The US Dollar is mixed this morning after better than expected labor market data calmed investor fears that the global economy is slipping. Nonfarm payrolls data beat even the most optimistic forecast, registering 117k, up from the upwardly revised 46k in the previous month. Moreover, the unemployment rate shrunk to 9.1% versus an expected flat reading. However, after a string of weak data ranging from a bad reading of GDP, ISM manufacturing slowing to a near standstill, an increase in mass layoffs, and a drop in consumer spending, it remains to be seen if these gains are sustainable. The numbers initially gave a much needed boost to Wall St. after the DOW tumbled by more than 500 pts yesterday. Major indices have however slipped into the red in late morning trade as investors digest the numbers and gauge the outlook for the US and global economy as a whole. The USD's appeal as a "safe haven" currency has thus diminished, but will continue to provide support as the economy struggles through a "soft patch."
The EUR pared some of its recent losses as investors cautiously slowed USD-buying a day after investors were shaken by tumbling financial markets. The common currency does however remain near the bottom of its recent ranges despite ECB President Trichet's efforts to build a firewall around Italy and Spain. While much attention has been paid over the past 18-months to Greece, Ireland and Portugal, speculators attention has been shifted to focus on the much larger Italy and Spain, and yields on their 10-Yr notes have soared to unsustainably high levels. The ECB announced that it has restarted buying member debt, but after yesterday's rout, data showed that the Bank only bought Portuguese and Irish debt, showing that they remain reluctant to directly support the region's larger nations.
Sterling is higher this morning as investors tepidly moved out of USD positions, and on better than expected economic data. British home prices declined by less than forecasted this morning, dropping by 2.6% versus the expected 2.8% decline. PPI data also gained, jumping to 5.9% from last month's 5.7% reading. While the BoE likely doesn't have room to adjust monetary policy in light of current troubling economic conditions, persistently high inflation will continue to provide support for the GBP in both the near and longer terms.
The JPY continues to grind higher this morning after yesterday's precipitous drop following a fresh round of intervention from the BoJ. Preliminary data suggests the Bank may have spent a record amount to stem the yen's gains, selling about JPY4.5 trillion. However, fears that the global economy is slowing have spurred investors to buy the JPY as a relatively safe investment. Markets do however remain jumpy as economists predict that the recent intervention may be the first of more to come.
The Commodity Currencies are all lower this morning, extending their steep weekly declines. Oil shed another 1.5% to $85/bbl, copper was down to $412/lb and gold was flat at $1657 after one of the most volatile days on record yesterday. The CAD fell another half a percent on the declining price of oil, the nation's main export. However, the declines have been slowed by strong North American labor market data. The unemployment rate in Canada ticked lower to 7.2% from 7.4% even though the net change in employment increased by only 7.1k, short of the 15k expected. Strong numbers out of the US, Canada's main trading partner, have also provided support. The AUD continued its freefall overnight pushing to the lowest levels in over a month. The Aussie and NZD have both been particularly hard hit by declining investor confidence, and expectations for more dovish monetary policy has also weakened 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..