The US Dollar is off to a strong start this morning as equities and commodities extend yesterday's steep declines.  The fall in global markets came after the Fed announced it will sell $400B of its near-dated Treasury bond holdings and buy longer-maturity instruments, a program being referred to as operation twist.  The Fed also sharply downgraded its outlook for the US economy, citing significant downside risks to growth and concerns over strains in global financial markets.  The Fed is likely pleased with the initial results, with the 10-Yr Treasury note tumbling some 10% from before the announcement to a record low 1.77%.  Nevertheless, the Fed's actions have done little to encourage investors as the outlook for the US economy dims, unemployment remains high, and the likelihood of QE3 remains distant at best.  Persistent fears over the Eurozone economies have also spooked investors with talks between Greece and the so-called Troika over the release of the next EUR 8B tranche of aid apparently stalled.  The USD has thus benefitted as investors liquidate riskier positions in favor of the safe-haven USD.  Weekly jobless claims have done little to assuage investor fears with the measure registering 423K - higher than the 420K expected, but lower than last week's upwardly revised 432K.  With the risk-off trade in full swing, the USD will likely remain well supported against most of its major counterparts, erasing much of this year's annual declines against many of the G10 currencies.

The EUR broke sharply lower overnight, nearing its worst levels against the USD since the middle of January.  Greece has announced fresh measures to accelerate budget cuts, but its negotiations with the EU/IMF appear to be progressing slowly.  Combined with the Fed's lack of further rounds of economic stimulus, the prospects of a double-dip recession appear to be increasing greatly.  Moreover, much like during the credit crisis of 2009, European banks appear to be increasingly reluctant to lend to one another as the Euribor-OIS spread climbed to the highest level in 2.5 years.  With global growth at risk, the EUR will likely remain under pressure in the near term even after already dropping 7.5% against the USD over the past month.

The GBP extended its monthly declines overnight to reach the lowest levels against the USD since the summer of 2010.  The pound came under pressure yesterday after the latest minutes from the BoE meeting revealed that the Bank favors an increase in asset purchases over extending the maturity of its current portfolio.  However, some of the looming pressure of a possible QE2 has been offset by the increased demand for British treasuries in the recent wave of risk aversion.   

The JPY is stronger this morning in its bid as a relatively safe currency.  With stocks and equities tumbling deep into the red, investors have turned to the safe-haven JPY and USD.  However, investors have been cautious to push the yen too far with the growing prospect of central bank intervention.

The Commodity Currencies are mixed this morning with the AUD, NZD and CAD down sharply, but with the ZAR posting a modest gain.  Raw goods have declined significantly, with oil falling to $81/bbl, gold tumbling to $1733/oz and copper sliding nearly 8% to $348/lb.  The CAD has been hard hit by the declining price of oil, Canada's primary export, and on the worsening outlook for the US economy, the main destination for Canadian goods.  The AUD has been one of the worst performing currencies overnight, shedding more than 2.5% against the USD, and dropping below parity for the first time since March, as investors turn away from risk assets en masse.  Similarly, the NZD is lower after a report showed that the New Zealand economy nearly stalled last quarter, expanding by a mere 0.1%, leading investors to pare bets that the RBNZ will hike rates before the end of the year.  The ZAR unexpectedly posted gains overnight, one of only three currencies to rise against the USD.  The push higher came after the RBSA did not cut interest rates as was expected.  Emerging market currencies have also been hard hit over the past week, with several central banks now looking to slow sharp declines in their currencies - a sharp departure from policy just a few weeks ago that was intended to slow gains. 


































10-Year Treasury Yield:  




 $  1,731.60

 $  (74.20)


 $   348.25

 $   (27.10)

Crude Oil: 

 $  81.26

 $   (4.70)





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..