USD – The dollar is lower against all of its major counterparts aside from the JPY this morning as stocks snap their recent losing streak. The major indices are higher this morning following the best reading of weekly jobless claims since 2008. First-time jobless benefit requests plummeted to 339K from 369K last week. Today’s figures are even more impressive as claims will typically rise in the first week of a new quarter as applicants will often reapply in order for the government to recertify their applications. The four-week moving average of jobless claims, a far less volatile number, fell to 364K from 375.5K. Meanwhile, the trade deficit widened as slower global growth weighed on demand for US exports. The gap widened by more than expected, falling to -$44.2B from -$42.5B in the previous reading. Even as today’s report suggests that trade will detract from gross domestic product in the third quarter, stocks and commodities are higher with investors’ appetite for risk a bit improved. Consequently, the dollar is back towards the lower end of its recent narrow ranges as its “safe-haven” status losses its appeal.
EUR – The euro reversed a three-day slide against the USD as rising stocks are providing support. While the region’s economies continue to struggle, investors are apparently more confident that the currency bloc will stay together. Greece, the most likely candidate for a possible exit from the group, has seen a surprising return in investor confidence. Yields on 10-Yr Greek bonds are headed for their fifth straight month of declines, the longest such streak in more than seven years. However, markets remain largely illiquid with an average monthly trading volume of just €150M from a peak of €136B back in 2005. Elsewhere, S&P downgraded Spain two notches from BBB+ to BBB-, just one rung above junk status. The cut comes as Spanish policymakers remain reticent to seek further international aid even with the ECB’s new OMT program. As Deputy PM Saenz told reporters, Spain would “need to know various elements including the extent of it, its implications, and especially that the final result be assured, that the aid would materialize.” As such, the EUR’s gains will likely be limited to within its recent ranges as the longer-term outlook for the region remains troubled.
GBP – Sterling extended its two-day gain against the dollar overnight, but gains were limited by dovish BoE commentary. MPC member Martin Weale told reporters that the UK could face a “triple-dip recession.” Nevertheless, strong capital flows from mainland Europe after S&P downgraded Spain has provided support.
JPY – The yen is nearly half of a percent lower this morning as Japanese officials voiced their concern with a strong currency at a G7 summit in Tokyo. Finance Minister Jojima expressed his unease with the divergence between the yen’s strength and Japan’s weak economic fundamentals and urged his counterparts to cooperate on FX if necessary. The yen is thus a bit lower as it appears intervention could be near. However, any sharp losses would likely prove temporary as the market would see a lower yen as a good opportunity to buy the “safe-haven” asset with the ongoing debt crisis in Europe.
Commodity Currencies – The commodity linked currencies are generally higher this morning as the risk-on trade gains momentum. Raw goods are more expensive with oil rising to $92/bbl, gold gaining to $1771/oz, and copper surging to $377/lb. The CAD rallied overnight on the rising price of oil – Canada’s main export – and as investor confidence improves. However, gains have been cut short as Canada’s trade deficit narrowed, led by a decline in imports of machinery and durable goods. The MXN rose by the most in nearly a month vs. the dollar after the unexpected decline in jobless claims in the US – Mexico’s main trading partner. The AUD also posted solid gains overnight after a report showed that Australia added more jobs in September than expected. However, the gains were not enough to keep the unemployment rate from rising to 5.4% from 5.1% in the previous reading.
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