The US Dollar is mixed this morning against its most actively traded counterparts albeit within its recent, relatively narrow, ranges ahead of a key confidence vote to be held in Italy. Despite persistent debt concerns out of the Eurozone, investors appear mildly optimistic that the global economy will avoid double dipping into recession as activity remains relatively strong especially in developing markets. There's no major economic data released by the US government today, but an encouraging private sector report did show that job openings increased to the most since August 2008 in October, indicating that US companies are preparing for an improvement in the economy. However, openings have not yet translated into similarly encouraging employment numbers and the recovery in the labor market in Fed Chairman Bernanke's words remains frustratingly slow. In the near term, with global financial markets remaining largely focused on developments out of the Eurozone, the dollar will likely remain within its recent ranges.
The EUR moved back towards the top of its recent ranges against the dollar this morning ahead of a confidence vote in Italy that could see Prime Minister Silvio Berlusconi's government fall. However, unlike in Greece where a pending confidence vote rattled financial markets, most investors appear to positioning Berlusconi's demise as a positive development. The embattled Italian Prime Minister is widely unpopular and his likely replacement, Mario Monti, appears to have support of the country's two main political parties - a big step forward. Nevertheless, Italian bond yields remain at record highs, (10-Yr yield = 6.7%) and must be addressed in the coming days. Italy's debt market is the third largest in the world, and any further erosion in confidence in Italian finances could make the Greek drama look miniscule in comparison. Meanwhile, it appears that Greece is close to establishing a temporary caretaker government after PM Papandreou agreed to resign late last week. It appears that for now Greece will receive its next tranche of EU bailout funds and will not hold a much maligned referendum on a second EU bailout package, paving the way for more financial support. While the pressure against the EUR continues to build, the common currency appears to be well entrenched in its ranges, at least until more material events unfold in the Eurozone's struggling member nations.
Sterling remains largely range-bound this morning, modestly gaining against the EUR and falling against the USD ahead of the confidence vote in Italy. The pound has gained against its mainland Europe counterpart as a primary alternative to the EUR and as foreign investor demand for Gilts provides support. Better than expected economic data has also provided support as industrial production contracted by less than expected, registering -0.7% versus -0.9% in the previous reading on an annualized basis.
The JPY has convincingly broken below the 78 barrier against the USD this morning for the first time since the BoJ's last bout of intervention on October 31st. The safe-haven yen has pared some of its early gains as stocks and commodities gyrate are mixed, but it remains relatively well supported. Elsewhere, the CHF weakened to its lowest levels against the EUR since May on speculation that the SNB may soon raise its peg to the common currency from 1.20. SNB Chief Hildebrand told reporters that the Bank is prepared to act if franc strength risks deflation soon after a report showed that inflation slowed in October.
The Commodity Currencies are mixed this morning with the CAD, AUD and NZD all falling, while the ZAR posted strong overnight gains. Despite mixed results in global equity markets, raw good prices are generally higher. Oil gained to $96.50/bbl, gold advanced to $1794/oz, and copper rose to $354.50/lb. The CAD is slightly weaker this morning despite the rising price of oil, Canada's main export, as the ongoing European debt saga saps demand for riskier assets. Similarly, the AUD and NZD are both weaker this morning on the reduced demand for high-yielding assets and as Australia's trade surplus narrowed by more than expected. The ZAR on the other hand, posted strong gains overnight on increased speculation that Berlusconi would soon be leaving power. The rand has since pared some of those gains after the Italian parliament passed budgetary measures, easing some of the pressure on Berlusconi, but as the main destination for South African exports, the rand remains tightly correlated to confidence in the Eurozone recovery.
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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.