The US Dollar gained some ground against a basket of currencies with the exception of the safe haven currencies such as the Japanese Yen and Swiss Franc. With rumors swirling that French bank BNP Paribas has short-term funding issues paired with weak demand in Italy's long-term bond auction, despite China's buying of Italian government bonds, has brought a fresh bought of risk aversion into the market.
Markets are looking to Friday's Eurozone finance ministers' meeting for additional direction. US Treasury Secretary Timothy Geithner will also be attending as further deterioration of the Eurozone economy would ultimately have negative consequences for the US banking system and USD. The rapidly weakening euro will put pressure on US exports that President Obama is looking to grow significantly.
The Euro continues to remain under pressure against the USD and hit its weakest level in a decade against the JPY. Speculation that Greece is near defaulting and Italy's borrowing costs rose to unsustainable levels following a series of longer-term bond auctions weighed on the 17-nation currency. Further adding to the euros volatility, French President Nicholas Sarkozy and German Chancellor Angela Merkel will not announce joint initiatives on the region's debt crisis today. On the economic data front, French inflation in August was 2.4% YoY, which was higher than the 2.2% forecasted by analysts.
Sterling continues to hover near a seven and a half month low vs. the dollar after disappointing economic news out of the UK. CPI was in line with expectations at 4.5%, while UK trade deficit widened unexpectedly, both of which did little to quash speculation that the Bank of England could opt for further easing. Comments from BoE policymaker Adam Posen that the central bank should immediately add more monetary stimulus added further pressure to the pound.
The Japanese yen gained as investors flocked to the relatively safe haven currency. Yoshihiko Noda, Japan's sixth prime minister in five years, has reaffirmed his commitment to curbing public debt and reiterated that the government and the central bank needed to do everything possible to curtail the yen's strength. Though he did not offer any specific new policies in his first speech, there is some chatter in the market that the Bank of Japan may intervene in the market once again should the yen continue to strengthen.
The Commodity Currencies slide on the back of a risk-off environment along with weaker gold and oil prices. The Aussie was under pressure after an index of Australian business confidence, comprised of more than 500 companies by the National Australia Bank Ltd., slumped to minus 8 in August. The kiwi declined vs. the USD with mixed economic data. Manufacturing sales eased for the first time in three quarters, while the housing market showed some rebound in August. Swedish and Norwegian Crowns remained weak after selling off against the euro on Monday. All four currencies are considered to be high risk as their economies track the broad health of the global economy, and tend to depreciate during times of uncertainty.
Indications of Overnight rates:
10-Year Treasury Note Yield: 1.998%
Dow Jones Industrial Average: 11038.98 - 22.14
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.