The US dollar weakened slightly against most major currencies as global stocks rebound. Data from the Mortgage Bankers Association showed demand for US home loans fell for a third straight week last week, with the seasonally adjusted mortgage applications index dropping 4.9%. In a recent monthly poll of 60 economists, the consensus produced a fairly flat median trend for the dollar with the debt crisis in the Eurozone and the economic health of the western economies the main focus. There are also talks that major banks will likely keep interests rate on hold well into 2012 with the global economy slowing.
The euro rose against the dollar after Germany's top court rejected lawsuits aimed at blocking participation in Eurozone bailouts. The Constitutional Court rejected a series of lawsuits aimed at blocking the participation of Europe's biggest economy in emergency loan packages but said approval from parliament's budget committee must be granted before providing aid. On the data front, German's industrial output rose more than expected in July. Though the euro holds steady after volatile swings last week, it remains under pressure ahead of the European Central Bank's rate decision on Thursday. With slowing global growth, easing inflation and mounting debt, the ECB may pause in its rate tightening cycle.
With a bounce in stock markets, the GBP inched up from its seven-week low against the dollar. Data from the UK showed house prices fell 1.2% in August. The Bank of England's Monetary Policy Committee started its two day meeting today, with many anticipating interest rates to remain near zero after a slew of disappointing data in the last few months. There has also been some speculation that the BoE may have to resort to another bout of asset purchases to support the sagging economy.
In an attempt to stabilize the CHF, the Swiss National Bank set a minimum exchange rate target of 1.20 francs to the euro. The SNB committed to an unlimited selling of CHF to maintain the 1.20 EURCHF level, and will work hard to diversify its reserves (which would include buying currencies such as EUR and CAD).
The JPY held steady in the wake of Switzerland's radical action to curb its soaring currency. The Bank of Japan kept its policy setting on hold, saving their ammunition for another day as the yen steadied against the dollar. There is some speculation that the CHF's safe-haven flows may spill into the JPY, which would add pressure to the BoJ to further loosen their monetary policy.
The Commodity Currencies edged higher as world stocks recovered from a two-week low following Germany's decision to reject lawsuits aimed at blocking Berlin's participation in bailout packages for Greece and other debt ridden euro countries. The Bank of Canada kept its interest rate steady at 1% as many had anticipated, and stated that there was less need to raise interest rates as global growth wanes. Positive economic news out of Australia also helped support the AUD.
Indications of Overnight rates:
10-Year Treasury Note Yield: 2.015%
Dow Jones Industrial Average: 11,316.70 + 177.40
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.