The US Dollar is lower against nearly all of its major counterparts this morning as stocks and commodities recover, encouraging investors to assume riskier positions. Reports this morning showed wholesale prices gaining at a faster pace than expected as lower commodity prices have yet to filter through produced goods. PPI gained 0.2% after last month's 0.4% decline. The core component, excluding volatile food and energy, gained 0.4%, pushing the annual gain to 2.5%. However, the report did show that the cost of raw goods dropped in July for a third straight month, led by declining oil and food prices. While under more normal circumstance higher inflation would support a currency as investors speculate the central bank would raise interest rates to curb demand and thus bring down prices, the Fed has made it clear that they have no plans to raise interest rates before the middle of 2013. The report is actually weighing on the dollar this morning, as lower input prices will likely keep companies from raising the prices they charge consumers, which may give the Fed room to stimulate the slowing economy further.
The EUR is higher this morning, albeit within its recent ranges, as investors remain largely unphased by the continued lack of action from the Eurozone's top leaders. German Chancellor Merkel and French President Sarkozy met yesterday, but their press conference afterwards lacked much substance. In the run up to the meeting, reports were that the two were discussing significant steps towards fiscal consolidation within the Eurozone and that the groundwork for "Eurobonds" would potentially be laid out. The final announcement fell short of those expectations with both parties apparently opposed to a shared debt issuance, instead focusing on common corporate taxes, more regular Eurozone economic policy summits, and annual budgets with common region-wide goals. Despite an initial sell-off, the common currency has come back strong, reaching its highest level versus the dollar since the end of July.
Sterling pushed higher overnight, reaching its strongest levels since April despite weak economic data and a dovish outlook from the BoE. Minutes from the BoE's most recent meeting showed that divergent policymakers abandoned their calls for tighter monetary policy, with all nine members of the MPC voting to keep interest rates at their record low 0.5%. UK jobless claims jumped to 37.1K, the highest in two years, while the unemployment rate rose to 7.9%. Nevertheless, investors have bought the pound this morning as rising stocks and commodities encourage investors to shift capital into higher yielding assets.
The JPY continued to grind higher overnight, reaching 76.40, just 15 pts away from the all-time high reached in the wake of the natural disasters earlier this year. The yen has now recovered all of its losses and more from when the BoJ intervened to weaken the currency on August 4th for the third time in a year. The appeal of the yen as a "safe-haven" has been boosted as of late as the SNB threatens more action to curb further CHF appreciation. With the US and Eurozone still struggling to combat burgeoning debt and grow their economies, the yen will likely remain well supported towards the top of its recent ranges, even if set back by another round of BoJ intervention.
The Commodity Currencies are higher across the board this morning, supported by investors' gaining risk appetite and rising commodity prices. Oil rose to $87.95/bbl, copper was up to $405/lb, and gold gained to $1785/oz. The CAD gained modestly as global markets begin to calm after last week's spike in volatility. The loonie is down 2.4% so far this month as investors fear a slowdown in the global economy will crimp demand for Canada's raw goods like oil, copper and zinc, which account for more than half of its export revenue. The AUD has also pushed higher this morning, extending this week's gains to 2.75%, as investors seek higher yields. However, the Aussie's gains will likely be slowed by increased odds that the RBA will cut interest rates, possibly as soon as at their next meeting on September 5th. The NZD has moved higher in tandem with the AUD as easing volatility in financial markets has encouraged investors to seek the kiwi's relatively high yields, especially with the RBNZ expected to raise interest rates possibly as soon as at their next meeting on September 14th. The ZAR was one of the best performers against the USD overnight, gaining by nearly 1.5% against the USD and 1.25% against the EUR as investors enter riskier, but higher-yielding positions.
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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..