The US Dollar is mixed this morning, but is generally improved against most of its major counterparts other than the safe-haven JPY and CHF. After two days of steep declines on Wall Street, the dollar has gained traction as a relatively safe investment, no matter how counterintuitive that may seem with the US debt debate being the main cause for concern. The government will use up its lending capacity by August 2nd, but may have enough cash to last a week further. With little apparent progress towards building a consensus on Capitol Hill, lawmakers may push the debate well into next week and past the August 2nd deadline from Treasury, substantially increasing the odds of a credit rating downgrade even if a deal is reached in the eleventh hour. A vote on the Republican House leader Boehner's budget plan is tentatively scheduled for later today, but it has little to no chance of passing through the Senate if it makes out of the House. The dollar has also derived support from better-than-expected economic data this morning. Weekly jobless claims dropped by more than expected, registering 398K, the first reading under the key 400K barrier since the first week of April. Pending home sales also beat expectations, extending their annualized gains to 17.3%, up from 15.5% in the previous month and better than the 14.7% reading that was expected. The USD will remain range bound in the near term with investors weighing its merits as a "safe-haven" currency versus the potential fallout from a US debt default.
The EUR continued to grind lower this morning as investors turn to safer investments with the US debt debate still in focus. Meanwhile, the Eurozone's own struggles with debt have fallen largely out of the spotlight. However, this does not mean that the problems have been solved as an index of consumer sentiment in the region fell to 103.2, the lowest reading in nearly a year. S&P also announced yesterday that Greece will "partially default on its debt" once European officials finalize a plan that will see bondholders foot part of the bill of a second bailout agreed to late last week. However, after months of debate, a "partial default" in Greece is unlikely to rattle the foundations of the global economy as some had feared just a few weeks ago. Nevertheless, the fear of contagion remains valid, and the EUR will struggle to sustain any gains until the region's fundamental structural deficiencies are adequately addressed.
The GBP is relatively flat this morning against the USD and slightly higher against the EUR. Struggles with debt in both the US and Eurozone have increased the relative appeal of British assets despite evidence that the UK economy is struggling. An index of retail sales fell by more than forecast and BoE member David Miles told reporters that "attempts to slow inflation too quickly risk stalling the economic recovery." Nevertheless, the pound remains well supported as a primary alternative to both the USD and EUR.
The JPY extended its gains overnight as Japanese officials made it clear that it would be difficult to unilaterally slow the yen's appreciation. Economy Minister Yosano told reporters that the BoJ will likely wait to see the outcome of the US debt ceiling negotiations before deciding whether to act. Yosano also suggested that an intervention as big as JPY1T-2T would be "quite difficult." As such, the yen will remain supported in the near term as one of the primary "safe haven" currencies even as an appreciating currency weighs on the Japanese economy.
The Commodity Currencies are mixed this morning with the CAD and NZD gaining while the AUD and ZAR come under pressure. Raw goods were mixed with oil gaining to $97.80/bbl, copper rose to $447/lb, but gold fell back towards the $1600/oz threshold. The CAD is higher this morning, supported by rising oil prices, and also by better than expected labor and housing market data out of the US, Canada's largest trading partner. The loonie has also remained near the top of its recent ranges in its increasing role as a relatively safe currency. The NZD consolidated towards the top of its recent ranges overnight after the RBNZ gave a clear signal that it will likely reverse their 0.5% interest rate cut related to earthquakes earlier this year. However, they tempered expectations for an immediate hike by telling reporters that the strength of the kiwi "is likely to reduce the need for further increases in the short-term." Nevertheless, investors have begun pricing in higher rates in New Zealand, which will provide significant support for the NZD in the near term. The AUD on the other hand is slightly lower this morning, but remains supported over the key 1.10 barrier. While the Australian economy faces substantial challenges in the coming months with its main export markets (China, Japan, the Eurozone and the US) showing signs of slowing, some economists have begun calling for a rise to 1.20 as its role as a primary USD and EUR alternative will drive demand further. The ZAR was the worst performer of the group after an abysmal jobs report. South Africa's jobless rate soared to a staggering 25.7%, the highest of 61 major economies tracked by Bloomberg. The rand does however remain within its recent ranges with its high yields continuing to attract demand.
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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..