v EUR flattens as concerns over Spanish bond auction wane.
v Commodity Currencies weaken after US economic data
The USD is mixed this morning, trading higher than some of the commodity linked currencies such as AUD, NZD, CAD, but lower than the EUR and GBP. Despite some gains on the dollar, today's economic data is pointing to a very bearish US growth outlook. Leading indicators for March showed a gain of 0.30% vs. the previous 0.70%, while existing home sales fell to 4.48M vs. the previous 4.59M. In addition, reports from the Philadelphia Fed posted a sharp slowdown, showing 8.5 for April, down from the previous 12.5. Meanwhile, initial jobless claims rose to a revised four-month high at 388k compared to the forecasted 370k, for the second week of April. Negative US data has led to further sell-off in risk this morning against some of the majors. As the optimism from the successful Spanish bond auction wanes, we may see continued shift back to risk aversion.
The EUR traded flat against the USD from yesterday's close, leaving the currency firmly in range of its 100-day MA. The currency's recent dip, led mostly by the Spanish bond auction, has ran its course with investors and the limited economic data in the Eurozone has left the markets quiet for the time being. However, Italian industrial orders have underperformed, leading to further belief that Italy may fail to meet its deficit and growth forecasts. The risks facing Europe from one of its biggest markets adds pressure to policymakers as they seek a fine balance between austerity and growth where if mismanaged may lead to a disappointment to both.
The GBP strengthened to a 19-month high against the EUR and 5 months against the USD after officials from the Bank of England said inflation may rise quicker than previously forecasted. Due to the improving UK economy, BoE may pause its stimulus program next month. The Monetary Policy Committee agreed on April 4th to keep its target quantitative easing at 325 billion pounds ($521 billion). UK reports last week showed consumer price inflation accelerated for the first time in 6 months in March. Furthermore, asking prices for UK homes increased to a record this month. Without need for further stimulus, the GBP will likely remain strong in the medium term.
The JPY fell against most of the major currencies after BoJ officials signaled there may be more monetary easing in order to depreciate the currency. The yen dropped over 1% over the last two days, weakening to 81.74 yen to a dollar this morning. Japanese policymakers are scheduled to meet on April 27th amid the speculation they will expand the BoJ's asset-purchase fund for the second time in three months.
The Commodity Currencies weakened against its US counterpart after US unemployment benefits fell less than expected last week and the Eurozone's ongoing ability to deal with their debt crisis dented risk sentiment. Overnight, the AUD and the NZD firmed against the greenback after Chinese state media reported Beijing may soon ease their policy, but those hopes of an immediate cut to the banks' reserve requirements were soon overturned after an unnamed official stated the bank would cut the reserve requirement ratio to release liquidity.
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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.