer opinion survey for Q2 released last Monday showed that US banks are becoming increasingly willing to lend to consumers, with consumer credit rising in March by US$2B - the second rise in three months. Once again the ISM data were encouraging with April showing further gains in both the manufacturing and non-manufacturing index. The composite of the two now indicates GDP growth around 4%. Pending home sales once again bounced in March as home buyers rushed to the markets before the extended version of the first-time-home-buyer credit expires in April. Meanwhile, the greenback strengthened after better-than-expected U.S. economic data. In another sign of economic recovery, U.S. consumer credit rose in March by US$2B - the second rise in three months. Meanwhile, the greenback strengthened after better-than-expected U.S. economic data. Payrolls increased by 290,000 in April - the highest monthly increase in four years -- for a jobless rate of 9.9%.
EUR - The euro climbed out of its 14 month trough hit last week vs. the dollar as fears of financial contagion in Europe gripped markets. The single currency rebounded strongly, rising to highs at 1.3093 overnight following announcement of coordinated EUR 700 billion rescue package for Greece. The euro plummeted to lows at $1.2520 last week as Greece fears and perceived inaction by European leaders sent world markets into a tailspin. Market calm returned today after a coordinated rescue package was announced by Europe and the IMF boosting the amount of initial aid to over $1 trillion US equivalent. The ECB also said it would purchase European government bonds to support Greece and other cash strapped countries facing budgetary difficulties. The rescue package has provided a respite for the beleaguered euro but pressure remains for Greece and others at risk countries to undertake measures to curb its deficits going forward. Until this occurs, the euro is likely to remain under pressure with European leaders facing the difficult task of undertaking financial reforms.
GBP - Even as general elections failed to produce a winner for the first time in more than 30 years and the nation's debt load threatens a credit downgrade, the premium traders pay to bet sterling will weaken against the euro has all but evaporated in the past 10 weeks. Preliminary results from the UK election show that the conservative challenger David Cameron has won most seats, but also that he falls short of a clear majority that would guarantee the ouster of Prime Minister Gordon Brown. The Conservatives are set to have won 275 seats, while Labour is forecasted to have taken 255. The Liberal Democrats are set to lose seats as it looks now. Consequently, the pound has been sold off due to heightened political risk and it is expected to stay volatile in the coming weeks. Additional weakening cannot be excluded.
JPY - The Japanese yen fell over 1% today as risk appetite picked up after the EU and IMF agreed to a $1 trillion Emergency Fund to prevent the Greek debt crisis from damaging the euro currency. Although the aid package could offer some short-term relief for the euro, there are still uncertainties capping yen losses. Last week, the yen fell after positive employment data from the US.
CAD - The Canadian dollar rallied after crude oil and U.S. stocks rose following announcement of a loan package to Greece. However, some market players think the rally will be short-lived. The loonie also received a boost after a record increase in employment of 108,700 jobs in April, which encouraged speculation that the central bank will raise borrowing costs as early as June. The unemployment rate improved to 8.1% from 8.2 %. Today, Canadian housing starts rose to a seasonally adjusted annual pace of 201,700 units in April.
MXN - MXN fell over 9% against the dollar last week before making the largest comeback, rebounding 6.3% since. Despite the risk averse markets, the outlook for the peso for the medium term remains positive as Mexico's job market recovers with government-registered jobs in the country reaching almost a high in 2 months according to the Mexican Labor Minister Lozano.
AUD - The Australian dollar rose vs. the US dollar to highs at $0.9078 amid an easing of risk aversion. Aussie plummeted to lows at 0.8714 last week as European contagion fears sent markets reeling. The Reserve Bank of Australia raised rates by 0.25% last week, bringing rates to 4.50%, in response to strong domestic conditions. The 6 rate hikes over the past 7 months appear to be keeping in the economy from overheating. . High yields for the currency are likely to provide a continuing boost to the Aussie going forward.