- USD under pressure as investors turn to safe-haven assets
- Sterling drops ahead of the BoE’s announcement whether to keep interest rates low
- Commodities weaker on uncertainty over Fed stimulus and increased tensions in Syria
USD – The USD has been pressured lower this morning as investors flock to the safe-haven yen and Swiss franc while riskier currencies like the AUD and NZD fell as geopolitical tensions rose with Western leaders poised to take military action against the Syrian government. Many are expecting a strike against President Bashar al-Assad’s forces within days. Any intensification of Mid-East tensions will weigh heavily on risk sentiment. Additionally, tensions have sparked oil and gold prices to soar to multi-week highs. Under pressure, the USD extended losses against the JPY, falling over 1% overnight, pulling back from three-week highs set on Friday. Today’s U.S. consumer confidence data beat market expectations, rising in August as consumers' outlook for the future improved. The Conference Board, said its index of consumer attitudes rose to 81.5 from 80.3 in July, beating economists' expectations for 79.0. Consumers, however, were less optimistic about their current standing, with the present situation index slipping to 70.7 from July's five-year plus high of 73.6. Eagerly awaited U.S housing data was also released, highlighting that single-family home prices rose in June though the pace of gains slowed slightly. Compared to a year earlier, prices were up 12.1%, in line with economists’ expectations which suggests the housing sector continues to recover, making it a bright spot in the broader U.S. economic rebound.
EUR – The rising tensions emanating from Syria overshadowed the impact of positive data released from the euro zone. Economic reports such as an upbeat German business sentiment survey have largely been ignored with investors focused on conflict in the Middle East. The IFO German confidence survey showed business sentiment was at its highest level in 16 months, bolstering the view that Europe's largest economy is picking up pace after surprisingly strong growth in Q2. This was the fourth consecutive rise in the survey data and the highest level since April 2012.
GBP – The pound fell to its lowest levels in weeks vs. the dollar ahead of tomorrow’s speech by BoE governor Mark Carney, in which he is expected to reaffirm his recent pledge to keep interest rates low until unemployment levels reach 7%. Currently trading at 1.554, sterling is down .25% on the day and well below last Tuesday’s close of 1.5665, as the August momentum seems to be slowing. Earlier this month, improving UK economic data pushed forward market expectations of an interest rate hike and spurred a pound rally, despite forward guidance from the BoE that implied a 3 year timeline for such a move. With few significant data releases set for this week, analysts will be primarily focused on Carney’s speech.
JPY – The yen surged today, up 1.2% vs. the dollar as geopolitical tensions between the US and Syria have driven capital flows out of emerging markets and into the safe-haven JPY. Speculation that the US may step in and take military action against Syria in the wake of recent attacks has made the yen the safe-haven currency of choice. The USD/JPY pairing has been quite volatile in recent weeks, currently approaching 97 levels after temporarily pushing above 99 during last Friday’s session. Looking ahead, Thursday marks the release of multiple important reports, including the August PMI and July CPI data.
Commodity Currencies – Commodity-linked currencies are broadly weaker as both uncertainty over the Fed’s stimulus policy and heightened tensions in Syria have weighed down on market sentiment. The AUD and NZD have each fallen 0.6% in today’s session, with no positive economic data released to lend support. Lower interest rates, weakening growth prospects for China, and capital outflows from emerging markets have exerted downward pressure on the NZD and AUD in recent weeks, as they pull closer to multi-year lows against the EUR, CHF, and GBP. In addition, the CAD is flat against the USD but has dipped 1.2% against the JPY, largely a result of general risk-off market sentiment. Meanwhile, gold is continuing its August surge, currently trading just below $1420 per ounce and up just under 8% since early August.
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