• USD slid as safe-have flows favored JPY and CHF
  • EUR reaches 2-month high vs. USD
  • Commodity currencies weakened as global demand for higher yielding assets subside


USD – The US dollar fell against most major currencies as global shares favored safe-haven investments while emerging market currencies suffer another round of sell-offs. As such, US bond yields retreated after hitting two-year highs in the previous session on anticipation of Fed "tapering." The benchmark 10-year UST yield fell 8 basis points after reaching 2.90% yesterday. Many investors believe the Fed remains likely to be the first among major central banks to unwind its liquidity program. That, combined with an improving US economy and rising risk aversion, should favor the dollar. However, global investors fear a withdrawal of stimulus by the Fed may weaken emerging economies, stoking demand for the safety of the Japanese yen and Swiss Franc over the greenback. Markets await Fed minutes for July set to release tomorrow, which could provide clues to whether the central bank will pare back its bond-buying in September. Domestically, the Chicago Fed released the national activity index which edged up to -0.15 in July from -0.23 in June. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

EUR – The euro surged vs. the dollar today, up 0.7% in early trading and reached a new two-month high. With only second-tier data being released today, the most likely cause of this rally is general outflows from emerging markets into more liquid, safe-haven assets. Data releases included a 0.7% m/m rise in Eurozone construction output and a 0.1% m/m fall in German PPI. For now, investors are looking ahead to tomorrow’s Fed minutes for clues as to whether the central bank will pare back its bond-buying program in September, a move that could add some downward pressure on the euro.

GBP – The pound is up 0.2% today against the dollar as investors seem to be shifting out of emerging markets and towards the more liquid majors, continuing the recent sterling rally. Earlier this month, BoE Governor Mark Carney laid out “forward guidance” that was meant to suggest UK interest rates would remain low for the next three years. However, markets have instead priced in a much sooner tightening of monetary policy thanks to a slew of positive economic data, sending the pound higher. Some investors expect Carney to intervene verbally next week to try to ease financial conditions.

JPY – The yen strengthened against the dollar for the second day in a row, hovering just above 97 and up 0.5% overall in today’s trading session. Like the euro and pound, the yen is benefiting from a sell-off in emerging markets like India as investors have become more risk-averse heading into tomorrow’s release of the Fed minutes. The improving outlook for the Eurozone and US economies, combined with a potential tapering of Fed stimulus are driving capital flows out of riskier markets and towards safe-haven countries, with Japan being one of the primary beneficiaries.

Commodities Currencies – The Canadian dollar plunged to its weakest level in nearly two weeks against the US dollar after data showed Canadian domestic wholesale trade fell 2.8% in June from May. Meanwhile, the New Zealand and Australian dollars both underperformed against the greenback after the central banks made their announcements. In New Zealand, in an effort to prevent a possible housing bubble, RBNZ governor Wheeler announced new lending limits for banks starting in October. Following the statement, the kiwi fell 1% dropping as low as 0.7950 in the interbank market. Meanwhile, the aussie dollar fell 0.23% on subdued risk appetite hurting higher-yielding, growth-linked currencies.