The US Dollar slid from its recent rally and extending losses against all major currencies, with the exception of the JPY, as major central banks around the world cooperate to offer three-month U.S. dollar loans to commercial banks in order to prevent money markets from freezing up due to Europe's sovereign debt crisis.
Domestically, U.S. jobless claims unexpectedly rose last week, factory activity along much of the Eastern seaboard contracted early this month, and consumer prices rose more than expected in August, backing the view the Federal Reserve would move soon to boost growth in the economy. The Labor Department reported the number of Americans filing new claims for unemployment rose to 428K in the week ended Sept. 10. This marks the second straight weekly increase and the highest recorded level since June 25. In addition, the Labor Department reported CPI increased 0.4% last month, higher than the forecasted 0.2% rise, with food prices posting the biggest gain since March. The core CPI, which excludes food and energy, rose 0.2%, same as July and consistent with expectations.
The EUR traded stronger against the USD as the ECP announced a program with the Federal Reserve, Swiss, British, and Japanese central banks to establish three-month dollar tenders available to institutions in need of the currency and are unable to access it through traditional funding sources. The US dollar liquidity-operation has sharply boosted the euros as well as European bank shares which jumped as high as 13% before coming off their highs. Meanwhile, the divide between European Union's top economic officials still remain as German Chancellor Angela Merkel has bluntly rejected Eurozone bond offerings as a solution to the currency area's sovereign debt crisis, saying that collectivizing debts would not solve the problem. As for Greece's economy, Finance Minister Evangelos Venizelos told the parliament today that the nation will stay in recession for a fourth consecutive year in 2012.
The British pound traded higher against the broadly weakened US dollar even as British retail sales fell in August and as prices rose at their fastest annual rate in three years. Meanwhile, Britain's Office for National Statistics reported unemployment rose for the sixth month in a row in August to 20,300 continuing a rising trend since February. In addition, the number of employed Britons fell by 69,000 in the three months to July, the biggest drop since March 2010. Pressures from high inflation and low wage growth has weakened consumer confidence and has added stress on the Bank of England to start a second round of asset purchases to boost growth.
The Japanese yen withdrew from gains against the USD as the dollar liquidity-operation boosted confidence in the global marketplace. Domestically, Japanese manufacturing confidence improved for a fifth straight month in September but its pace has slowed from its rapid rebound from the March earthquake.
The CAD inched higher against the USD but lags behind a broader risk rally of commodity currencies on signs that the Eurozone is committed to saving Greece from an almost imminent default. The liquidity-operation gave rise to a rally in European equities, stronger US stock futures, higher oil prices and interest rate spreads moving in Canada's favor. Among other key points in support of the loonie, are Canadian manufacturing sales and US inflation.
Indications of Overnight rates:
10-Year Treasury Note Yield: 2.083%
Dow Jones Industrial Average: 11388.90 + 142.85
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..