The US Dollar strengthened across the board this morning as the relief rally in global stocks has fizzled, with financial markets wraping up a bad month and a worse quarter.  Despite better than expected economic data released over the past several trading sessions, and improved optimism that European officials are addressing the region's struggles with debt, concerns that the global economy is headed back into recession have investors on edge.  Data this morning showed that consumer spending slowed as personal income unexpectedly contracted, but a gauge of consumer confidence rose from its lowest level in three years.  The Fed has also been more outspoken lately, with Fed member Bullard telling reporters this morning that the central bank still has potent tools, including QE, suggesting that more stimulus could be on the way.  Nevertheless, the dollar remains well positioned to outperform its peers despite the apparent weakness in the US economy, as scared investors exit riskier positions in favor of the perceived safety of US Treasuries and cash.  With stocks and commodities both starting the day deep in the red, the USD will likely end September back towards the top of its recent ranges against most of its major counterparts.

The EUR came under renewed pressure this morning despite the expected expansion of the EFSF, the region's bailout fund.  Somewhat contradictory to recent trends, the weakness in the common currency came after the release of Eurozone CPI, registering a gain of 3.0% versus an expected 2.5%, leaving investors fearful that the ECB may not only remain on hold at their upcoming October meeting, but possibly even look to raise rates.  After weeks of speculation that the central bank would look to ease rates in an effort to encourage economic growth, it appears that they may have little room for lax policy.  Compounding the economic woes, German retail sales unexpectedly slumped by 2.9% last month.

Sterling has pared much of its weekly gains, but is well off its worst levels against the USD as rising demand for UK government bonds provides support for the GBP.  The pound extended its gains against the EUR as investors increasingly look towards British assets as relatively stable alternative to those of the Eurozone.  Sterling's upside does however remain limited by continued slow economic growth in the UK and rising expectations that the BoE may be close to announcing further stimulus.

The JPY is lower this morning, despite the rise in risk aversion, after news that the Japanese government plans to bolster funds needed to intervene in currency markets.  The finance ministry aims to raise a further 15T JPY, adding to its 165T JPY in reserves, and require Japanese financial institutions to report their market positions.  Finance Minister Azumi told reporters today that the yen staying around the high-70s could throw cold water on the Japanese economy's recovery trend.  While this doesn't signal pending intervention, it reflects Japanese policymakers' strong desire for a weaker yen and their commitment to countering speculative trades. 

The Commodity Currencies are generally lower this morning as stocks and commodities retreat.  Oil was down to $80/bbl, copper fell to $314/lb, and most consumables were lower by more than 3%.  The CAD tumbled to a 1-Yr low before recouping some of those losses on lower expectations for global economic growth.  The falling price oil, Canada's main export, and the worse-than-expected consumer spending numbers out of the US, Canada's primary trading partner, have also weighed on the loonie.  The AUD and NZD were both lower after a manufacturing report out of China, Australia and New Zealand's main trading partner, unexpectedly slowed.  The NZD was also sharply lower, sliding to a 6-month low against the USD, after S&P and Fitch both lowered their ratings of the South Pacific nation, citing high levels of external debt and a persistent current account deficit. 

09/30/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.3456

1.05%

USD/JPY

77.06

0.30%

GBP/USD

1.5637

-0.06%

USD/CAD

1.0380

0.20%

USD/MXN

13.7672

0.42%

USD/CHF

0.9050

0.87%

AUD/USD

0.9757

0.26%

NZD/USD

0.7674

0.53%

USD/ZAR

8.0105

0.60%

USD/CNY

6.3780

-0.30%

10-Year Treasury Yield:  

1.9388%

-0.0574

Gold:  

 $  1,621.30

 $   5.80

Copper:  

 $     315.50

 $  (8.20)

Crude Oil: 

 $    80.91

 $  (1.23)

DJIA:  

11,124.97

-33.07

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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..