• USD is broadly lower against most major currency on better Eurozone data 

• EUR is stronger as PMI data came in better-than-expected

• JPY weakened further after BoJ Governor announced an early departure from office

USD –The dollar initially strengthened and then fell against Europe’s single currency, but continued its push higher against the Japanese yen.  The dollar’s gains were paired after strong PMI data released out of the Eurozone. In U.S. news, the January ISM Non-Manufacturing PMI came in at 55.2 just shy of expectations for a reading of 55.8. With little US data due out this week, the greenback will focus on the slew of central bank meetings for further direction, however, with the Fed’s bond-buying program firmly entrenched analysts expect that the dollar will remain under pressure with a negative bias.

EUR –The euro continued its strengthening trend pushing higher against the dollar after better-than-expected services sector figures released, confirming that the worst of the European debt crisis has abated.  The Eurozone Composite PMI, which gauges business activity rose in January to a 10-month high of 48.6 from 47.2 in December and has risen consistently over the last three months. In other news, German Economy Minister Philipp Roesler said countries must focus on boosting competitiveness and not on cutting the value of their currency.  This statement all but cemented the fact that the euro zone isn’t looking to intervene any time soon and the statement helped to affirm expectations that the European Central Bank will keep policy steady when it meets this week. 

GBP –Sterling rose against the dollar on the heels of better-than-expected services PMI data.  The Purchasing Managers' Index rose to 51.5, beating the forecast of 49.5.  The positive data helped alleviate concerns over a possible recession with the economy recently showing contraction in Q4 of last year. Look for the pound to hold below $1.5889, the 200-day moving average ahead of Thursday’s Bank of England meeting, where speculation is rising that policymakers may announce more quantitative easing.     

JPY –The yen weakened against both the dollar and euro after Bank of Japan Governor Masaaki Shirakawa stated that he would step down on March 19, three weeks before the official end of his term.  Prime Minister Shinzo Abe will be looking for someone to continue an easing of monetary policy and aggressively look to pull Japan out of its decade long period of deflation. Analysts anticipate that further yen weakness could be halted due to growing opposition with international competitive issues from other countries before the next G20 meeting in Moscow.

Commodity Currencies – Commodity currencies are mixed despite the better-than-expected Eurozone data. The Canadian dollar strengthened against its US counterpart ahead of tomorrow's PMI data which is expected to report higher in January than its previous month. An increased PMI reading can suggest a turning point in Canada's business cycle as well as an early detection of a buildup in inflation pressures for the country. The Aussie dollar slid after the RBA held rates unchanged, but left the door wide open for further easing if necessary. The New Zealand dollar held firm as the country showed a modest lift in wages in Q4, posing no risk to inflation and the central bank's interest rate policy.

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.