v Central banks announced coordinated effort to provide liquidity and ease strains in the global credit markets
v People's Bank of China cuts reserve ratio by 50 basis points
The US Dollar fell across the board after the announcement of the central bank intervention to provide liquidity to global financial markets. In a coordinated move, the U.S. Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland lowered the cost of existing dollar swap lines by 50 basis points. The move will assist in preventing freezes in the credit markets due to the euro zone's debt crisis. In other news, Chicago PMI came in at 62.6 beating a forecast of 58.6, while the ADP jobs report showed a 206K increase in jobs in November, well above the forecast for 130K. Look for the dollar to remain under pressure as risk aversion eases and relief over the immediate credit concerns abate with the central bank announcement to ease liquidity strains.
Sterling pushed higher following its euro counterpart despite lackluster fundamentals including a growing concern over lower growth prospects and over an increased call for further austerity measures. The Office for Budget Responsibility called for an additional £111 billion in cuts. The market will look towards tomorrow's PMI report for further clues on the economy. Growing unrest over austerity measures triggered up to two million public sector workers to go on strike today in the UK to protest government plans to force the state workers to pay more and work longer to earn their pensions. The strike has caused the majority of UK state schools to close and has disrupted some transportation services.
The euro rose over 2 U.S. cents before giving back some of its gains. German two-year government bond yields fell to a low of 0.276%, while European stocks rose 2 percent. The momentum higher occurred despite a disappointing CPI figure coming in line with expectations at 3.0%, while unemployment rose to 10.3%. The market will look towards next Thursday's ECB meeting and Friday's EU summit for further direction into the EUR/USD currency pair.
The Japanese yen continues to remain strong and trade within a tight range. Assisting the currency was a strong release of industrial production which jumped 2.4% month/month and 0.4% year/year. Look for USD/JPY to continue to remain well supported, but within a tight range of 76-78.
The Chinese Yuan lost ground after the People's Bank of China cut its reserve ratio by 50 basis points. The move is the first from China since 2008 as Europe's debt crisis places pressure on the outlook for exports and growth. The reserve ratio requirements will decline by 50 basis points effective Dec. 5. The move comes before a report due out tomorrow that may show manufacturing contracted for the first time since February 2009.
The Commodity Currencies all pushed higher after the coordinated announcement by the central banks to ease liquidity strains on the global markets. The Australian dollar by far was one of the biggest beneficiaries rising almost 3 U.S. cents to a two-week high. The Canadian dollar also benefited by rising 1.0%. The USD/CAD trading pair broke through its 50?day moving average and remained supported on a Canada GDP release showing a 3.5% rise in the third quarter. With commodity prices in general pushing higher and the risk on sentiment back on look for the commodity linked currencies to remain supported potentially testing new highs.
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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.