USD slightly rebounds from yesterday’s losses
EUR is lower despite stronger growth numbers from Germany and France
Commodity Currencies are stronger amid higher demand for gold and metals
USD – The US dollar slightly rebounded this morning from yesterday’s losses. The dollar fell largely against the GBP at -0.92%, followed by the JPY at -0.79% and the EUR at -0.69% by yesterday’s close. The broad recoil this morning suggested investors adjusted positions amid a rise in US Treasury yields and the expectations the Federal Reserve may start withdrawing stimulus as soon as next month. The US 10-year treasury reached its highest since August 2011, hovering at a rate of 2.79%. Domestically, the University of Michigan’s preliminary August survey of consumer confidence fell to 80.0 from the final July figure of 85.1. However, the Commerce Department reported housing starts increased 5.9% to a seasonally adjusted annual rate of 896,000 units, which was very close to the expected forecast of 900,000 units. In addition, permits to build homes rose 2.7% in July to a 943,000-unit pace, which was also near what economists had expected. Positive US construction data builds up the growing conviction that the US central bank will scale back its bond buying next month, which has kept pressure on US government bond prices, driving up yields on benchmark 10-year notes and supporting the dollar.
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EUR – The euro is slightly lower against the dollar this morning even though recent data showed the Eurozone has emerged from a recession. Despite stronger Q2 growth in Germany and France, the ECB looks unlikely to change its accommodative policy stance any time soon. In comparison to the US, however, reasonably sturdy domestic data has bolstered expectations that monetary policy may not remain ultra-loose for long. Overall, the EUR is strong, trading near the top end of its range, and over 1.0% higher than its 50-day moving average. Domestically, Eurozone CPI came in as expected, rising 1.6%y/y on headline and 1.1%y/y on core. Expect the euro to trade in narrow ranges today as limited news is released in the region.
GBP – Sterling traded slightly weaker against the US dollar this morning but hit a two-month high against a basket of currencies as improving UK data prompted markets to bring forward expectations of when British interest rates will rise. BoE governor Mark Carney indicated the bank would keep interest rates at 0.5% until the jobless rate falls to 7%, which it anticipates to reach by the end of 2016. However, with recent UK data pointing to a stronger recovery, there are doubts on whether the bank can keep rates at record lows for that long, reflected in today’s rise in 10-year gilt yields to close to a two-year peak.
JPY – The Japanese yen weakened against the dollar after a drop in global stock markets underpinned demand for the safe-haven currency. Japan's exports are forecast to have grown in July at the fastest pace in almost three years, suggesting the benefits of a weak yen may finally start to take hold. However, the trade balance is forecast to remain in deficit for the 13th consecutive month in July. An improvement in exports would help offset the disappointing data released last week which showed economic growth slowed in Q2, raising questions over how well Prime Minister Shinzo Abe's reflationary policies are working. The yen is currently trending flat and the Nikkei is down 0.75% today.
Commodity Currencies – The optimistic economic picture is being reflected in demand for industrial metals, with copper reaching a 10-week high, while zinc has rallied to a five-month high. Precious metals like gold and platinum have gained as well, though they could be threatened if the Fed will in fact wind down its stimulus. Gold hit a two-month high of $1,372.51; platinum and palladium also reached its two-month highs. Oil markets were steady with Brent crude trading above $109 per barrel, after a week of strong gains as turmoil in Egypt and Libya stoked worries over the security of supplies. The CAD slightly fell on the day after Canadian manufacturing sales unexpectedly fell by 0.5% in June, falling short of forecasts that called for an increase. The AUD and NZD climbed against the USD despite a 6.8 magnitude earthquake that shook New Zealand’s capital with investors toning down on expectations of a sooner-than-later interest rate hike. Meanwhile, the Australian dollar rose against the greenback supported by a sharp jump in the Shanghai Composite stock index, which was up 3%. c
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