The US Dollar is mixed this morning as investors gauge the possibility of further measures from the Fed to ease monetary policy and stimulate the economy. In Fed Chairman Bernanke's speech last Friday, the door for further stimulus was left open should economic conditions worsen in the coming months. However, no explicit pledge of another round of quantitative easing was given, and QE3 remains highly improbable at this point with inflationary pressures likely to gain momentum as hurricane season may drive up the price of oil. However, forward looking economic data such as leading indicators and consumer confidence have fallen off track as of late. Consumer confidence was released this morning at 44.5 far short of the 52.0 expected, and down from 59.2 in the previous month. The confidence reading is the lowest since April 2009, the depths of the last recession, and marks the biggest point drop since October 2008, just weeks after the Lehman collapse. Nevertheless, the dollar has remained relatively well supported against many of its counterparts ahead of minutes from the Fed's last FOMC meeting at which three members abstained from voting all together. Bernanke's options are likely limited not only by high inflation and stagnant growth, but also by shrinking support for extraordinary measures from within the Fed itself. Abstention from stimulus would be supportive for the dollar, but the possible resulting downturn in economic output and rise in unemployment could prove to be more damaging in the longer term.
The EUR is lower against most of its major counterparts this morning on growing speculation that the ECB will halt interest rate hikes as the region's debt crisis curbs economic growth. ECB President Trichet told reporters yesterday that the Bank is reviewing its assessment of inflation risks, and a report today showed that Eurozone economic confidence fell by the most since December 2008 as the region's economies teeter on the brink of a double-dip recession. Nevertheless, the EUR remains range-bound between 1.43 and 1.45, its range for much of the summer, as investors still seem to expect another round of stimulus from the Fed in some form or another.
Sterling is also under pressure this morning, falling against both the USD and EUR as the British economy continues to underperform. A report did show that British mortgage approvals unexpectedly increased in July after mortgage rates plunged to historic lows as investors sought the safety of British government bonds. Business confidence in England tumbled as well, dropping to a reading of -3 from 19 in the previous month when it shed 17 points.
The JPY remains within its narrow ranges this morning near its all-time highs reached just two weeks ago. Former finance minister Noda was sworn in as the nation's new PM overnight, making him the sixth man in the role in the past five years. The ascension was a bit unexpected, but investors believe he may prove to be a decisive leader with a known track record of fiscal conservatism and a proactive approach to combating an appreciating JPY. As such, the yen may shy away from the 76.0 level as investors fear further rounds of intervention.
The Commodity Currencies are mixed this morning with both the AUD and NZD gaining while the CAD and ZAR have pulled back. Oil continued to push higher to $88.75/bbl, gold spiked back above $1800/oz and copper extended its recent gains to $415/lb. The AUD surged back towards the top of its recent ranges overnight after Australian home-building approvals increased for the first time in four months. The story was the same in New Zealand with the kiwi rising to its highest levels in a month after New Zealand building permits increased and after a report showed that manufacturing increased in China, New Zealand and Australia's main trading partner. The CAD fell despite the rising price of oil, Canada's main export, as economic data out of the US, Canada's main trading partner, disappointed. The loonie is headed for its biggest monthly drop in more than a year on reduced likelihood that the BoC will hike interest rates and as economic growth slows in the world's major economies. The ZAR came under pressure overnight as the South African economy expanded at a 1.3% annualized pace, the slowest pace in two years. With European governments cutting back on spending this year, South African exports have been hit hard losing demand from its largest export market.
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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..