v The EUR fell back below 1.3000 against the USD after the ECB refused to participate in any restructuring of Greek debt;

v The GBP is under pressure after Q4 GDP contracted by 0.2%;

v The JPY continued its fall after Japan posted its first annual trade deficit in 31 years.

The USD posted strong gains overnight against most of its major counterparts as declining stocks and ongoing worries over Eurozone debt are outweighing a possibly dovish stance from the Fed. The FOMC concludes their two day meeting this afternoon, and the members will for the first time release their outlook for future monetary policy and the size of the Fed's balance sheet along with their GDP and inflation forecasts. While the Fed has been publicly targeting mid 2013 as when they may first raise interest rates, the market is largely expecting rates to remain on hold until at least 2014. With the new FOMC members having already proved to be outspokenly dovish, today's estimations may suggest that a third round of quantitative easing is closer than previously thought. Pending home sales data was also released this morning, showing a 3.5% drop versus last month, far worse than the -1.0% expected and the +7.3% posted last month. Nevertheless, European struggles with debt are keeping investors on edge, which in turn is benefitting the dollar in its role as the de facto safe-haven currency.

The EUR stumbled for the first time in three days against the dollar after the ECB made it clear that they are opposed to restructuring Greek bonds. S&P added further severity to the situation when it released a statement that a Greek default was all but a foregone conclusion, even should policymakers and the private sector broker a deal over a second bailout package. German Chancellor Merkel cast doubt over the sustainability of the current situation, telling reporters that We haven't overcome the crisis yet. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation. The grim outlook was further compounded yesterday when the IMF downgraded their assessment of global growth for 2012, adding that Europe will likely slip back into a mild recession.

Sterling is lower this morning against both the USD and EUR after a report showed that the British economy is in fact contracting. GDP shrunk by 0.2% in the 4th quarter after expanding by 0.6% in the previous quarter. With the outlook worsening rather than improving for the British economy, it appears that the UK is headed toward recession. The pound also came under pressure after minutes from the BoE's last meeting showed that another round of quantitative easing may soon be at hand. Bank Governor Mervyn King told reporters yesterday that policymakers can increase stimulus again if needed to guard against a renewed severe downturn. Nevertheless, the pound remains within its recent ranges as demand for the perceived safety of British government assets remains high with the ongoing turmoil in the Eurozone.

The JPY weakened to its lowest levels against the USD and EUR in more than two months after Japan reported its first annual trade deficit in 31 years. As such, the yen has lost more than 0.65% against the USD, and could push lower yet as it breaks through technical barriers. Nevertheless, the relatively strong currency continues to pose problems for Japanese manufacturers. Japanese automaker Nissan announced today that it would be investing $2B in the development of a third factory in Mexico as they try to avoid the pinch the strong yen has on the company's profit margins. While a weaker currency will surely be a welcome relief, nearly three years under the 100.00 handle against the dollar has likely had lasting effects as thousands of jobs have been shifted overseas.

The Commodity Currencies are generally lower today on reduced risk appetite. Raw goods were mixed with oil and copper both flat at $99/bbl and $382/lb respectively, while gold slipped to $1658/oz. The CAD is lower this morning despite shifting sentiment as rising consumer debt in Canada reduces the odds of a central bank interest rate cut. The loonie has also come under pressure after US President Obama touted the US's commitment to exploiting natural gas reserves in last night's State of the Union address. With nearly a quarter of Canada's energy exports coming from natural gas, any drop in price resulting from increased supply will weigh on the CAD. The AUD came under pressure on the reduced appetite for risk and as easing inflation gives the RBA room to ease monetary policy further in the months ahead.





































10-Year Treasury Yield:




 $ 1,659.90

 $ (5.60)


 $ 382.50

 $ 0.55

Crude Oil: 

 $ 99.15

 $ 0.20






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.