The U.S. dollar continues to drown in poor economic data that has pressured it to its lowest levels in over 2-months against the majors and a 7-month low against the yen. Today's data showed U.S. consumer sentiment weakened in early July to 11-month lows on resurgence in fears about the economy.
Rising European money market rates continue to underpin the euro which has risen more than 9% from a four-year low of $1.1875 hit on June 7. Smooth government debt auctions in Greece, Portugal and Spain eased concerns about the euro zone's sovereign debt problems.
Further erasing concerns about fiscal problems in the eurozone were comments from International Monetary Fund chief Dominique Strauss-Kahn, who said that stress tests being conducted in the European Union will show that all the major European banks have sufficient capital.
Today's break above $1.3000 will bring resistance at $1.3125 into play.
The sterling hit its lowest level against the euro since June 1 as rising European money market rates and higher equities stoked demand for the single currency. The pound's losses versus the euro helped to pull it away from a 2 1/2-month high hit against the dollar yesterday.
Thin, seasonal liquidity in currency markets is helping to exacerbate sterling moves.
Analysts said the sterling would extend near-term gains on expectations the UK economy would ultimately benefit from tough spending cuts planned by the new coalition government, while negative dollar sentiment would provide an additional boost.
Invariably linked to its trading partner to the south, the Canadian dollar has showed lackluster performance today due to growing concerns over the strength of the U.S. economic recovery.
The next key Canadian-driven event for the market will be the Bank of Canada's interest rate announcement on July 20, and market expectations are leaning toward a rate increase.
Amidst current market turmoil, the Japanese yen has remained firm and significantly strengthened against the USD to 7-month highs. Market participants are closely monitoring the dollar against yen on the possibility of the greenback dropping to a 15- year low by breaching the November 2009 trough of 84.81.
The yen's latest rise has brought it to levels that could cause pain to Japanese exporters if its gains are sustained.
The Australian and New Zealand dollars traded lower with investors leery of buying more risky assets. Commodity-linked currencies have underperformed in comparison to the euro as worries about the U.S. recovery could also undermine demand for resources.
The kiwi fell after second quarter inflation rose 0.3%, prompting markets to price in a slower rise in central bank rates. Kiwi investors await second quarter inflation figures on Friday. Expectations for a 25 basis-point hike on July 29 when the Bank of New Zealand meets are steadily increasing.
10-Year Treasury Note Yield: 2.941%
Dow Jones Industrial Average: 10,156.89 -202.79
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.