v Risk-on environment drives gain across key asset classes weakening the USD;
v Britain's grim outlook is bearish news for the currency;
v Safe haven flows continued to ease; investors are hopeful for Euro-group planning.
The US Dollar slid further against most major currencies as the overall risk-on environment drove gains across key asset classes, pushing equities up, commodities stronger, crude oil at $100/barrel, and bond yields higher. Domestically, Americans are shrugging off concerns about the economy as consumer confidence rebounded in November from a 2-1/2 year low. This sentiment data is a positive sign heading into the holiday shopping season and reflects the strong consumer attitude index reported by the Conference Board, which jumped to 56.0 from 40.9 in October. Meanwhile, the International Council of Shopping Centers reported sales rose 1.7% last week, while the Johnson Redbook Index of large merchandise retailers showed sales rose 5.4% last week from a year earlier.
Sterling is trading stronger against the USD even after Finance Minister George Osborne unveiled a new, much lower growth forecast for the economy. The grim outlook for Britain's economy is bearish news for the currency as it calls for economists, unions and politicians to focus more on boosting growth. However, lower expected growth also suggests that it would take much longer to tackle the country's budget deficit. None the less, the lower forecast has likely supported the pound with the prospect that the Bank of England will inject more quantitative easing. More monetary stimulus is considered bearish for a currency as it increases the supply.
The euro held steady against the USD today after a reasonable Italian bond auction, but drifted lower on headlines that the ECB did not fully solidify its bond purchases. Italy sold more than 8BN euros with yields on its 3 year bonds being the highest rate since 1997. Safe haven flows continued to ease this morning as investors hope that European officials will make progress on the EU debt crisis at the Euro-group meeting today and the ECOFIN meeting tomorrow. However optimistic, we may expect risk-on trades to fade if ECB fails to solidify any purchase plans. With rumors that the S&P is preparing its downgrade for France and AMR filing for bankruptcy protection, the euro will likely be unable to sustain any significant rally.
The Japanese yen remained range-bound this morning, trading around yesterday's close of 77.98. Japanese Prime Minister Yoshihiko Noda spoke today in parliament, stating that he intends to exchange views and cooperate with the BoJ in fighting deflation and the rise of the yen. Despite ongoing verbal intervention, the yen remains strong as the focus is largely on risk aversion flows. On the technical end, the USD/JPY will likely find support where the 100 day moving average lies at 77.20 in the near-term.
The Commodity Currencies gained today, with the Australian and New Zealand dollars rising toward the highest level in a week. The Aussie gained for a fourth day against the yen as Asian stocks extended a global rally, boosting demand for higher-yielding assets. The Canadian dollar also advanced as US consumer confidence boosted appetite for the higher-yielding loonie. Furthermore, Canada's third-quarter account deficit narrowed from the second largest on record as aircraft and metals lead a rebound in exports.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.