The US Dollar is stronger against nearly all of its major counterparts this morning after the disappointing retail sales data release in the US. Sales stagnated in August, weighed down by flat growth in the labor market. This further highlights the risk that the economic recovery is faltering. With consumer spending comprising some 70% of US economic activity, slow to no growth may spur the Fed to pursue further steps to ease monetary policy and stimulate growth, especially after PPI data showed producer prices falling by more than expected. However, the negative data has translated into dollar strength as investors liquidate riskier positions in stocks, commodities and higher yielding currencies. Continued concerns over the health of the Eurozone economies have also weighed on higher-yielding currencies as investors seek the safety of the USD, JPY, and to a limited extent, the JPY. However, the dollar's upside may be limited as it appears that the global financial community is coming together to prevent a disorderly default in troubled Greece. On Friday, Eurozone officials along with US Treasury Secretary Tim Geithner are set to meet in Europe to hammer out a plan for Greece's immediate future. Similarly, policymakers from Brazil, Russia, India and China will meet next week to discuss ways to help Europe overcome its debt crisis, an important development as Eurozone governments are increasingly looking to the developing economies as a source of demand for the sovereign debt.
The EUR consolidated overnight in its new lower ranges, with its weekly drop halted by renewed optimism that Eurozone officials are committed to averting disaster. Eurozone president Jose Barroso told reporters that he is close to proposing joint Euro-bond sales, a step that many investors say is necessary should the Eurozone, and the euro itself, hope to survive long term. However, after months of disappointing summits and meetings, expectations for this Friday's meeting of Eurozone finance ministers should be limited at best. Germany and France, the Eurozone's two largest economies, recently told the markets that they are opposed to joint debt issuance, and as such the EU's proposals may only serve as a reminder of the growing divide amongst the region's diverse economies. Further adding pressure to the EUR this morning, was a credit rating downgrade on France's two largest banks with concerns over their holdings of Greek debt.
Sterling pared early gains on the renewed wave of risk aversion. The GBP was initially supported by a better-than-expected labor market report with jobless claims unexpectedly falling to 20.3K from 33.7K in the last reading, and short of the 35K expected. The unemployment rate stayed flat at 7.9%. These surprising numbers were not enough to overcome increasingly dovish commentary from BoE policymakers. Yesterday, Adam Posen told reporters that the Bank may need to buy 100B GBP of securities within the next three months to keep the British economy from slipping back into recession. The pound has now extended its loss against the nine other G10 currencies to 5.1%, the second worst performer behind only the USD.
The JPY gained this morning, reaching its strongest levels of the month on growing risk aversion. However, the gains have been tempered by cautionary statements from the BoJ and Japanese government that they are prepared to take appropriate actions should the yen strengthen further. While a nuclear option like the SNB's pegging of the CHF to the EUR remains unlikely in Japan, the new government leaders will look to send a signal to the markets that they will be proactive in stemming further yen appreciation.
The commodity currencies have bounced back from early losses, but remain under pressure. Raw goods continued to sell off with oil falling to $88/bbl, gold dropping to $1821/oz, and copper extending its recent decline to $389/lb. The CAD fell early on the declining price of oil, Canada's main export, and the selloff was amplified after the disappointing retail sales data out of the US, Canada's main export market. The AUD extended its 5-day decline despite a rebound in consumer confidence. The measure gained from a two-year low as the RBA indicated it will keep interest rates on hold to gauge the fallout from the Eurozone debt crisis. The NZD is also lower this morning, but has had less of a negative bias this morning as most investors still expect the RBNZ to raise interest rates before the end of the year. However, expectations may be tempered after the Kiwi's 10% gain over the past six months may hinder future economic growth. New Zealand Finance Minister Bill English told reporters that, when our growth is export driven and the exchange rate is elevated, it's going to have an effect.
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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..