The US Dollar is stronger against all 16 of the most actively traded currencies this morning with both stocks and commodities extending yesterday's late-day declines. The move lower comes after President Obama addressed a joint session of Congress to put forward a new plan to encourage job creation by reducing payroll taxes, introduce subsidies for government workers and promote infrastructure projects. While the tax-cut portion of the plan will be difficult for Republicans to oppose, government subsidies and public works will not be so easy to swallow. After the executive and legislative branches' tumultuous recent history (e.g. federal budget plan, debt ceiling deal), investors are not so certain that the Obama administration's plan will be easily and quickly passed, let alone a panacea for a slowing US economy. Nevertheless, the USD has gained this morning as investors seek its safety. With the other traditional safe-haven currencies, the JPY and CHF, now being actively monitored and managed respectively, investors have turned to the dollar. This morning, wholesale inventory data confirmed a coming economic slowdown as stockpiles gained 0.8% from 0.6% last month with weak domestic demand.
The EUR continued its grind lower this morning against most of its major counterparts after yesterday's dovish turn from the ECB. After hiking rates twice earlier in the year, it appears the central bank has not only halted the policy tightening cycle, but may be leaning towards easing in the coming months. Yesterday, ECB President Trichet told reporters that the Bank has significantly changed [its] appreciation of the economic situation signaling that rather than being focused solely on inflationary pressures, they are now more concerned about a faltering economy and possible recession. Moreover, the struggles in the region's periphery continue with Greek 10-Yr bonds reaching a new all-time high, just below 20%. Greek GDP contracted by 7.3% in the second quarter, far worse than expected, leading investors to believe that despite the Greek government's best efforts, they won't be able to meet their fiscal obligations. As such, the common currency will likely remain under pressure as Greece's exit from the Eurozone again becomes a hot topic.
Sterling continued its tumble from yesterday afternoon after a report showed inflationary pressures easing further. PPI remained elevated at 6.1%, the fastest pace since 2008, but input prices took an unexpected hit, contracting by nearly 2%. The lower input component has prompted investors to cut bets even further on the likelihood that the BoE will raise interest rates any time soon as the output component will likely follow suit within the next several readings. However, the pound has declined at a lesser pace than its mainland European rival as the GBP remains relatively attractive compared to the EUR.
The JPY is lower this morning after a report showed that the Japanese economy contracted by more than expected in the second quarter as the nation struggles to recover from this year's devastating natural disasters. Japanese GDP shrunk by an annualized 2.1%, worse than the -1.3% reading last month, but in line with estimates. Compounding Japan's economic woes are a worsening economic outlook after a report last month showed machinery orders fell by the most in 11 months as the strong JPY made Japanese products less competitive. Prime Minister Noda is said to be drafting yet another rebuilding package to jumpstart the economy after the earthquake and tsunami in March, and it is said to include measures to help companies deal with a rising yen. The details are unknown, but after the SNB pegged the CHF to the EUR, seemingly drastic moves to weaken the yen may be in store.
The Commodity Currencies are all sharply lower this morning, weighed down by risk aversion and falling commodity prices. Oil fell to $86.75/bbl, gold was down to $1854/oz and copper neared $400/lb. The CAD dropped for a second straight day after a government report showed Canadian employers unexpectedly cut jobs. Expectations had been for a gain of 21.5K jobs, but a decline of 5.5K was recorded after last week's 7.1K reading. Meanwhile, the CAD's downside has been limited by President Obama's plan to create jobs in the US, Canada's primary export market. The AUD and NZD are also lower this morning with no economic data to offset the decline in investor risk appetite. Similarly, the ZAR extended its recent declines as investors increase their bets that the RBSA will cut interest rates by the first quarter of next year. Currently, the futures markets is pricing in a 0.5% cut with 40% certainty by next March.
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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..