Losses loomed large for the US dollar against the yen and European currencies following data releases that showed business activity in the U.S. manufacturing sector came in weaker than expected in June. Additionally, a report from the National Association of Realtors showed contracts for pending sales of previously owned homes plunged a record 30 percent in May, far more than expected, largely due to the expiration of a tax credit at the end of May.
Also weighing on the dollar were today's initial U.S. weekly jobless claims which came in higher than expected. The U.S. Labor department reported that initial state jobless benefit claims rose to 472,000 in the latest week. Markets were expecting claims of 452,000.The dollar breached a 7-month low against the yen as investors grew cautious about the global economy after China's manufacturing PMI data slowed in June, heightening concerns over the global economic recovery and weighing on high-yielding currencies.
The euro recovered significantly from Monday's 2-week low of 1.2150, after European banks borrowed less money than expected from a European Central Bank's tender, cooling concerns over euro zone banks' funding issues.The single currency was also supported by Madrid's ability to sell five-year bonds after Moody's placed Spain's sovereign rating on review for possible downgrade.
The sterling fell against the euro as funding concerns in the Eurozone eased, while climbing against the USD on the back of today's weaker than expected news out of the US. The outlook for higher interest rates in the UK has been put on the backburner as BoE policymaker David Miles said that UK inflation was uncomfortably high but added there was no need for an immediate hike in interest rates. This comment followed yesterday's comments from fellow policymaker Adam Posen who noted that he was not ready to back interest rate rises, despite signs that inflation expectations are creeping upward, because of the risk of a return to recession. No change is expected at the next policy meeting on July 8.
The Canadian dollar breached fresh 3-week lows against the USD, weighed down by falling gold prices and holiday thinned trading in Canada. Though it is likely that the loonie will show continued weakness, there is strong resistance at 1.0745.
The Japanese yen's latest rise has brought it to levels that could cause pain to Japanese exporters if gains are sustained. A stronger yen erodes exporters' profits when repatriated and makes their products more expensive overseas. Bank of Japan board member Yoshihisa Morimoto, in his first press conference after joining the central bank, said he is watching the yen closely because it could hurt profits and sentiment. One of Japan's two deputy finance ministers also said a weak yen is generally beneficial to the country's exporters.The BOJ's April-June tankan survey revealed that manufacturers turned optimistic for the first time in two years as a rapid recovery in exports has boosted corporate profits.
The Australian and New Zealand dollars remain near multi-week lows despite news that the Australian government and key mining companies were on the brink of a framework deal on the tax which would end weeks of stalemate. The news caught speculators short as they had been selling the Australian currency in the wake of softer Chinese and domestic economic data and further falls in global stock markets. Doubts on global growth and heavy falls in equities dragged on risk-sensitive currencies.
The Mexican peso sank past the key psychological level of 13 per dollar after overall weakness of the US economy had a knock on effect on the peso.
10-Year Treasury Note Yield: 2.899%Dow Jones Industrial Average: 9,674.19 -99.38%
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.