The US Dollar is mixed this morning, gaining against the EUR and GBP, but falling against the higher-yielding commodity currencies. The dollar gained sharply overnight in its role as a relatively safe asset as global financial markets mirrored the sharp losses on Wall St. yesterday afternoon. However, resilient shares and commodities in the US have eroded the dollar's gains this morning. PPI data was released far higher than expected, registering 0.8% versus last month's flat reading and the forecast of 0.2%. However, the inflationary bubble has had little positive effect on the dollar as no change in monetary policy is expected until the middle of 2013 at the earliest, and slowing economic growth in the US and China will likely offset any rise in prices. TIC flow data was also released, unexpectedly jumping by nearly $90B versus the previous month's decline of $52B. While investors had initially worried that S&P's downgrade of the US's credit rating would weigh on the appeal of US assets, it actually encouraged capital inflows as the spike in volatility boosted demand for Treasuries. Ahead of the October 23rd Eurozone summit, the USD will likely remain relegated to its recent ranges, at least in the near term.

The EUR slid further against the USD as fears accumulated from multiple fronts; the EU's potential failure to reach a plan on October 23rd, the declining sentiment in Germany, and Moody's warning over the credit rating of France. G20 finance members and Eurozone leaders will decisively address challenges in Europe at the European Summit on the 23rd. However, high expectations have left room for disappointment, and German Chancellor Angela Merkel said that although she expects the group to package helpful Eurozone measures, she doesn't believe they will solve all of Europe's debt woes. Meanwhile, Germany's ZEW Economic Sentiment index fell to a three-year low of -48.3, and Moody's fired a warning shot, stating that without fiscal improvements it would consider downgrading France's AAA rating from stable to negative. Nevertheless, the EUR remains within its recent ranges against most of its peers as investors still clearly believe officials will ultimately build consensus and act to backstop the struggling Eurozone economies.

Sterling is sharply lower this morning against both the USD and EUR, but is off its overnight lows as volatile global bourses prompt investors to seek refuge in British government bonds. CPI data released this morning showed British consumer prices unexpectedly rising by 0.6%, more than the 0.4% gain expected, and pushing the annual gains to 5.2%. Retail prices also rose by more than forecast despite persistently weak economic growth in the UK.

The JPY is slightly stronger this morning as fluctuating stock and commodity markets spurs on risk aversion. Moody's warning on France's credit rating further encouraged investors to seek solace in the relatively safe yen. However, Japanese companies continue to struggle with the historically strong yen with Moody's slashing Sony's credit rating outlook to negative as the Japanese technology giant faces weakening global demand.

The Commodity Currencies are generally higher this morning with the exception of the ZAR on the rising price of raw goods. Oil pushed higher to $87.61, but copper and gold both moved lower, falling to $331/lb and $1638/oz respectively. The CAD rose on the higher price of oil, Canada's main export, and on rising shares in the US, Canada's main trading partner. The AUD and NZD also both gained despite yesterday's weak GDP data out of China, Australia and New Zealand's main trading partner. Surprisingly strong forward-looking Chinese industrial orders encouraged investors that the apparent slowdown in the world's second largest economy may be easing. The ZAR on the other hand, was the worst performer against the USD overnight on the ongoing fears that the Eurozone, the main destination for South African exports, will struggle to contain the debt contagion currently plaguing Greece and the region's other weak economies.

10/18/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.3720

0.15%

USD/JPY

76.73

-0.13%

GBP/USD

1.5670

0.48%

USD/CAD

1.0173

-0.60%

USD/MXN

13.4346

-0.38%

USD/CHF

0.9011

0.20%

AUD/USD

1.0215

-0.57%

NZD/USD

0.7928

-0.15%

USD/ZAR

8.0047

1.59%

USD/CNY

6.3791

-0.06%

10-Year Treasury Yield:

2.1072%

-0.0478

Gold:  

 $ 1,638.90

 $ (36.60)

Copper:  

 $ 331.50

 $ (5.85)

Crude Oil: 

 $ 87.76

 $ 1.38

DJIA:

11,469.28

74.63

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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.