The US Dollar consolidated in its new higher ranges overnight, giving back some of yesterday's steep gains, but maintaining its overall bias for further strengthening. Equity and commodity markets extended yesterday's declines on the growing fear that the global economy is slipping back into recession. The selloff has translated into sharp dollar appreciation as investors exit risk positions and seek the perceived safety of US treasuries and cash. However, with no further economic data due this week to either reaffirm the economic decline or persuade investors otherwise, the dollar's gains have slowed ahead of key World Bank and IMF meetings this weekend. While no concrete plan of action is to be expected, it is likely that the world's economic leaders will at the least show signs of cooperation and commitment to averting disaster. Demand for the dollar also eased after a conference call of G20 economic heads. The world's largest economies pledged a strong and coordinated response to the challenges facing the global economy, but with investor confidence quickly dissipating, a double-dip recession appears highly probable.

The EUR has pulled back from the lowest levels since January, but still remains under pressure as the debt crisis roils on. Overnight, Moody's Investor Services added to concerns by cutting the credit rating on Greece's eight largest banks, citing unsustainable exposure to government debt with a default appearing all but inevitable at this point. Eurozone PMI data released yesterday also pointed to an economic decline with both the manufacturing and service components dropping below 50, the threshold between expansion and contraction. Even more troubling, the new orders component, a leading indicator of future readings, contracted to 44.8. With even the German economy feeling the pinch of austerity and slowed growth, investors have increased bets that the ECB will soon reverse their ill-advised interest rate hikes from earlier this summer, possibly as soon as at their next meeting in October.

Sterling is also off its lows, but remains towards the bottom of its recent ranges. The relief came after the G20 leaders spoke, and demand for the USD and other safe-haven assets eased. Nevertheless, the pound is still headed for its 5th straight weekly decline against the USD, its longest losing streak in more than a year. The GBP also rebounded against the JPY after falling to a record low yesterday morning. Demand for British government bonds also eased, but yields were still significantly lower than at the end of last week.

The JPY is relatively flat this morning after gaining more than a percent against the USD yesterday amidst the turmoil in global financial markets. Despite the appreciation, the BoJ and Japanese government officials have been noticeably quieter than in recent weeks, with no public comments about currency market intervention or the ill effects of a strong JPY. The market already knows that if the yen pushes back into the 75's, the BoJ will consider intervening. On the other hand, the BoJ is well aware that in light of the recent wave of risk aversion and the resulting flight to safety, any central bank action would likely have limited impact and the marginally lower rates may only attract more capital inflows.

The Commodity Currencies are marginally higher this morning as the selloff in global equity markets slowed. However, commodity prices remain under pressure as investors fear that a global recession may be nearing. Oil broke below $80 for the first time in more than a year, gold declined to $1676/oz as investors in the precious metal sold futures to cover losses in other assets, and copper, a strong leading indicator of global growth, tumbled to $332/lb. The G20 call served to boost investor confidence in the commodity currencies, and an affirmation of Australia's AAA rating by S&P has helped the AUD find a bottom in the 0.98 range. The CAD also drew support from the G20 call, but remains above parity with the USD and is poised for a weekly drop on the declining price oil, Canada's main export.


































10-Year Treasury Yield:




 $ 1,677.80

 $ (61.60)


 $ 333.25

 $ (14.80)

Crude Oil: 

 $ 79.98

 $ (0.33)





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..