The US Dollar is generally improved this morning, gaining against a majority of its peers as it appears the government will successfully raise the debt ceiling. After weeks of intense bipartisan divide, the House of Representatives passed through a plan to raise the debt ceiling and cut government spending by a wide margin. The bill now advances to the Senate, and assuming a successful vote, it will advance on to President Obama to be signed into law just hours before the August 2nd deadline from Treasury is reached. However, with the debt debate in the rear view mirror, investors have turned to more pressing matters here in the US like sluggish economic growth, a worsening manufacturing sector, falling retail sales and eroding consumer and business confidence. ISM manufacturing data released yesterday showed that the sector slowed by the most in two years last month, and a report this morning showed that personal spending unexpectedly fell as hiring slowed. As such, this week's Non Farm Payrolls and unemployment reports, both due on Friday, will be closely monitored. Nevertheless, the dollar remains on firm ground as its historical role as a "safe-haven" asset will likely remain intact with no imminent default on debt looming.
The EUR consolidated towards the bottom end of its ranges overnight as Eurozone debt came back into focus. Much of the region's problems had fallen out of focus over the past two weeks with investors watching US's struggles with the debt ceiling. However, with a bill set to pass through the Senate, surging Italian and Spanish bonds appear to be of more concern this morning. A report this morning also showed that Eurozone PPI unexpectedly slowed to 5.9% from 6.2% in the previous month, likely reducing the scope for further ECB tightening. Investors have begun to fear that Eurozone officials were so focused on Greece during their series of emergency meetings in July, that the EFSF did not sufficiently address the potential for a Spanish of Italian "bailout." Nevertheless, concern that the US government may still lose its AAA credit rating will provide support for the common currency as the primary alternative to the USD in the near term.
Sterling remains towards the bottom of its recent ranges this morning after weak manufacturing and construction data. A gauge of construction fell from 53.6 in June to 53.5 in July and manufacturing tumbled from 51.4 to 49.1, the lowest reading in more than two years. The Confederation of British Industry cut its growth forecast for the UK economy yesterday after GDP hardly grew in Q2. Their estimate is that the British economy will grow 1.3% this year, down from the previous forecast of 1.7%. However, their forecast for 2012 remained unchanged at 2.2%
The JPY has eased from its recent highs, but still remains well supported in the low 77's. A Japanese newspaper reported overnight that in recent talks between Japanese and US officials, the Japanese expressed their intent to intervene and weaken the yen. Investors are also speculating that Japanese officials will amplify the effects of the intervention by easing monetary policy as well, possibly increasing its asset purchase scheme by as much as 5T JPY as early as this week's scheduled policy meeting. Finance Minister Noda told reporters that the yen is "overvalued", and that officials are increasingly fearful of its affects on the nascent economic recovery.
The Commodity Currencies are weaker this morning as slowing global economic growth dampens demand for the high-yielding currencies. Oil prices gained to $95/bbl, gold was up to $1637/oz and consumables like coffee and corn were up a percent each. The CAD is lower this morning despite the rising price of oil, Canada's primary export, on reduced expectations for economic growth in the US, Canada's main trading partner. The AUD was the biggest loser against the dollar overnight, dropping by more than a percent after the RBA left interest rates on hold. However, their statement did signal that the Bank is moving back towards a more hawkish bias, stating that they did consider raising rates today and that they are increasingly concerned by medium term inflation. The NZD and ZAR are also both lower this morning as investors shed riskier assets as global financial markets slip into the red. While a debt deal in Washington should be a boost to global confidence, fears that the plan will curb economic growth in the world's largest economy has investors paring bets on the higher-yielding, but riskier, commodity currencies.
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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..