The US Dollar is lower against most of its major counterparts as stocks and commodities have been able to extend yesterday's late-day gains. The push higher came yesterday afternoon on reports that Germany and France are near agreeing on a plan to increase the size of the EFSF to 2 trillion euros. Demand for the safe-haven USD also softened this morning after better-than-expected economic data was released in the US. CPI registered largely in line with expectation, gaining by 0.3% over last month, but with the volatile food and gas components stripped out, prices consumers pay gained by a less-than-expected 0.1%. While inflation remains near a three-year high, it is not at such restrictive levels that the Fed wouldn't step in to help the economy should growth slow further. Housing starts also surprised to the upside, gaining by 658K versus the 590K forecast. Nevertheless, the dollar remains entrenched within its recent ranges against most of its major counterparts ahead of any concrete action in Europe or any decisions from US policymakers to unveil further economic stimulus or quantitative easing. As such, currencies will continue to take their cue from equities, with financial markets in the black today on the heels of forecast-beating earnings reports namely from the tech industry.

The EUR pushed back towards the top of its recent ranges overnight, but has since retracted from its highs. The initial boost came on the reports that France and Germany's leaders are close to agreeing on a deal to greatly increase the size of the EFSF ahead of a key Eurozone summit on October 23rd. However, expansion of the so-called bailout fund was expected and does nothing to address the underlying economic deficiencies that have caused a growing number of the region's economies to reach such a precarious position. The reports also come just a day after German officials played down the expectations for the upcoming summit, stating that there were no quick fixes for the debt crisis. With the expansion of the EFSF largely out of the way, the upcoming summit will likely focus on increasing Eurozone bank core capital requirements and on demanding European banks to voluntarily accept a larger haircut on Greek government bond holdings - far more contentious topics of debate. With today's boost in investor confidence, the common currency will remain well supported, but it will likely remain relegated to its recent ranges ahead of the upcoming EU summit.

Sterling is sharply higher this morning on the improvement in global investor confidence, but the GBP continues to meet increased resistance as it approaches the key 1.60 barrier. The source of today's gains has been gaining British equities as the rebound in optimism prompted investors to seek higher yields than found in safe-haven currencies and government bonds. However, it appears that British officials are growing increasingly uncomfortable with an appreciating GBP. Yesterday, BoE Governor Mervyn King told reporters that the global economy is faltering and that monetary policy is limited in its capacity to revive the UK economy, reinforcing the Bank's dovish bias and willingness to see a weaker sterling as a means to increase the global competitiveness of British exports.

The JPY is relatively flat this morning, remaining below 77 as US stock indexes struggle to maintain early gains. The encouraging news out of the Eurozone has assuaged some fears, but investors remain reticent to fully embrace riskier positions ahead of the upcoming EU summit. Moody's downgraded Spain's sovereign debt rating overnight, following S&P's lead, highlighting the ongoing fears that the credit crisis is spreading in Europe. While a modest return of risk appetite will keep the yen in check, it will remain well supported within its recent ranges in the near term.

The Commodity Currencies are modestly higher this morning as investors seek higher yields and on the rising price of raw goods. Oil rose to $88.75/bbl, gold was up to $1654/oz, but copper extended its decline to $330/lb. The CAD extended its recent gains, reaching back towards parity with its US counterpart on the rising price of oil, Canada's main export, and on the general improvement in investor risk appetite. The AUD was one of the best performers overnight, gaining against most of its peers on the easing concern over European debt. The Aussie also rose after a measure of leading indicators rose by more than expected, suggesting that the Australian economy is weathering the current economic slowdown better than most expected. In contrast, the ZAR was the worst performer against the USD overnight, dropping by more than 0.5% on signals from the government that they will maintain relatively lax monetary policy for the foreseeable future and appear to be more biased towards a rate cut in the near term as middle-income nations struggle with declining global demand for their exports.

10/19/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.3798

-0.33%

USD/JPY

76.80

-0.10%

GBP/USD

1.5815

-0.64%

USD/CAD

1.0119

-0.22%

USD/MXN

13.3661

-0.11%

USD/CHF

0.9005

0.20%

AUD/USD

1.0299

-0.35%

NZD/USD

0.7978

-0.28%

USD/ZAR

8.0194

0.65%

USD/CNY

6.3780

-0.03%

10-Year Treasury Yield:

2.1746%

-0.0018

Gold:  

 $ 1,654.40

 $ 2.70

Copper:  

 $ 327.80

 $ (7.75)

Crude Oil: 

 $ 88.62

 $ 0.32

DJIA:

11,621.40

44.43

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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.