The US Dollar gained against nearly all of its major counterparts overnight as global financial markets extended their weekly declines and investors turned to the dollar as a safe-haven asset. Despite yesterday's modest rally in equities, stock markets have been hard hit over the past two weeks, and the selling has resumed early this morning. With the US and Europe still facing significant economic headwinds, investors have shift capital into the traditional safety currencies - the JPY, CHF and USD. However, the SNB eased monetary policy earlier this week in an attempt to stem CHF appreciation and the BoJ intervened unilaterally in the currency market this morning, weakening the yen by nearly 4%. The yen-selling has had a ripple effect and has benefitted the USD across most of the major crosses. These central bank actions have left the USD as the primary benefactor of the "safe-haven" flows. Moreover, after yesterday's strong ADP jobs report, weekly claims this morning registered better than expected at 400K, short of the 405K expected. This bodes well for the labor market a day ahead of the all important nonfarm payrolls and unemployment reports. While further Fed easing is not out of the question with the economy still underperforming, the USD will likely push back towards the higher end of its recent ranges as stocks and equities extend their losses in the near term.
The EUR is sharply lower this morning as investors shift capital out of the Eurozone and into investments perceived as safer, and after unexpectedly dovish ECB commentary. The ECB left interest rates on hold this morning at their current 1.5%, but ECB President Trichet announced after the meeting that the Bank will resume its bond buying programs after an 18-week hiatus. Trichet said that the majority of the policymaking committee felt compelled to resume purchases after Italian and Spanish bond yields pushed dangerously high. Trichet did, however, maintain scope for future rate increases, telling reporters that ECB rates are still "accommodative" and inflation risks "remain on the upside."
Sterling is also sharply lower this morning after the BoE left interest rates unchanged. However, the pound has gained against the EUR after the ECB announced it will be adding liquidity to the European banking system amid concern that the debt crisis is spreading to the much larger Spain and Italy. The BoE decision was widely expected with the Bank's ability to stimulate the economy limited by rising prices, and its capacity to fight inflation hindered by sluggish economic growth.
The JPY is sharply lower this morning, currently down nearly 2.5% from yesterday's close, after the BoJ unilaterally intervened in currency markets to weaken the yen. Expectations had grown in recent days that the Bank would act to slow yen appreciation, but monetary policy appeared to be the more likely avenue. Initial reports were that the BoJ has spent nearly JPY900 billion to weaken the yen. The last time the BoJ intervened alone was last September when it sold JPY 2.12 trillion. The results from that round of intervention were fleeting. The BoJ also signaled that it will triple its asset purchase program to JPY15 trillion, and expand its liquidity program six fold to JPY35 trillion. However, with the recent resurgence in risk aversion, the yen weakness will likely be only temporary with significant support near 80.
The Commodity Currencies are all lower this morning as investors seek "safe-haven" assets. Raw goods tumbled across the board with the exception of gold. Oil was down to $90.30/bbl, copper dropped to $424/lb, and consumables dropped by nearly 1% on average. Gold, on the other hand, continued its steep ascent, posting a new all time high of $1675/oz. The CAD dropped by the most in seven weeks as the price of oil, Canada's primary export, tested the key $90/bbl level. The AUD is also lower this morning, weakening to the worst levels in more than a month, a day after retail sales data was released far worse than expected. The NZD also tumbled overnight after reaching an all time high yesterday afternoon. New Zealand officials have grown increasingly uneasy with the strong kiwi and Finance Minister Bill English told reporters that, "the high dollar is difficult for our exporters. We would much prefer the dollar to be lower, but there is no obvious monetary policy tool that could achieve that." This isn't necessarily true, as lower interest rates would weigh on the nation's currency, but with rising prices and after a 0.5% cut followed by a 0.5% increase earlier this year, a change in policy direction yet again is unlikely. The ZAR was the hardest hit of the major currencies, falling against all of its major counterparts, and dropping more than 2% against the dollar. The commodity currencies will likely remain under pressure in the near term with the uptick in risk aversion.
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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..