v Risk aversion continues to drive the USD stronger, with exception of commodity currencies;
v Moody's and Fitch lowered Portugal and Hungary's sovereign debt ratings;
v The IMF followed S&P's warnings about Japan's debt levels, which present economic instability.
The US Dollar is stronger against most major currencies with the exception of the commodity currencies as investors seek the safe-haven dollar to avoid market uncertainty. Due to the observance of the Thanksgiving Holiday, there are no economic figures released from the US.
The euro touched a 7-week low against the USD after Italy sold 6-month bills at a record yield of 6.5% and zero coupon bonds at an average yield of 7.81%. As a result, 10-year Italian bond yields rose to the highs of 7.322%. Further affecting the euro, Moody's and Fitch lowered Portugal and Hungary's sovereign debt ratings. Many investors fear that with increasing bond yields and borrowing costs, Italy and France may be next for a credit downgrade as well. Unless something is done to reverse the rise in borrowing costs, investor's appetite and the EUR will likely remain under pressure in the near term.
Despite some positive news in the UK, Sterling continued to fall against the US dollar on risk aversion. Britain's government appears on track to meet its year's budget-cutting milestone and borrowed slightly less than expected in October. Figures showed October public sector net borrowing fell 16% on the year to GBP 6.5B. Even though the cut in borrowing proved difficult, Prime Minister David Cameron strongly rejected any fiscal stimulus to boost growth. Unfortunately, the peripheral link between UK and Europe has not allowed the sterling to benefit from recent upbeat reports.
The Japanese yen fell over 0.70% from yesterday's close and has fallen over 1% in the past week following concerns of Japan's government finances left JPY trading as less of a safe-haven than previous. The IMF followed S&P in warning about Japan's debt levels, which presents risks to global financial stability. Japan's debt to GDP is currently at 220% and with no signs of near-term fiscal reform to contain widening deficits, investors are concerned about a possible spike in interest rates.
The Commodity Currencies are one of the few currencies gaining against the USD today, with the CAD paring earlier losses and trading near yesterday's close of 1.0470. Meanwhile, the Australian and New Zealand dollars traded higher against the greenback as crude oil and natural gas prices recovered slightly. Sentiment towards the commodity currencies remains weak. For the Aussie, the fear of slower growth in China along with recent events in Europe has kept the currency on an edge. On the other hand, the Kiwi may have a more positive short term outlook as investors anticipate tomorrow's election favoring a majority win for the ruling National Party.
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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.