USD – The dollar is mixed this morning, falling back towards the lower end of its ranges against the other G4 currencies while gaining sharply against the AUD.  With no major economic releases and with stocks and commodities relatively flat, the dollar’s appeal as a “safe-haven” asset has waned as of late.  Anticipation is building ahead of Friday’s all-important NFP and unemployment reports, with lackluster results expected from both.  Moreover, investors remain cautious as it appears Spain may request foreign assistance in the coming days.  Nevertheless, quarterly corporate earnings look to be upbeat with automakers posting the best September sales numbers in five years.  Total vehicle sales gained to 14.50M last month versus 14.46M in the previous month with a surprising uptick in overseas demand.  Elsewhere, investors are concerned with the drag the looming fiscal cliff may have on the economy as the end-of-year deadline fast approaches.  With no major headway expected ahead of November’s Presidential election, companies and households alike will likely remain reticent to open their wallets with the impending tax hikes.  In the meantime, the dollar will likely edge lower, but remain within its recent ranges. 

EUR – The euro is back towards the top of its recent ranges this morning, but continues to encounter resistance near the 1.30 handle.  The support comes a day after Spain’s Economic Minister Guindos told reporters that Spain is analyzing the ECB’s aid proposal.  However, a request cannot come soon enough with Moody’s announcing last night that in its assessment Spanish banks are facing a capital shortfall greater than the government’s estimate of roughly €70B.  The market clearly anticipates that the ECB’s OTM will soon be tapped with the yield on Spanish bonds steadily declining since the middle of last week.  However, as seen in Portugal, falling bond yields may reflect the nation’s adherence to its creditors’ list of demands, but is not indicative of economic improvement.  One of Portugal’s largest labor unions is threatening a general strike this morning as lawmakers look to increase income taxes.  With Portugal already having the lowest income per capita in Western Europe, it will be difficult for the middle class to continue to bear the brunt of tax hikes.  Nevertheless, optimism over developments in Spain and limited expectations of further monetary easing at this Thursday’s ECB meeting are keeping the common currency well supported.

GBP – Sterling is mixed this morning, rising against the USD while falling versus the EUR.  The pound snapped a two-day slide against the dollar after British PMI Construction came in slightly improved versus the last reading at 49.5.  However, the number still fell short of expectations of 49.9 suggesting that the economy continues to languish.  However, the improvement month over month is encouraging ahead of tomorrow’s more important reading of PMI Services, which represents a much larger portion of the UK economy.

JPY – The yen consolidated in its new lower ranges against the dollar and extended its declines against most of its other major counterparts.  Investors are paring back long yen positions after Japan’s new Finance Minister Koriki Jojima stated that the government will “take bold actions against the currency’s excessive moves, if necessary.”

Commodity Currencies – The commodity currencies are mixed this morning with the AUD falling, the CAD and MXN remaining flat, and the NZD and ZAR both gaining.  The AUD was the biggest loser overnight, falling by nearly a percent against the dollar after the RBA cut interest rates by a quarter percent to 3.25%.  Bank Governor Steven’s highlighted a slowdown in Australia’s mining sector as impetus for today’s decision.  Investors are currently pricing in another 0.25% cut before year end with 60% certainty, which would bring the RBA’s benchmark rate to a 50-year low of 3%.  Meanwhile, the NZD and ZAR both shot higher as investors are attracted to their yields, but both the New Zealand and S. African central banks may soon follow suit with cuts of their own.

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