The US Dollar is sharply lower against nearly all of its major counterparts this morning as market risk sentiment rebounds.  The move lower in the dollar comes on renewed optimism that European leaders are at least moving towards a deal to backstop the region's struggling economies and on increased speculation that the Fed may seek further monetary easing.  Yesterday, Fed member Daniel Tarullo told reporters that the central bank should resume the large-scale purchase of mortgage bonds to support the economy and boost consumer spending.  As such, the dollar has lost some of its appeal on the decrease in safe-haven demand as investors fear that another round of stimulus would only further debase it.  With no major economic data due to persuade investors otherwise, currencies will take their cue from both equities and commodities, both of which appear to be heading into the weekend well in the black.

The EUR bounced back towards the higher end of its recent ranges against the USD this morning on optimism that Eurozone leaders are in fact working towards a solution.  France has proposed turning the EFSF into a bank, thus allowing it to boost its spending power by borrowing from the ECB - a plan that Germany has vehemently rejected.  This morning, an anonymous German official told reporters that there are several ways to involve the IMF to boost the EFSF's purchasing power.  These comments have been encouraging to investors just days after French President Sarkozy told reporters that talks had stalled and German Chancellor Merkel downplayed the importance of this weekend's EU summit.  However, regional economic data continues to deteriorate as exemplified this morning Ifo Institute German business confidence report, which fell to a 16-month low in October.  German investor confidence slumped to a three-year low earlier this month after the DAX benchmark index fell 21% over the past quarter.  However, with expectations that positive results will come from this weekend's EU summit, the common currency will remain supported in the near term, albeit within its recent ranges.

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Sterling has gained against all of its major counterparts overnight, rising for a third straight day against the USD, after a government report showed the British budget deficit narrowing by more than expected.  There has also been strong demand for British equities this morning, with their relatively high returns, as confidence that Eurozone officials may be nearing a solution to the region's debt woes boosted investors' risk appetite.  However, a gauge of British consumer confidence slipped for a fourth straight month as the UK economy continues to struggle. 

The JPY spiked overnight, rising to near its strongest levels against the USD since WWII.  The jump came on renewed speculation that the Fed may seek further monetary easing in the US, and after a report showed that the Japanese government has had to borrow less than expected to pay for rebuilding from this year's natural disasters.  However, the yen has pulled back from its overnight highs as the break below the key psychological 76 barrier prompted speculation of imminent BoJ intervention.  Just yesterday, the Japanese government announced measures to help corporations cope with the strong currency, and Prime Minister Noda told reporters that dealing with the rapid appreciation of the yen is their highest priority.

The Commodity Currencies are all sharply higher this morning as the risk-on rally seen around the globe prompts investors to seek higher-yielding assets.  Oil rose to $88/bbl, gold was up to $1639/oz, and copper finally rebounded, rising to $321/lb.  The CAD pushed back towards parity with the USD this morning, erasing much of its weekly declines, after a report showed Canadian CPI rising by more than expected.  While the BoC is not expected to raise interest rates any time soon, higher inflation limits any scope the Bank may have for policy easing in the coming months.  The AUD is back towards the top of its recent ranges on the rally in global financial markets.  Similarly, the NZD rose on the rebound in investor confidence, but both high-yielding currencies remain at risk should the EU summit this weekend disappoint investors.  The ZAR was the biggest winner against the USD, rising by nearly 2% on optimism over the Eurozone summit, the main destination for South African exports.

10/21/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.3888

-0.78%

USD/JPY

76.15

-0.85%

GBP/USD

1.5960

-1.05%

USD/CAD

1.0085

-0.69%

USD/MXN

13.5570

-1.04%

USD/CHF

0.8835

-1.17%

AUD/USD

1.0345

-1.10%

NZD/USD

0.8025

-1.18%

USD/ZAR

8.0545

-1.63%

USD/CNY

6.3835

-0.01%

10-Year Treasury Yield:  

2.2049%

0.0161

Gold:  

 $                  1,639.10

 $               27.20

Copper:  

 $                      322.02

 $               16.50

Crude Oil: 

 $                        88.15

 $                 2.08

DJIA:  

                   11,756.42

214.72

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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.