v USD falls against nearly all of its major counterparts as Fed Chairman Bernanke reaffirms that interest rates are to remain exceptionally low until 2014 and that QE3 may not be off the table just yet;
v EUR gains on optimism that Greek policymakers are near a final deal on austerity measures required to receive a second bailout package;
v AUD gains to six-month high against the USD after the RBA left interest rates on hold at 4.25%, the highest in the G10.
The USD is lower against nearly all of its major counterparts with the exception of the JPY as optimism builds that a Greek debt deal is near. With no major data to influence investors otherwise, the USD is underperforming against its peers as market risk sentiment improves. A measure of economic optimism beat expectations at 49.4 versus 47.5 in the previous reading, and JOLTs job openings jumped to +3376 from +3118 in December. With investors generally expecting a deal to be brokered between Greece and its many creditors, the dollar has lost some of its safe-haven appeal for now. Investors have also been focused on Fed Chairman Bernanke's testimony before the Senate Budget Committee this morning, which has mostly mirrored his statements before the House late last week. Inflation is set to remain low for at least the next year and a half, likely meaning that interest rates will stay low into 2014 as announced at the last FOMC meeting. Moreover, Bernanke told Congress that the economy still has a long way to go before the labor market can be said to be operating normally, meaning that QE3 is not off the table just yet. The Fed Chairman's dovish commentary is weighing heavily on the dollar, albeit largely within its recent lower ranges.
The EUR is sharply higher this morning as Greek policymakers fine-tune a final draft of a budget plan needed before the embattled nation will receive its second bailout package. While the risk of default if the fresh bailout funds are not released outweighs the negative effects of further government spending cuts in the near term, the austerity measures if passed in full are expected to equate to a 1.5% drop in Greek GDP. With Greece's economic output already contracting at a 5.5% pace on an annualized basis, the prospects of further slowing are discouraging to say the least. While a finalized austerity budget and private sector involvement plan will likely lead to a gain in the EUR, it may prove to be short lived as a return to competitiveness is a far more daunting task. Nevertheless, the brief reprieve in risk aversion, and positive steps within the region's troubled periphery nations are equating to a relief rally in the common currency in the near term.
The GBP is mixed this morning, gaining against the USD, but dropping against the EUR. The slide against its mainland European counterpart came after an industry report showed that British sales slumped by 0.3% last month, the second worst January decline since at least 1995. Nevertheless, the pound continues to perform relatively well as compared with the USD and EUR, having shed only 0.9% against its G10 counterparts this year while the EUR has lost 1.3% and the USD 2.7%.
The JPY took a step back against its peers this morning on waning risk aversion and as investors fear that another round of BoJ currency market intervention is imminent. Policymaker rhetoric has intensified in the past weeks with most investors speculating that another bout of yen-selling could be triggered should the yen appreciate past the 76 handle versus the USD. Data released this morning also showed that the BoJ has been more proactive in stemming yen gains than previously thought as they adopted a policy of stealth intervention, anonymously selling $13B worth of yen in the early days of November after a massive public intervention on October 31st. However, with risk appetite rebounding today, Japanese officials can breathe a sigh of relief as they yen eases back towards 77.
The Commodity Currencies are mostly higher this morning, led by gains in the high-yielding AUD and NZD. Raw goods are mixed with oil up to $98/bbl, gold gaining to $1739, but copper slipping to $386.50. The CAD was generally well supported towards the top of its recent ranges against its North American counterpart, supported by the higher price of oil, Canada's primary export. The AUD was the biggest gainer amongst the group, rising to a fresh 6-month best against the USD after the RBA unexpectedly left interest rates on hold at 4.25%. It was widely anticipated that the Bank would cut rates by at least 0.25% as Australia's economy slows with last year's mining boom quickly cooling. While the RBA left the door open for future rate cuts if necessary, Central Bank Governor Glenn Stevens said that sentiment in financial markets had generally improved. The NZD has also benefitted from the uptick in investor risk sentiment with its relatively high interest rates proving quite attractive.
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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.