• USD is broadly stronger as the DOW reached its highest levels since 2007

• EUR flattened against the USD on better Eurozone economic data

• Commodity currencies strengthened amid positive growth numbers abroad

USD – The US dollar is stronger against most major currencies, with the exception of the AUD, NZD, and CNY. In domestic news, the Institute for Supply Management’s index of US non-manufacturing businesses, which covers about 90% of the economy, rose to 56 in February from the prior month’s 55.2.  In other news, the Dow rose to its highest level, erasing losses from the financial crisis after a four-year rally fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve.  Almost $10 trillion has been restored to US equities as retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s.  It took the Dow less than 5 1/2 years to rise above its previous high set on Oct. 9, 2007.  The rally in US equities has supported the global ‘risk-on’ sentiment, lending demand for higher yielding assets.

EUR – The euro flattened against the dollar on better-than-expected euro zone economic data but has met resistance as investors weighed the chances the ECB will cut interest rates this week.  Euro is seen persists as the currency bloc's economy continues to stumble, raising the risk that the ECB will ease policy in coming months.  The EUR/USD climbed to a session high of $1.3075 after a euro zone composite PMI survey came in at 47.9, slightly better than the preliminary reading of 47.3.  In addition, euro zone retail trade increased by more than expected in January, but moderate consumption in France and falling sales numbers in Ireland and Finland raised concern for further euro increases.  On an annual basis, retail sales fell 1.3% in the month.  For the week, the market’s focus remains on the ECB’s policy announcement on Thursday.

GBP – Sterling rose sharply against the USD after Britain's services sector grew more than expected in February, although lingering expectations the BoE could ease policy this week capped gains. The GBP/USD rally to 1.5199 was supported by a firmer than expected UK PMI for services, which rose to 51.8 last month from 51.5 in January, beating forecasts for a reading of 51.0.  The sector's second straight month above the 50 line denotes a slight rebound against the surprising contraction in UK manufacturing last month.  Despite the positive reading, economic data in recent weeks has pointed to a weakened economic condition.  Recent indicators have kept alive speculation the BoE may resort to more monetary easing as early as this Thursday, adding downward pressure to the pound this week.


JPY – The yen strengthened for a second day vs. the dollar amid speculation the BoJ policy board will refrain from adding stimulus when it convenes for a two-day meeting starting tomorrow.  The yen appreciated as much as 0.4% to 92.92 against the dollar.  However, gains will likely stay under pressure as the nominee for Gov. Shirakawa's replacement, Haruhiko Kuroda, testified before parliament voicing a strong support for an aggressive monetary accommodation as the BoJ pursues its 2.0% inflation target.  Kuroda has been known to support an increase in the size of the BoJ’s asset purchase program.

Commodity Currencies – The Canadian dollar was slightly stronger against the USD as investors remained mostly sidelined ahead of the BoC’s rate decision and policy statement tomorrow. In the recent month, the BoC has been the main source for loonie weakness which has dipped more than 3% on its more hawkish stance.  Statements from the BoC have prompted economists and forecasters to predict the central bank will likely hold interest rates unchanged until the first quarter of 2014.  The AUD is higher against the USD, rebounding from yesterday’s five-month low.  This comes after the RBA kept interest rates at record lows overnight.  Tonight, investors are anticipating Australia’s Q4 GDP data which is expected to expand by a firmer 0.7% pace over the quarter vs. Q3’s 0.5% gain.  Despite softer consumer spending, and an unexpected fall in Capex, a positive growth reading suggests a slow rebalancing is under way.  In other news, WTI crude oil advanced from the lowest level this year while Brent boosted the European benchmark.  The WTI futures rose as much as 0.7% to $90.73 a barrel while Brent crude oil rose 0.6 percent towards $111 per barrel.


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