The US Dollar is mixed this morning, first gaining against most of its counterparts and then dropping sharply as stocks and commodities turned positive. Weekly jobless claims registered slightly better than expected this morning, but worse than last week's reading below 400K. Meanwhile, a gauge of consumer confidence improved by a slight margin to -50.2 versus last month's -53.0, capping the worst quarter on record since early 2009 - when the economy was still deep in recession. Meanwhile, renewed rumors that European leaders are close to unveiling a comprehensive plan to backstop the region's burgeoning debt and recapitalize the financial sector have prompted investors to seek riskier, higher-yielding assets. However, with investors focused on tomorrow's nonfarm payrolls and unemployment reports here in the US, the dollar will remain relegated to its recent ranges against most of its peers with its overall direction driven by general market risk sentiment.
The EUR has traded through a particularly volatile overnight session, first approaching its recent lows against the USD, but then turning up on renewed speculation that Eurozone officials are close to action. ECB President Jean-Claude Trichet told reporters that the Eurozone economy is facing intensified downside risks after the regional central bank left their benchmark rate flat at 1.5%. While Trichet's remarks are particularly bearish for a policymaker usually with a more hawkish bias, no clear signal was given of imminent rate cuts. The common currency has also found support against most of its peers after ECB member Junker remarked that the EU is considering leveraging the EFSF and German Chancellor Merkel told reporters that German policymakers were considering a plan to recapitalize the region's banking sector. While more liquidity in the system would usually be a negative for a currency, stability in the otherwise troubled Eurozone economy is paramount. However, until a concrete plan is in place, the EUR will remain locked within its recent ranges as speculation of action versus actual inaction largely counteracts one another.
Sterling tumbled overnight, reaching a fresh yearly low against the USD, but has since recouped some of those losses. The precipitous drop came after British Finance Minister George Osborne gave his approval for the BoE to inject a further 75B GBP into the UK economy. In 2009, Osborne told reporters that printing money is the last resort of desperate governments when all other policies have failed. The BoE left interest rates flat as well this morning at their all-time low of 0.5% as the British economy continues to struggle to grow. However, increased rumors that the SNB may be increasing their pound holdings have provided downside support.
The JPY remained within its recent ranges overnight with increasing calls for intervention limiting gains. The opposition Liberal Democratic Party has proposed increasing the BoJ's asset-buying operation by 10T JPY to 25T JPY. The party also urged the BoJ to take bold, flexible and sustainable easing policies, and proposed an inflation target of 0.5% to 2.5% to ward off deflation. The BoJ's two-day meeting ends on Thursday, and while no immediate action is expected, investors will closely monitor any commentary to gauge the Bank's willingness to ease policy further.
The Commodity Currencies are mixed this morning with the AUD and NZD gaining slightly while the CAD fell. Oil extended its rebound to over $80/bbl, gold was flat to $1641/oz and copper surged to $323/lb. The CAD moved lower within its ranges after the disappointing jobless claims number in the US, the primary destination for Canadian exports, and after a building permits report tumbled by 10.4% versus an expected gain of 0.3%. The AUD and NZD both held their two-day gains against the USD as stocks and commodities extended their rally this morning as investors were encouraged by generally positive news out of the Eurozone and the US. Australian retail sales also unexpectedly beat forecasts, rising by 0.6% from the previous month. The ZAR and other emerging market currencies have also pared recent declines as risk aversion eases.
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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.