v USD gained against the majority of its counterparts overnight as debt and growth concerns spur on risk aversion;
v EUR pushed back towards the lower end of its recent ranges as yields on Spanish and Italian debt jump to the highest levels since late November; key resistance remains at 1.3004.
The USD is generally stronger this morning against its major counterparts, other than the JPY, as global equities extend their recent declines. Global growth concerns and resurgent Eurozone debt concerns are weighing on investors' risk appetite, thus prompting capital to flow into the safe-haven USD and JPY. Data out of the US has provided further support as wholesalers bolstered inventories in an attempt to keep pace with stronger consumer demand. Stockpiles jumped 0.9% in March, far greater than the 0.5% gain expected, and up from the 0.6% registered in the previous reading. However, gains have been limited by a renewed dovish tone from Fed Chairman Bernanke, as he told reporters that US recovery is far from complete. While minutes from last month's FOMC meeting suggested that the Fed's bias for easing monetary policy further may be subsiding, last week's disappointing nonfarm payrolls report has investors speculating that QE3 may not be off the table just yet.
The EUR is down slightly from yesterday's close after trading through a particularly volatile overnight session. Investors are again increasingly fearful that the region's struggles with debt are far from over, with Spain and Italy now the focus of concern. Both countries are scrambling to cut government spending, reform labor laws and provide greater transparency, but investors are clearly taking it as too little too late. Yields on both Spanish and Italian debt are surging higher this week, as the dampening effects of the ECB's LTRO programs earlier this year are quickly fading. In one month's time, the yield on Spanish 10-yr notes rose by 1.06% after PM Rajoy's government abandoned earlier deficit targets, settling on a new target of 5.3% of GDP. Meanwhile, Italian President Monti is facing growing popular and political opposition, as his administration attempts to push through a labor market overhaul. The growing uncertainties and successive rounds of austerity measures will at the least slow growth in 2012, if not drag the entire Eurozone back into recession, thus leaving the common currency vulnerable to further weakness.
The GBP is mixed this morning, falling against the USD, but rising against the EUR as risk aversion drives the market. Sterling gained against its mainland European counterpart as resurgent Eurozone debt fears spur demand for the relative safety of British government assets. The sterling derived further support from a housing report yesterday afternoon that showed prices rose to a 21-month high, as first-time buyers rushed to take advantage of a property tax exemption that will soon be expiring.
The JPY continued its slow climb back towards the key 80 handle against the USD after the BoJ left policy unchanged. Policymakers left interest rates steady at 0.1%, the asset purchase program at JPY 30T and the credit-lending facility at JPY 35T. Despite recent weak economic data, policymakers cited signs of a pickup in economic activity. Focus now shifts to the Bank's second meeting in April, slated for the 27th, at which policymakers will give updated economic projections. With the projections likely to show inflation remaining under the Bank's 1% target for the remainder of the year, further monetary easing could be announced.
The Commodity Currencies were hard hit overnight as a faltering market sentiment sent investors seeking less risky assets. Raw good prices slipped with oil falling back to $101/bbl, gold dropping to $1636/oz and copper tumbling nearly 2% to $365/lb. The CAD weakened past parity with the USD for the first time in two weeks as risk appetite wanes and on the falling price of oil, Canada's main export. The MXN weakened sharply this morning, pushing back above key support against the USD at 12.99 as the resurgence in risk aversion hits emerging market currencies the hardest. Similarly, the AUD and NZD are both lower this morning as investors are concerned with the slowing pace of global growth. China released a report overnight showing that imports fell by more than expected, serving a blow to the Australian and New Zealand economies as both countries depend on Chinese demand for their exports.
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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.