The US Dollar is sharply lower against nearly all of its most actively traded counterparts on speculation that G20 and European officials are close to unveiling a grand plan to put an end to the escalating Eurozone debt crisis. The safe-haven JPY and USD have given back some of their recent gains against higher yielding, but riskier, assets, but their downside appears limited by lingering expectations of a double-dip global recession. This is not the first time the market has been excited about a plan aimed at easing the crippling price of debt for the struggling Eurozone members, and any concrete plan is unlikely to be the panacea that investors are hoping for. Meanwhile, a measure of US consumer confidence gained by less than expected to 45.4, up from 45.2 last month, but short of the 46.0 forecast. Manufacturing in the Mid-Atlantic region also contracted by less than expected, with the Richmond Fed index registering -6 versus -11 expected. Tomorrow's durable goods report will be closely watched, with a contraction expected as businesses hold off on making capital investments with the economy on such precarious footing. However, with no major data to dissuade investors, global markets have rebounded strongly with US stocks already up more than 2.5% after yesterday's 2.65% gain.
The EUR is mixed, gaining most against the safe-haven USD and JPY, but extending recent declines against higher yielding currencies like the ZAR, MXN and AUD. Markets are higher this morning on restored investor confidence as news broke that the G20 and EU are close to agreeing on a grand plan to backstop the region's struggling members. The plan is expected to include: 1) allowing Greece to default and protecting the region's other fragile economies from the risk of contagion, 2) increasing the size of the ESFS from EUR 440B to an estimated EUR 2T. While expanding the region's bailout fund is a step in the right direction, the effects of a Greek default are still unknown and pose significant risks to the Eurozone's other members. While the EUR will remain supported in the near term with risk appetite on the rise, it will likely be relegated to a rather narrow range between 1.34 and 1.37 until the details of the plan are revealed.
Sterling is higher this morning against half of its major counterparts as investor confidence prompts investors to shift capital into riskier assets. The apparent coordination between the G20 leaders and Eurozone nations has encouraged the risk-on trade, and with no major economic data to convince investors otherwise, the UK has outperformed its European peers. Nevertheless, the pound remains towards the lower end of its annual ranges as the outlook for the British economy remains weak at best and the BoE appears close to enacting another round of quantitative easing.
The JPY is broadly weaker this morning as rising stock and commodity prices encourage investors to seek higher yields. The safe-haven yen does however remain near its all-time high against the EUR that was reached yesterday, and towards the top end of its range against the USD. Japanese officials are breathing a sigh of relief with the yen weakening on its own, but they continue to closely monitor the situation.
The Commodity Currencies are generally stronger today as investors reenter higher-yielding positions. Oil rebounded to $83/bbl, gold jumped to $1652/oz and copper surged to $344/lb. The CAD pulled back from its yearly lows as the price of oil, Canada's main export, gained, and data released in the US, Canada's main trading partner, registered better than expected. The AUD and NZD both posted strong gains, rising by more than 2% against the USD as investor confidence was spurred on by news of a bold plan to backstop the struggling Eurozone economies. The ZAR was the best performing currency overnight on the news out of the Eurozone, South Africa's main export market. Combined with relatively high interest rates, and a steadily growing manufacturing base, the South African rand appears increasingly attractive despite recent civil unrest.
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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..