Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

USD –The US dollar climbed against the euro and yen, moving back towards a recent 2-1/2 year high versus the yen, as positioning for expectations of looser Bank of Japan monetary policy led some investors to sell the Japanese currency. Without U.S. economic data to continue driving the US dollar one way or another, currencies are likely to trade in the day's ranges and look to events later in the week or react to changes in other asset classes such as stocks.

EUR –The euro weakened against the dollar, slipping to a weekly low of 1.3042, despite comments made by the EU Commissioner Olli Rehn, who stated that there was a low risk for a euro-area breakup. Rehn suggested that the largest concern going into 2013 is the economic growth outlook. Moreover, the ECB also foresees a prolonged recession in the region, announcing that Germany should see economic growth below 1.0%, as ‘labor and energy costs suggest the country is losing its competitiveness. In addition, weak retail sales and record-high unemployment rates in the Eurozone are adding pressure to economic growth in the region. The ECB will meet this Thursday to discuss the benchmark interest rate as well as the collateral lending rules. Expect the euro to continue to hover around its recent range of 1.3040.

GBP – Sterling edged lower against the US dollar before policy decisions from the Bank of England and the European Central Bank on Thursday and was seen vulnerable to signs of UK economic weakness. The pound was down 0.2 percent at $1.6023, holding above a low of $1.6010 hit last week, its lowest since Dec. 10. It was expected to stay pinned below a 16-month high of $1.6380 hit last week. The Bank of England is widely expected to keep interest rates on hold at its meeting and not make any additional asset purchases to stimulate the economy. The Bank of England meeting tomorrow is expected to be a non-event which could mean sterling is most likely to be driven by external events.

JPY – The Japanese yen eased against the US dollar as sentiment continues to be volatile with the BOJ Jan. 21-22 policy meeting approaching. Speculation that the BOJ could deliver further aggressive easing steps has capped any gains even when the currency has rallied.  Sources familiar with the BOJ's thinking said the central bank was likely to adopt a 2 percent inflation target at the meeting, double its current goal, and issue a statement with the government promising bold monetary easing steps. Since last Friday's peak, the yen has lost nearly 12 percent against the US dollar since early November.

Commodity Currencies–The Australian dollar was against the US dollar after surprisingly weak retail sales data prompted markets to slightly narrow the odds of further interest rate cuts, while the New Zealand dollar held firm.  The Aussie initially climbed as high as $1.5023 before easing back to $1.0495 after data showed retail sales fell 0.1 percent in November, confounding forecasts of a 0.3 percent rise. Its downside, however, was limited by a spike in iron ore prices, a major Australian export which climbed a further 3 percent to its highest in 15 months at $158.50 a ton. The New Zealand dollar held firm at $0.8380 from $0.8367 early, helped by kiwi buying in the crosses against the yen and the Aussie. Both Aussie and kiwi have gained nearly 10 percent since November on speculation Japan will embark on more yen-negative monetary stimulus measures to revive an ailing economy. The Canadian dollar erased losses against the US dollar after a report showed the nation’s housing market slowed in December, signaling the country may avoid a housing bubble. The currency strengthened after construction starts were 198,000 at a seasonally adjusted annual pace last month, down from a revised 201,400 in November.

Foreign exchange, and derivative transactions are not Bank deposits, are not insured by the FDIC or any government agency, and may involve substantial risk, including significant volatility and the potential risk of loss of principal. These materials are not intended to provide investment, financial, accounting, legal, or tax advice. These materials are for discussion purposes only. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. All rates and quotes are indicative and are subject to change at any time without notice.Neither this, nor any other communication received from Union Bank, whether written or oral, is, or should be construed as, a recommendation or solicitation with respect to the purchase or sale of any security or instrument or the execution of any particular transaction with Union Bank or any other potential counterparty. No information received from us is any assurance or guarantee as to the expected results of any foreign exchange or derivatives transaction. Before entering into any foreign exchange or derivatives transaction with Union Bank, you must make your own independent decision to enter into that transaction, understand the terms, conditions and risks (financial and non-financial) of that transaction, and be willing to accept those terms and conditions and to assume those risks.