• USD held steady across the board as equity markets close for Good Friday


  • EUR hovered around four-month lows as Cyprus’ bank bailouts strip confidence


  • Commodity currencies flattened but remained under pressure as Cyprus and Italy continues to hold the spotlight


USD – The US dollar held steady across the board as the equity markets in Europe and the US close in observance of Good Friday. The dollar index also flattened since yesterday’s close at DXY 83.221, but is set for a quarterly gain of nearly 4%, its best quarter since the third quarter of 2011. The currency market is quite calm despite the looming threat from North Korea who put its missile units on standby today to attack US military bases in South Korea and the Pacific. In response, fighter pilots flew B2 bombers from the United States and back showing America's ability to conduct long-range strikes. The risk of a cross-border conflict can disrupt the momentum of global economic growth and can lead to investors fleeing to safer-haven assets. Domestically, US consumer spending rose in February and income rebounded, showing signs that economic activity accelerated in the first quarter. The Commerce Department reported consumer spending increased 0.7% last month after an upwardly revised 0.4% rise in January. After adjusting for inflation, spending was up 0.3%. In addition, personal income in December was sharply higher due to a rush to pay dividends and bonuses this year. Meanwhile, University of Michigan Surveys of Consumers, a data on US consumer sentiment index rose to 78.6 from the preliminary March figure of 71.8. For the quarter, the economy grew at only a 0.4% pace and the current inflation picture should give the Fed room to continue with its monetary stimulus as it seeks to boost job growth.

EUR – The euro hovered near four-month lows on worries that capital controls on Cypriot depositors may disturb investors holding other Eurozone debts. In Cyprus, banks reopened for the first time in almost two weeks without causing a massive run on deposits as the country maintained tight capital controls that would remain enforced for likely about a month, which is longer than expected. The rescue package for Cyprus has dented investor confidence in the peripheral region, weighing down the EUR by 2.2% from its highest point of the month.

GBP – The pound traded flat against the dollar amid a decline in its current account deficit for last year, the worst since 1989. The Office for National Statistics confirmed that Britain's current account deficit came in at 14.037bn pounds ($21.3bn) in the fourth quarter. For the full year, the gap between what Britain earns from trade and foreign investment and money flowing out of the country almost tripled to a shortfall of 57.679bn pounds or 3.7% of GDP - the highest percentage of GDP since 1989.

JPY – The Japanese yen traded relatively flat against the dollar as market participants anticipate the BoJ’s policy meeting next week on April 3-4, where the new Governor Haruhiko Kuroda will make his first official announcement. Investors expect Kuroda, seen as more dovish than former governor Masaaki Shirakawa, to scale up bond-buying and extend maturities of bonds it purchases. Japanese equities have largely benefited from the yen's steady decline on expectations the BoJ would take bold reflationary steps under its new leaders. Domestically, Japan's jobless rate rose in February and the availability of jobs was steady, in a sign the labor market needs more time to recover as the economy picked up only gradually from a mild recession. The seasonally adjusted unemployment rate rose to 4.3% in February, compared with 4.2% in January. The yen steadied around USD/JPY 94.15 yen, climbing about 8.4% for the quarter.

Commodity Currencies – The Canadian dollar remained at recent levels against the US dollar, but weakened against the euro despite data released showing that Canada's economy grew in January.  The Canadian economy grew higher-than-expected at 0.2% in January following the weakest two quarters since the 2008-09 recession. The Australian and New Zealand dollars struggled to post new gains against the dollar as worries about Cyprus and Italy took center stage. With most markets closed today and Monday, look for the Aussie and Kiwi to hold close to current levels this holiday weekend.


For more market reports go to Union Bank of California