As extreme market volatility continues, the U.S. dollar is once again drowning under weaker-than-expected economic data. A report released today showed new U.S. claims for jobless benefits climbed more steeply than anticipated, with a showing of 464,000. The report followed other data earlier in the week showing weakness in the housing sector and yesterdays comments from Federal Reserve Chairman Ben Bernanke, who said that the economic outlook as unusually uncertain.Compounding the dollar's weakness was the sharp contrast of the U.S. data to that of the eurozone which today released stronger-than-expected European economic data reviving market appetite for risk.
The euro has strengthened on the back of strong economic data which showed that the private sector surged ahead in July. Additionally, a separate report showed eurozone industrial new orders rose in May at their fastest annual rate in 10 years. Traders are now eagerly anticipating the results of the Bank stress tests. Though the tests are largely expected to show that all the major European banks have sufficient capital, investors are still in a wait and see position. Some in the foreign exchange market say the test results could be positive for the euro if they reveal no unpleasant surprises, but doubts linger over whether the checks are tough or transparent enough.
Sterling was supported by better-than-expected data as British retail sales came in higher than expected, alleviating some concerns about the economy. UK retail sales volumes received a World Cup boost in June after strong sales of electrical goods drove a faster-than-expected 0.7% monthly rise.
With investor appetite for risk returning, the Canadian dollar is showing its third consecutive day of gains against the USD. Supported by rallying global stocks and strong oil prices, Canada's commodity-linked currency is on the rise.Markets will be watching the Bank of Canada as they should provide more details on its view of the economy in its Monetary Policy Report, followed by a press conference by Governor Mark Carney later today.
The Japanese yen remained firm, near recent seven-month highs against the USD. The rise in the yen has been hampered by caution that Japanese policymakers may try to talk it down as it nears a 14-year high around 85 yen per dollar hit last November.Deputy Finance Minister Motohisa Ikeda said that Japan wants to avoid excessive rises in the yen, but market reaction was muted. Japanese policymakers, including Trade Minister Masayuki Naoshima have expressed alarm over the damage a strong yen could inflict on the export-reliant economy.Tokyo intervened massively in 2003 and early 2004 to prevent a rapid rise in the yen from aggravating deflation and derailing a fragile recovery. But it has not stepped in since then.
The Australian and New Zealand dollars held recent gains, surging to a 2-month high against the USD. The yield advantages of both currencies have limited selling pressures in the pair. Kiwi investors await a 25 basis-point hike on July 29 when the Bank of New Zealand meets.
10-Year Treasury Note Yield: 2.934%Dow Jones Industrial Average: 10,335.54 +215.01
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.