v USD lower after announcement that Greece has reached an agreement on emergency aid;
v ECB and BoE leave interest rates on hold;
v BoE injects another 50B pounds, bringing total asset purchase program to 325B pounds;
The US dollar continues to decline against most of its major traded currencies with the exception of the Japanese yen as appetite for risk was boosted after comments from European Central Bank President Mario Draghi. Draghi confirmed that Greece had reached an agreement on austerity measures needed to avoid a disorderly default. On the economic data front, the Labor Department reported claims for unemployement benefits unexpectedly fell last week by 15,000 to a seasonally adjusted 358,000, further evidencing the labor market gaining traction.
The EUR rose to a two month high against the USD and the JPY after ECB President Mario Draghi confirmed that Greece had agreed upon a deal for emergency aid needed to avoid a disastrous default. The ECB left interest rates on hold at 1% as many had anticipated, with Draghi commenting that the Eurozone outlook, while uncertain, had stabilized. This comment fueled periodic bouts of euro selling, and some traders took it as a sign that another interest rate cut may come down the line, as early as next month. Though Draghi's comment initially put a damper on the euro, the currency should stay well supported above $1.30 now that a Greek deal appears to be in motion.
The GBP continues to hold its recent gains against the USD and EUR as Bank of England left interests rates on hold at a record low of 0.5% and said it will inject another 50 billion pounds into the UK economy bringing the total asset purchase program to 325B pounds, both of which were in line with market expectations. The GBP was also supported after better than expected industrial production data of 0.5% MoM, higher than the 0.3% forecasted. The BoE comments thereafter sounded a bit more upbeat painting a more positive picture after recent surveys, and announced it was expecting inflation to undershoot by 2% in the medium term without additional monetary support.
The JPY weakened against the USD and EUR as risk-appetite returns to the market after Greek austerity measures to avoid default was announced. The JPY weakness also came on the heels of worse than expected core machinery orders, which help gauge capital spending, fell to 7.1% in December. Though the JPY saw some weakening today, Prime Minister Yoshihiko Noda said the government and the central bank is ready to cooperate in managing the economy to curb the steady rise in yen since last year.
Commodity currencies are mixed against the USD as the CAD firmed and the AUD and NZD traded relatively flat. The Canadian dollar strengthened to a 2012 high of C$0.9928 against its US counterpart as oil prices hovers at the $100/barrel mark, and as investors returned to riskier assets on the news that a Greek bailout package had been reached. Despite the growing confidence for higher yielding currencies, the New Zealand dollar was flat as employment growth in the region showed a slowdown with a decline in the number of people actively seeking jobs as well as a contraction in full-time positions. Meanwhile, the Aussie traded within tight ranges as China released a higher than expected inflation number of 4.5% y/y from 4.1%, driven by a rise in food prices coming out of the New Year's holiday. China is Australia's largest trading partner and any signs of the inability to contain economic sustainability will have considerable impact and the AUD.
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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.