The US Dollar is lower against nearly all of its major counterparts as stocks fluctuate between gains and losses after yesterday's steep selloff. With no major economic data slated for release today, the dollar remains largely driven by risk flows while suffering from this morning's modest rebound in investor confidence. As during last week's volatile swings in financial markets, tech companies have led this morning's gains after yesterday's triple-digit rout made shares of strong performers relatively cheap. Investors have also been reassured after encouraging signs that Eurozone officials are moving closer towards proactively addressing the region's debt crisis through issuance of joint Eurobonds. However, the improved confidence comes just a day after the worst Philly Fed reading in more than two years - a strong cursory sign that the US may be headed back into recession. A reading worse than -20 has occurred either prior or during the last seven recessions, dating back to the 1970's. As is the case with stocks and commodities, the USD will likely remain range bound as the week comes to a close.
The EUR has rebounded back towards the top of its recent ranges after reports that the EU is considering the issuance of Eurobonds. EU Economic and Monetary Affairs Commissioner, Olli Rehn, told the European Parliament that the commission will analyze the viability of joint debt issuance within the Eurozone. These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets, Rehn said. However, no timeline was given for the proposal, and it comes in stark contrast to remarks from both French President Sarkozy and German Chancellor Merkel after they met earlier this week. Germany has been outspoken against Eurobonds, and it appears that France is on their side at this point. Nevertheless, investors have taken the signal that Eurozone officials are at least considering increased fiscal consolidation as a positive for the common currency. Further austerity budget measures from Spain have also encouraged investors that policymakers are finally taking a hard stance as their economies grapple with mounting cost of debt.
Sterling is also higher this morning, headed for a weekly gain against all 16 of its most actively traded peers. The pound's gains have been twofold, with support coming from both a rebound in US equities this morning, and the GBP's increased role as a funding currency with heightened worries over the health of both the Eurozone and US economies. However, with both of the UK's major trading markets teetering on the edge of recession, the British economy will likely come under renewed pressure. The BoE appears on the brink of a shift in policy stance with the most recent minutes showing that the MPC members with a more hawkish bias have done a U-turn, voting to keep rates steady. However, any further weight on the already struggling British economy will likely pressure the BoE to pursue further QE sooner rather than later.
The JPY surged to a new record high this morning, breaching the 76.00 level for the first time in the post-WWII era. However, the yen has weakened back above 76.25 following the spike as speculation mounts that the BoJ is preparing to intervene in the currency market again. Finance Minister Yoshihiko Noda told reporters today that currency intervention needs to surprise and that he's ready to stem gains in the yen, which Japanese officials fear will slow an export-led recovery. The comments come a day after he told reporters that he's prepared to take bold action. While intervention appears to be inevitable, the short-lived effects of selling the yen have surely been a disappointment for Japanese officials.
The Commodity Currencies are all slightly higher this morning as investors cautiously reenter riskier positions. Oil rebounded to nearly $83/bbl, copper climbed to $4398.75/lb and gold soared to $1850/oz - a fresh all time high. The CAD has pared some of its weekly losses, but still remains near its lowest levels since January as the global economy appears to be slowing. The rise in the price of oil, Canada's main export, has provided support for the loonie, but plummeting interest rate futures suggest that pressure is mounting on the BoC to cut interest rates to ward off recession. The AUD and NZD are also higher this morning, but have come off their best levels as stocks fluctuate between gains and losses. The aussie and kiwi have both been particularly volatile over the past two weeks, hit by increased fears that the global economy may be headed for sharp contraction. Nevertheless, rising inflation has kept both currencies supported as the scope for interest rate cuts appears limited. The ZAR is marginally higher this morning, but is still headed for its third straight weekly loss as a slowing global economy saps demand for South African exports and riskier assets like the rand. The woes have been compounded by fear that Europe's debt crisis may result in a liquidity squeeze for its banks, crimping the primary source of foreign investor flows into South African bonds and stocks.
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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..