v US jobless claims unexpectedly rise to 362k, but the monthly average remains near a 4-week low;
v EUR gains against all of its major counterparts on optimism that an agreement on private sector involvement in Greek debt swaps will soon be reached; ECB commentary turns more hawkish as the Bank keeps interest rates on hold at 1%;
v Commodity Currencies outperform their peers as the improved market sentiment prompts investors to seek their higher yields.
The USD is generally lower this morning against most of its major counterparts amid optimism that a deal to secure a second financial aid package for Greece is near saps demand for the dollar's relative safety. Meanwhile, the monthly average jobless claim count in the US remained near a four year low despite a slight rise in this week's application numbers. The number remains consistent with signs that the labor market is finally improving, which investors expect will translate into increased consumer spending, the engine of the US economy. The figure is also a positive sign ahead of tomorrow's all-important nonfarm payrolls and unemployment reports on signs that employers have grown more comfortable with current headcounts and could add more jobs when demand begins to pick up. Tomorrow's labor market report is expected to cap the best 6-month gain in hiring since 2006 with more than 1.1 million employees added to the workforce from September through February. As such, the dollar has taken a step back against most of its counterparts this morning as investors feel a bit more comfortable in seeking higher returns.
The EUR bounced off of its recent lows overnight, helped higher by gaining optimism that Greece will be able to wrangle enough investors into participating in a much-needed debt swap. So far, they've gained support of more than 30 of the largest European banks that are willing to accept a 75% haircut on their debt holdings, swapping expiring debt for new assets. The private sector involvement agreement is the last hurdle Greece needs to clear before receiving a second tranche of EU/IMF/ECB funding. However, if Greece can't secure enough participants by 10PM tonight Athens time, the second bailout package could be in jeopardy, and the prospects of an imminent disorderly default could weigh heavily on the common currency. Meanwhile, the ECB met this morning and left interest rates on hold at their current 1% as policymaker commentary turned a bit more hawkish. New ECB President Mario Draghi so far has proved to be far more proactive than his predecessor, cutting interest rates twice and pumping an enormous amount of liquidity into the system already in his first several months in office. However, Draghi's tone may be changing as he told reporters this morning that inflation rates are now likely to stay above 2% in 2012, with upside risks prevailing. While the central banks single-track focus on inflation has eased somewhat with the change in leadership, today's more hawkish turn is providing significant support for the EUR as it appears rate cuts and further liquidity are off the table for now.
The GBP is mixed this morning, gaining against the USD while falling against the EUR. The BoE held monetary policy steady as was expected, leading the sterling higher against the USD. However, improvements in mainland Europe have kept the pound under pressure against the EUR. Meanwhile, an interesting development in British politics could see the UK shrink in size with a potential for Scottish independence on the near horizon. The move may not come from the Scotts themselves, but rather Prime Minister David Cameron's party as they attempt to consolidate political power. While this would have little bearing on the immediate direction of the GBP, a change in political dynamics could shake investor confidence in the longer term.
The JPY came under renewed pressure this morning as improving market risk appetite saps demand for the safe-haven yen. The yen has also come under renewed pressure as expectations for Japanese growth this year are significantly reduced. Over the past decade, Japan worked to cut public-works spending, but the resulting drop in contractors, construction firms, and skilled workers is now hampering the economy as the country's North looks to rebuild from last year's natural disasters. Nearly half of the funds earmarked for rebuilding projects in three separate budgets remain unassigned. As such, reconstruction demand, currently one of the only bright spots in the Japanese economy, and expected to add 1% to GDP in 2012, may not develop as strong as originally anticipated.
The Commodity Currencies are collectively stronger this morning as improved risk sentiment prompts investors to seek higher yields. The encouraging labor market data out of the US and the positive developments in Europe have seen raw good prices push higher as well. Oil rebounded to nearly $107/bbl, gold edged higher to $1698/oz and copper gained to $380/lb. The CAD strengthened past parity with the USD this morning on the rising price of oil, Canada's main export, and as BoC policymakers stated that they see less slack in the economy. The Bank kept its benchmark interest rate at 1%, but drew attention to increased inflationary pressures and a rise in domestic spending. The AUD and NZD are also both higher this morning, but to a lesser extent after disappointing economic data. Australian unemployment unexpectedly rose and the RBNZ kept interest rates on hold, but investors continue to flock to both currencies' relatively high yields. The MXN also gained on the improved investor risk appetite, but gains remain limited as a report this morning showed inflation falling below the Central Bank's upper limit, thus easing pressure on the Bank to raise interest rates in the near term. The drop in prices comes as drought conditions in Northern Mexico improve, translating to a sharp fall in food prices.
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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.