The U.S. dollar continued its downward spiral following the release of worse-than-expected durable good orders. Orders fell for the second straight month in June, posting their biggest decline since August, when an increase in orders was anticipated. This data compounded fears about the struggling U.S. economic outlook.

Investors await the release of the Federal Reserve's reading on regional economic conditions, known as the Beige Book, later in the session and the GDP data expected on Friday.

The euro bounded higher, to a fresh 2-month high against the USD and yen, underpinned by robust European bank earnings and solid economic data. Yesterday's rise in German consumer sentiment, following strong Ifo and PMI surveys the previous week, boosted European recovery hopes.

Many banks have altered their long term forecasts to reflect higher euro levels over the next 3-6 months. The next target for the euro will be $1.3125.

The British pound remained at a 5-month peak against the dollar despite dovish comments from the Bank of England, which did little to diminish optimism about the UK economic outlook after a run of encouraging data.

Traders brushed off forecasts from the National Institute for Economic and Social Research that warned the economic recovery would be slower than the government believes.

The pound has climbed more than 4% this month versus the dollar, which by contrast has suffered broadly on signs the U.S. economic recovery is losing steam.

With no major Canadian data scheduled to be released today, the Canadian dollar remained range bound against the USD.  With oil and gold prices lower over the past few days, the loonie's upside has been limited.

As risk appetite returns to the market, the Japanese yen has taken a hit. Falling over 1% against the USD and to a 7-week low against the euro, Japanese officials are relieved by the profit taking and weaker yen. 

BOJ policy board member Hidetoshi Kamezaki said that Japan's economic recovery lacked strength and could stall temporarily in the fourth quarter, as export growth was likely to moderate and government stimulus steps were set to expire. He also noted that euro weakness against the yen could affect firms' export competitiveness, which could hurt the economy.

Government officials tried to talk the yen down last week as it neared a 14-year high around set last November, but Japan has not intervened in the forex market since 2004, even when the yen soared during the global financial crisis. 

Following worse-than-expected CPI data, and with core inflation slowing to its lowest level in more than three years, the Australian dollar tumbled from yesterdays 11-week highs, dragging the New Zealand dollar lower as well.  

The softness of the numbers saw investors price out any chance of a rate hike from the Reserve Bank of Australia next week. The RBA meets on August 3 and releases its quarterly Statement on Monetary Policy on August 6.

Investors are awaiting New Zealand's central bank meeting tomorrow, with market expectation certain of a rate rise, as the central bank aims to keep a lid on inflation expectations despite a patchy recovery.

 

Indications of Overnight rates:

EUR/USD

1.3041

USD/JPY

87.44

GBP/USD

1.5638

USD/CAD

1.0298

USD/MXN

12.6284

USD/CHF

1.0538

AUD/USD

0.9025

NZD/USD

0.7338

10-Year Treasury Note Yield:  3.048%

Dow Jones Industrial Average:  10,522.33 -13.56

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.