v USD consolidates in new higher ranges as jobless claims and regional manufacturing data improves;
v EUR remains near 1.30 despite easing funding concerns as Spanish and Italian yields fall;
v Commodity Currencies are stronger this morning despite falling raw good prices on encouraging economic data out of China.
The USD pared some of its recent gains overnight after yesterday's impressive rally. A modest easing in risk aversion has given investors a chance to breathe a sigh of relief and diversify capital out of the safe-haven USD. However, the dollar remains generally well supported as the US economy continues to outperform many of its peers. Weekly jobless claims dropped sharply to 366k versus an expected 390k, suggesting that a recovery in the labor market is underway. While the numbers are likely skewed by seasonal hiring, improvement in one of the sectors that has weighed on the economy now for more than three years, is a positive development. Meanwhile, PPI data registered slightly higher than expected and a measure of NY regional manufacturing surprised to the upside. The most recent reading of the current account also showed a contracting deficit as exports of industrial goods and petroleum products to developing nations proves resilient.
The EUR consolidated within its new lower ranges centered on the key psychological barrier of 1.30. While investors clearly remain apprehensive to enter long EUR positions en masse, an improvement in sentiment is resulting in falling sovereign debt yields within the region's struggling economies. Yields on short term Spanish and Italian debt, both a cause for concern as of late, fell to their lowest levels in more than 7-weeks ahead of a newly announced ECB operation that will offer lenders unlimited funds for three-years. Nevertheless, the underlying deficiencies persist in these economies and the latest plan may only be kicking the can down the road yet again.
The GBP has reversed course this morning, gaining on the dollar and falling against the EUR after British retail sales failed to meet expectations. Sales including fuel fell 0.4% from the previous month, and core sales fell a sharper 0.7%. On an annualized basis, sales are down 0.7% even with the holiday shopping season upon us as government austerity measures pinch household purchasing power. Easing tensions have also resulted in lower demand for British government assets, with the yield on 10-yr gilts rising back above 2%.
With no major economic data, the JPY remains well entrenched within its recent ranges. Safe-haven demand for Japanese assets does continue to gain with a Finance Ministry report this morning showing that foreign investors have bought a net JPY 2B of Japanese money market instruments over the past six weeks. Business sentiment in Japan is also declining, reflecting the headwinds that the Japanese economy continues to face as it struggles to emerge from a recession resulting from the natural disasters earlier this year.
The Commodity Currencies recovered slightly this morning, but remain within their recent ranges. Raw goods prices are lower with oil falling to $94/bbl, copper slipping to $326/lb, and gold continuing its sharp decline to $1576/oz as investors look to cover losses suffered in other asset classes. The CAD rebounded from a two-week low this morning despite the weakening price of oil, Canada's main export, on the better than expected data out of the US. The AUD and NZD both gained this morning after an index of manufacturing in China, the main market for Australian and New Zealand exports, registered better than expected at +49. The ZAR was the best performer overnight against the USD, gaining nearly 1.5% after a key support level was breached, suggesting that recent losses were overdone. Nevertheless, the rand remains the worst performing G20 currency year to date, slumping by 21%.
CHANGE FROM CLOSE
10-Year Treasury Yield:
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.