The US Dollar is sharply stronger against most of its counterparts this morning as major global financial markets dip deep into the red. Continuing last week's roller coaster ride in equities, investors are acutely sensitive to growth data. Morgan Stanley downgraded its outlook for both US and European growth this morning, forecasting 3.9% growth in 2011 and 3.8% in 2012, down from their previous outlook of 4.2% and 4.5% respectively. CPI data released this morning was also worse than expected, with consumer prices gaining by 0.5% after last month's 0.2% decline. Weekly jobless claims also took a slight turn for the worse, ticking up to 408K after last week's upwardly revised 399K reading. A gauge of manufacturing output in the mid-Atlantic region was also released far worse than expected, posting a reading of -30.7 versus last month's reading of +3.2, dropping by the most since 2009. The barrage of negative data, combined with similar fears in the Eurozone, has led investors to run for the exits, which has translated into dollar strength in its role as a safe-haven. However, the dollar will remain relegated to its recent ranges as the gains are due largely in part to bad economic data out of the US itself, and not because the US economy is outperforming expectations.
The EUR shed more than a percent against the USD at its worst this morning, but has since pared some of those losses. The selloff has come as a knee jerk reaction to the sharp drop in global bourses, and also as investors mull over the lack of action from a meeting between French President Sarkozy and German Chancellor Merkel earlier this week. Fears that European banks are also struggling with solvency have also weighed on the common currency as rumors suggest that an unnamed European bank tapped the ECB's emergency liquidity fund for $500M overnight. With stocks and commodities so deep in the red this morning, the EUR will remain under pressure, albeit within its recent ranges.
Sterling is lower on a renewed wave of risk aversion and on the deteriorating outlook for the British economy. Minutes from the BoE's last meeting showed that the two members that held their hawkish bias for months reversed their vote for higher interest rates, admitting that the economy was in no shape to absorb higher borrowing costs. The MPC's dovish advocate, Adam Posen, also gained considerable clout with his 11th straight vote for more QE gaining credence. British retail sales data were worse than expected this morning, gaining by a mere 0.2% versus last month's 1% increase. With automobiles and fuel stripped out, the measure actually declined by 0.2%.
The JPY is surprisingly flat this morning despite a surge in market volatility. However, the yen remains near the very top of its historical ranges, supported by risk aversion. A top Japanese currency official from the finance ministry met with the BoJ this morning in a signal to markets that policymakers are poised to intervene in the market again should the yen strengthen any further.
The Commodity Currencies are broadly lower this morning as risk aversion weighs on the high-yielding group of currencies. Oil tumbled nearly 5% to $83/bbl, copper was down to $398/lb, consumables were all lower, and gold gained to a new all-time high of $1824/oz. The CAD fell by the most in more than a week as stocks and commodities both plunged on global economic woes. The loonie has also lost as the price of oil, Canada's main export, slipped nearly 5% and on renewed growth concerns in the US. The AUD and NZD are both 1.5% lower against the USD this morning on the surge in risk aversion. Emerging market currencies have also been particularly hard hit, with the ZAR and MXN for instance pulling back by more than 1.5% against the USD.
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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..