The US Dollar is mixed this morning, falling against its "safe-haven" counterparts, but gaining against most of its higher-yielding peers. In the wake of S&P's decision last Friday to downgrade the US's sovereign debt rating, FX volatility has spiked over the past two days, prompting investors to exit riskier positions. While it seems somewhat contradictory, the downgrade of the US's creditworthiness has in fact spurred more demand for US treasuries and other USD-denominated assets. As stocks tumbled into bear market territory, the yield US on the 10-Yr Treasury note fell to the lowest levels since the height of the financial crisis in 2008. However, a modest resurgence in optimism has led stocks higher this morning ahead of a Fed meeting at which speculation has arisen that the FOMC may announce further stimulus measures. While the recent declines have spooked investors, there is a silver lining to the drop in financial markets. The selloff, which permeated across asset classes, has also weighed heavily on commodity prices, which could help offset a slowing global economy. With oil prices for instance down nearly 30% from their highs earlier this summer, inflation may ease significantly in the second half of the year, removing much of the pressure on global central banks, including the Fed, to begin raising interest rates. In the near term, the USD will remain bound to its recent ranges as investors weigh the consequences of a AA+ credit rating in the US against the dollar's bid as a "safe-haven" asset backed by deep liquidity.

The EUR has traded in a relatively tight range overnight against the USD, but surged against most of its higher yielding counterparts such as the ZAR, NOK and AUD. Some confidence in the EUR has returned after the ECB successfully bought Italian and Spanish bonds yesterday, driving yields down. The Italian 10-Yr note shed 0.8% in yield, the biggest single-day drop in the history of the EUR. However, without continued intervention, upward pressure is likely to return in short order, driving up yields on bonds in the Eurozone's 3rd and 4th largest economies. With the current "bailout" fund not large enough to provide assistance to either Spain or Italy should they need it, investors remain apprehensive to embrace European assets full heartedly. The common currency has however remained rather well supported within its ranges as the primary alternative to the USD after the US credit rating was downgraded.

The GBP tumbled in early trading after negative economic data was released and a night of intense rioting in the nation's capitol. British manufacturing unexpectedly declined by 0.4% in June versus the 0.2% gain that was expected. A gauge of industrial production showed no change from last month and the trade deficit also widened by more than forecast amid worsening civil unrest as working class Londoners lashed out after feeling the sting of cut backs to government social welfare programs. However, the pound will remain supported as an alternative to both the USD and EUR as both the US and Eurozone struggle with debt, but its upside potential will remain capped as the UK faces their own domestic strife.

The JPY continued to grind higher, as investor demand for "safe-haven" assets outweighs the prospects of successive rounds of BoJ market intervention. However, central bank rhetoric has again increased, with BoJ member Sayuri Shirai telling parliament this morning that she is "very worried" about an excessively strong yen and the affects it will have on corporate sentiment. However, another round of BoJ selling will likely prove to be only temporary as investor demand for the JPY remains robust as global financial markets swing between gains and losses.

The Commodity Currencies are mixed this morning with the AUD, NZD, and ZAR all continuing to fall while the CAD regained some lost ground. Commodities are in the black this morning after yesterday's steep declines. Oil pushed up to $81.88/bbl, gold reached a new high over $1732/oz, and copper struggled back to $396.10/lb. The CAD pulled back from steep losses in overnight trading, bouncing off of parity with the USD, after stocks pushed higher after the North American opening. However, the outlook for the loonie remains rather bearish, with swap rates showing that the BoC is more likely to cut interest rates for the first time since the global recession. The six-month overnight index swap rate was trading at 0.81% this morning, up from 0.75% yesterday, the lowest in nearly two years and furthest below the BoC's benchmark rate since March of 2009. The AUD and NZD have been particularly hard hit by the risk wave of risk aversion as investors exit riskier positions, and the move pushed the AUD to near parity with the USD overnight before recovering back towards 1.02. The ZAR has, however, been the worst performer of the group, losing 7% against the USD, 8% against the EUR, and 12% against the CHF in the past five days. The rand continued its correction lower this morning as emerging market stock markets tumbled for a sixth straight day, sending the MSCI emerging market index down by more than 20% from this year's high.


































10-Year Treasury Yield:




 $ 1,732.20

 $ 22.00


 $ 396.10

 $ 0.35

Crude Oil: 

 $ 82.00

 $ 0.69






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..