v US Durable Goods fall the most in three years, registering -4%; Consumer Confidence gains to the highest level in a year at 70.8;
v EUR higher ahead of a much anticipated second round of 3-Yr loans from the ECB; final Private Sector Involvement agreement for Greek debt is expected to be completed by March 12th;
v JPY remains above 80.00 against the USD, but a report released this morning shows the yen has a ways to go before Japanese exporters turn profitable with their breakeven point at 82.
The USD is lower against nearly all of its counterparts this morning as investors gear up for an influx of central bank liquidity. While the focus has been on the ECB's LTRO operations, with the second round of unlimited 3-Yr loans set for later this week, data released this morning suggests that the Fed may not be far behind in easing monetary policy. While consumer confidence and a measure of manufacturing activity in the Richmond, VA area registered better than expected, durable goods unexpectedly contracted. Orders for products meant to last more than three years fell by 4% from the previous reading, the biggest decline in more than three years. With inflation now beginning to ease towards the Fed's targeted level of 2%, any further signs of weakness in the US economy will prompt an increase in bets that a third round of quantitative easing may not be off the table just yet. However, the recent rise in oil prices could hinder any Fed actions as the swiftly rising price at the pump could slow, if not reverse the recent declines in CPI. As such, particularly close attention will be paid to tomorrow's reading of Q4 GDP and the next inflation report due in two weeks.
The EUR is higher this morning against most of its major counterparts as investors await the ECB's next round of liquidity. The central bank will put up for offer an unlimited number 3-Yr bank loans later this week, which should serve to further ease funding pressures especially amongst the region's weaker economies. However, ECB member Nowotny signaled to reporters that this week's round of funding may be the last and that the Bank's Securities Market Program, under which they purchased Greek and Italian debt amongst other assets, is on hold for now. He voiced concern that Eurozone banks are becoming too dependent on the ECB, relying on its liquidity rather than bolstering their balance sheets on their own. Meanwhile, debt talks in Greece are progressing with a final agreement on private sector involvement scheduled for March 12th. S&P has also placed Greece in selective default after the government agreed upon a retroactive collective action clause that could trigger sovereign CDS. Nevertheless, with risk sentiment improving at least in the short term, the EUR will likely remain well supported.
The GBP neared a three-week best against the USD and pushed higher against the EUR after an index of British retail sales unexpectedly improved. While improved numbers suggest that the UK may avoid a technical recession, the data remains rather weak. Today's retail sales index registered -2, and while this is a vast improvement from the previous reading of -22 and the forecast of -12, contraction highlights the slow pace of economic growth currently present.
The JPY is marginally higher this morning against the USD, but remains above the key 80 handle. However, as an increasing number of investors turn to the yen as a cheap funding tool to then invest in higher yielding assets like the AUD and NZD, they are quite vulnerable to pullbacks as seen yesterday. Japanese officials remain outspoken about their willingness to intervene in currency markets with Finance Minister Azumi telling delegates at the G20 meeting last week that he is prepared to take firm measures. While weakening past 80 against the USD has eased some of the pressure on Japanese industry, a recent report showed that exporters' collective breakeven point is 82.0 versus last year's 86.3.
The Commodity Currencies are mixed this morning with the CAD, AUD and MXN all gaining while the NZD is sharply lower. Raw goods are generally higher with copper rising to $392/lb, gold gaining to $1789/oz, but crude oil paused at $108.8/bbl. The CAD strengthened further against the USD this morning supported by the rising price of oil, Canada's main export, and as the upcoming ECB loan operation encourages a bit of risk taking. Similarly, the AUD is higher on the improved risk sentiment, while the NZD is lower after New Zealand unexpectedly posted a trade deficit of NZ$199mm in January versus an expected surplus of NZ$167mm. The MXN pared early gains against the USD after the disappointing US durable goods report, the main destination for Mexican exports, sapped demand for Mexican assets.
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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.