The US Dollar is lower against most of its major counterparts as rebounding stocks and commodities encourage investors to seek higher yielding assets than the USD. With little major economic data to dissuade investors, support has been found in promising political developments. Both the House and Senate are expected to pass three free trade agreements today with S. Korea, Panama and Columbia, which should give a boost to exports and support job growth. However, the Senate passed legislation yesterday that would punish China for its undervalued currency, a move that the Chinese have suggested could spark a trade war if passed into law. President Obama's jobs bill also appears to be dead on arrival, not even garnering the 60 Senate votes necessary to proceed into committee debate. Minutes from the Fed's last meeting are due later this morning and will be closely watched to see the divide amongst the FOMC members in regards to Operation Twist versus QE3. In the near term, with market sentiment generally positive, the dollar will remain under pressure against most of its major counterparts.
The EUR shook off early fears that the Slovakian parliamentary rejection of the expansion of the EFSF will derail regional stability. However, acceptance of the bill is still expected by the 23rd of the month when EU leaders are set to meet. Investors are now focused on a planned speech from EU Commission President Barroso regarding bank recapitalization, private sector participation in Greece's bailout and on the expansion of the EFSF. Nevertheless, the root concerns over sovereign debt remain unchanged with the spread between the baseline German bund and similar maturity Italian government bonds continuing to widen. The move higher came after Italy's parliament failed to approve the current year's budget in an unprecedented case. However, with stocks and commodities well into the black this morning, and with European leaders looking a bit more proactive, the common currency will likely extend its gains, albeit within its recent ranges.
Sterling is also higher this morning on generally improved risk sentiment. However, steep early gains have been tempered by bad data out of the British labor market. A report showed that UK unemployment unexpectedly rose to the highest level in more than 15 years as the British economy struggles to stay afloat. The jobless rate rose to 8.1%, the seventh straight monthly gain, and the claimant count rate rose to 5% from 4.9% in the previous reading. The pound also rose despite extremely dovish commentary from Chacellor of the Exchequer George Osborne. Osborne told reporters that low interest rates are a precious commodity for the UK at the moment. Do we really want to see an increase rates at this time?
The JPY is lower against most of its peers this morning as investors turn to riskier, but higher yielding assets. Japanese officials are surely breathing a sigh of relief as the yen weakens on market dynamics rather than central bank intervention, but a move to the mid 77's is hardly the weakening that they are ultimately hoping for. However, moves similar to the SNB to mark a floor on the USD/JPY pair remains highly unlikely. In the near term, the yen will remain under pressure, but it is still a proxy for market risk, and as such its overall direction will be determined by investor risk appetite.
The Commodity Currencies are sharply higher today on improved risk sentiment and on the rising price of raw goods. Oil was up to $86/bbl, gold rose to $1684/oz and copper was at $338/lb. The CAD gained by the most in more than two months on the rising price of oil, Canada's main export, and on improved optimism that European officials will resolve the region's credit crisis. The AUD broke back above parity with the USD for the first time in nearly three weeks on the increased demand for higher yielding assets. However, the Aussie's gains may be tempered by increased concerns over souring trade relations between the US and China, which could translate into slower economic growth in the East Asian powerhouse, the primary destination for Australian exports. The NZD was the biggest gainer against the US, rising by more than 2% after a report showed that New Zealand home prices gained by more than expected. With a report today expected to show rising food prices in the South Pacific nation, investors have increased odds that the RBNZ will hike interest rates in the coming months to stave off high inflation. The ZAR is also sharply higher on the improved sentiment regarding the Eurozone, however South African officials are becoming outspoken about taming volatility in the rand after it traded in a volatile 20% range over the past month.
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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.