v USD drops as weekly jobless claims rise to 380k and producer prices ease, paving the way for further Fed stimulus;
v EUR bounces back despite hawkish comments from ECB President Draghi and rising debt yields in Italy;
v Commodity Currencies push higher as rising stocks and commodities encourages risk taking; AUD gains by more than a percent against the USD as Australian employment unexpectedly improves.
The USD is lower against nearly all of its major counterparts this morning as stocks and commodities rise on renewed expectations that global central banks will soon unleash another round of economic stimulus. US jobless claims ticked higher this morning, rising to 380k, nearly 10% over the consensus forecast and higher than last week's upwardly revised 367k. In line with faltering employment gains, the most recent reading of the trade balance this morning showed that the gap between imports and exports narrowed by more than expected as consumer demand fell. Additionally, PPI data this morning showed no change over last month's reading with the annualized figure dropping to 2.8% versus 3.3% in the previous month. Falling producer prices will likely translate into lower consumer prices, thus giving the Fed ample room to pursue another round of stimulus if deemed necessary. With similar signs of forthcoming central bank support in Europe, global financial markets are rebounding this morning. The combination of improved risk appetite and increased bets that the Fed will soon act will keep the dollar under pressure in the near term, at least until Fed members reassert the more hawkish tone that emerged at last month's FOMC meeting.
The EUR rebounded to the higher end of its recent ranges this morning even as bond yields in troubled Italy and Spain are again on the rise. ECB President Draghi's tone also turned a bit more hawkish overnight, stating that the ECB is prepared to fight inflation even at the risk of adding pressure to the weak regional economy. The comments come just a day after ECB member Couere said that the Bank could restart buying bonds directly from troubled member nations such as Italy and Spain should yields push too high. It's unlikely that the Bank could combat rising yields while raising their own benchmark interest rate to stave off inflation. As such, the common currency will likely remain relegated to its recent ranges in the near term, supported by resilient risk appetite with stocks and commodities well within the black.
The GBP is mixed this morning, gaining against the USD while falling against the EUR. The pound extended its rise against the dollar as risk appetite returns, but it has been unable to break through the top of its recent ranges near the 1.60 handle. While British policymakers have cited green shoots of recovery recently, the economy remains weak at best, just barely remaining out of recession. Trade data released this morning showed that the overall deficit widened by more than expected, led by a drop in exports to mainland Europe. Investors will pay particularly close attention to tomorrow's PPI and next week's CPI reports to gauge what room the BoE has to support the economy in the coming months.
The JPY pulled back from its highs reached yesterday morning, but remained near the top of its recent ranges. Investors have been encouraged to assume riskier positions after supportive comments from both the Fed and BoJ. Shirakawa told reporters today that beating deflation and returning to sustained growth are the most important tasks for the BoJ. With a second monthly meeting scheduled for the 27th, expectations are gaining that the Bank may ease monetary policy further. Nevertheless, with concerns over European debt and global economic growth still weighing on investor confidence, the safe-haven yen will remain supported within its recent ranges.
The Commodity Currencies are sharply stronger this morning as rising stocks and commodities encourage investors to seek higher yields. Raw good prices are on the rise with oil at $103.9/bbl, gold at $1673/oz and copper at $370/lb. The CAD broke back below parity with the USD for the first time in three days, supported by the higher price of oil and the supportive Fed comments. The MXN is also headed stronger this morning against the USD, but to a lesser extent as investor demand for emerging market assets remains tepid. The AUD was the big winner over night, gaining by more than a percent against the USD after Australian employment blew out forecasts, gaining by 44k after last month's disappointing 15.4k decline. Similarly, the NZD is a percent higher against the USD as investors seek its relatively attractive yields.
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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.