The US Dollar is mixed this morning, gaining against most higher-yielding currencies, while remaining under pressure against the traditional safe havens. The direction of trade has been divided this morning between slightly better than expected economic data out of the US and falling stocks and commodities on concern over European economic growth. Reports showed mixed results in the US housing market, but encouraging industrial data. Housing starts declined 1.5% month over a month, but the contraction was smaller than expected. However, building permits, a gauge of future activity, declined by more than expected, dropping 3.2% from last month's reading. On the other hand, industrial production beat forecasts, gaining by 0.9% from last month's reading of 0.4%. Production increased across all the major market groups with consumer spending rising by 1.1% and durable goods adding a gain of 3.6%. The stronger than expected data has however slowed the USD's early morning "safe haven" gains as Wall St. recovers from a triple-digit decline at the open.
The EUR came under pressure early in the European session, falling against most of its peers after a report showed the broad Eurozone economy growing at a far slower pace than expected. Eurozone GDP grew by 0.2% in the second quarter, short of both the 0.3% expected rise and the 0.8% gain posted in Q1. More importantly, the German economy, the region's largest, expanded a mere 0.1% versus an expected 0.5% pace and far short of its 1.3% growth in the first quarter. The leaders of France and Germany, the Eurozone's core economies, plan to meet today to discuss European governance. A press conference is scheduled for 9:30 AM PST, but no major developments are expected. While France has advocated for the issuance of "Eurobonds", Germany appears to remain opposed to the idea, instead wishing to focus their efforts on fiscal consolidation and expanding economic coordination. Nevertheless, the EUR remains bound within its recent ranges, supported by stabilizing equity markets and its relatively high yield.
The GBP has remained well supported this morning after a report showed UK inflation accelerated by more than expected, reducing the likelihood of further quantitative easing measures. Sterling gained against 13 of its 16 most actively traded counterparts after CPI increased to 4.4% on an annualized basis, up from 4.2% last month. So-called core CPI, which excludes the volatile energy and food components, gained to 3.1% from 2.8%. While the higher-than-expected inflation will not likely translate into an interest rate hike in the near term as the British economy continues to stagnate, it reduces pressure on the BoE to step up its bond-buying operations and possibly introduce a second quantitative easing program.
The JPY also remains within its tight range this morning, albeit historically strong levels. Japanese officials remain pessimistic about the strong yen's affects on the Japanese economy, but appear to see further strength as likely. The former top currency official in Japan told reporters this morning that with the US facing a possible double-dip recession, and with the debt crisis in Europe likely set to worsen, the yen will likely retest its post WWII high of 76.25 reached days after the earthquake and tsunami in March. However, hours earlier, current Finance Minister, Yoshihiko Noda, warned that the government is ready to intervene in the currency market again to stem gains as the currency's appreciation risks continue to hinder the nation's recovery.
The CHF pared early gains against the USD after the encouraging housing and industrial reports. The franc had gained for the first time in three days after the Eurozone GDP numbers were released, but expectations remain that Swiss authorities will set a lower limit on the EURCHF pair possibly as soon as at a meeting scheduled for Wednesday. Investors expect the SNB to protect the 1.10 level, after the franc soared to 1.03 earlier this month. Since the first hint of intervention, the CHF has pulled back by more than 10% against the EUR and 9% against the USD.
The Commodity Currencies are mixed this morning with the AUD and CAD declining while the NZD has gained. Oil was under early pressure, falling to $87/bbl, copper declined to $396/lb and gold advanced to $1785/oz. The CAD came under early pressure after the weak growth numbers out of the Eurozone and the declining price of oil, Canada's main export. However, the loonie has pared some of those early losses after industrial data in the US, Canada's primary trading partner, beat expectations. The story is the same for the AUD, with an early decline giving way to a modest advance on the encouraging US data. However, minutes from the RBA's last meeting showed this morning that the policy setting committee kept rates unchanged on concern that turmoil in financial markets could slow economic growth. Futures traders are currently pricing in a 50 basis point cut in interest rates by October with a 100% certainty. The NZD, on the other hand, maintained its three-day gain on expectations that the RBNZ will tighten rates before the end of the year. However, with stocks still in the red, gains will likely remain modest at best.
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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..