The US Dollar is surprisingly mixed this morning despite stocks and commodities continuing yesterday's steep slide. On one hand, the ongoing debt fears in Europe and slowing global economic growth continue to provide support for the safe-haven USD. However, comments from Fed Chairman Bernanke this morning have investors second guessing the dollar's strength. Bernanke appeared before Congress, testifying that the Fed stands ready to provide liquidity in the US, and that they have a broad-based lending program ready should interbank lending begin to tighten on the ongoing Eurozone concerns. At their last meeting, the Fed held interest rates steady and chose to not launch any successive round of economic stimulus despite persistently weak numbers in the labor market and slowing economic growth. After last month's CPI and PPI reports both showed that inflation in the US remains relatively high, the Fed's room to add more liquidity to the system appears limited, at least in the near term. However, Bernanke told Congress that the Fed currently sees inflation expectations as quite low and quite stable, further suggesting that QE3 may be brought up sooner rather than later. However with no concrete announcement, the USD remains near the top of its ranges against most of its major counterparts, reaching new yearly highs this morning against currencies like the AUD and CAD.
The EUR is unexpectedly higher this morning after reaching a fresh low against the USD in overnight trading on rumors that the SNB is considering raising its peg against the EUR from the current 1.20. If they move the benchmark higher to 1.25 or 1.30, this would mean more EUR buying and more CHF selling. After several weeks of successful protection of the 1.20 barrier, it appears that the SNB's current program has been more successful than their forays into the currency market to weaken the CHF back in 2009. The EUR also gained as the Fed hinted at possible further rounds of economic stimulus in the US. However, the common currency remains relegated to its recent ranges against most of its counterparts with the ongoing debt crisis plaguing the region's peripheral economies and with investors still widely expecting the ECB to leave rates on hold or possibly even lower their benchmark in the coming months.
Sterling is lower this morning, falling against most of its major counterparts after a report showed that British construction slowed by more than forecast last month. PMI construction registered 50.1, just fractionally above the threshold between growth and contraction, versus the expected 51.6 and down from 52.6 reading last month. The weak reading is just the latest in a litany of weak economic reports and has prompted investors to increase bets that the BoE will enact another round of quantitative easing in the coming months. However, persistently high and even accelerating inflation limits the Bank's ability to increase liquidity.
The JPY is relatively flat against the USD this morning, but has continued its steep ascent against the EUR as investors seek the yen's relative safety. Japanese officials have become increasingly concerned with the EURJPY exchange rate with Japanese Finance Minister Azumi telling reporters this morning that in order to halt the extreme strength in the yen and weakness in the EUR, Europe should make the process of rescuing Greece more transparent to the markets. While that's unlikely, it's clear that Japanese officials continue to monitor the currency market with any steep appreciation in the yen likely prompting another round of intervention.
The Commodity Currencies are generally lower this morning on faltering commodity prices and on increased risk aversion. Oil continued its decline, falling to $77/bbl, while gold tumbled to $1641/oz and copper fell to $309/lb. The CAD fell to a one-year low overnight on the falling price of oil, Canada's main export, and after a disappointing factory orders report in the US, Canada's primary trading partner. The AUD extended its recent declines, reaching its worst levels against the USD in more than a year after the RBA left interest rates on hold, but left the door open for lower interest rates before the end of the year. In its announcement, the RBA judged that the path for inflation may now be more consistent with their 2% - 3% target in '12 and '13, giving them room to ease rates. Australian retail sales also slumped, registering a mere 0.2% after last month's 0.5% gain.
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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..