v USD headed into the weekend higher against most of its major counterparts, supported by risk aversion;
v EUR again tests the lower end of its recent ranges as Spanish and Italian bond yields continue to rise, raising concern that they may require financial assistance in the coming months;
v JPY consolidates towards the top of its recent ranges as investors remain net buyers of Japanese assets, attracted by their relative safety.
The USD is stronger against nearly all of its major counterparts this morning as falling stocks and commodities prompt investors to seek the dollar's relative safety. Concerns are once again focused on the Eurozone's ongoing struggles with debt, but this time in Spain and Italy, the fourth and third largest regional economies respectively. The prolonged dilemma serves to help the dollar as investors continue to turn to it, attracted by its safe-haven appeal. CPI data released this morning showed that inflation remained flat both month over month and year over year despite higher prices at the gas pump. With subdued inflation, the Fed can remain focused on its other mandate of ensuring maximum employment by keeping interest rates extraordinarily low and possibly pursuing further monetary easing if needed. Meanwhile, the University Michigan confidence fell short of expectations at 75.7 versus 76.2 last month as persistently high unemployment and higher fuel prices weigh on consumer sentiment.
The EUR dropped by more than half of a percent overnight, slipping back towards the bottom of its recent ranges as both Spanish and Italian debt yields pushed higher. Just two weeks after Italian PM Monti told reporters that the flames of the crisis have subsided, the spread between similarly dated German bunds and Italian and Spanish notes has widened to the highest since the ECB's first LTRO offering. Comments earlier this week suggest that the ECB may begin directly buying debt in distressed markets, which they haven't done for more than a month. However, ECB President Monti reasserted the Bank's primary focus of controlling price pressures, thus denting investor confidence that the Bank will remain supportive. The common currency remains well entrenched within its recent ranges, but in light of the deteriorating situation, a test of the lower end may be forthcoming.
The GBP is heading into the weekend mixed, rising against the EUR while falling versus the USD. British PPI was released this morning slightly higher than expected at 0.6% month over month versus the 0.5% that was anticipated. On an annualized basis, the measure dropped to 3.6% from 4.1% in the previous reading, but was slightly higher than the 3.5% forecast. With price pressure remaining elevated, investors are skeptical that the BoE will pursue further monetary easing.
The JPY consolidated in its new stronger ranges against the majority of its major counterparts, remaining one of the primary benefactors of risk aversion. A report released yesterday morning showed that Japanese investors were net sellers of foreign assets, and foreigners were net buyers of short-term Japanese assets. Despite continued weak economic activity, it's clear that yen-denominated assets remain safe-haven favorites.
The Commodity Currencies pulled back from yesterday's highs as stocks and commodities look to close out the week in the red. Raw goods were generally lower with oil falling to $103/bbl, gold slipping to $1669/oz and copper dropping to $363/oz. The declines come as investors again question global growth prospects after Chinese GDP registered 8.1%, down sharply from 8.9% in the previous quarter and short of the 8.4% expected. The CAD is lower this morning, but remains towards the higher end of its recent ranges as the Canadian economy fares better than many of its G10 peers. The MXN hasn't been so lucky, falling now for five consecutive weeks against the USD as speculation builds that the central bank will soon cut interest rates, the first move in monetary policy since 2009. The AUD and NZD also gave back weekly gains overnight as the disappointing GDP report out of China, the main destination for Australian and New Zealand exports, weighs on investor confidence.
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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.