US weekly jobless claims drop to 381K from 404K last week as holiday hiring add positions;

ECB cuts rates to 1.0%, but leaves bond-purchase levels on hold; BoE leaves both rates and bond-purchase levels on hold;

JPY strengthens to strongest level since last round of intervention at 77.20 increasing odds of another BoJ action;

Commodity Currencies come under pressure on heightened risk aversion and after Australian unemployment unexpectedly rose to 5.3%.  

The US Dollar is stronger against all of its major counterparts other than the safe-haven JPY as optimism fades ahead of key European meetings.  While much of the market's direction is being drawn from developments across the Atlantic, relatively strong economic data out of the US is helping the dollar's case.  Weekly jobless claims dropped to 381K from 404K last week and registered below the forecast of 395K.  Moreover, a report this morning showed a strong initial estimation of sales taking into account results from the holiday season's biggest day, Black Friday.  While the uptick in employment can likely be attributed to temporary holiday hiring, the hope is that stronger than expected sales could lead to a number of those positions being turned permanent.  In the near term, the dollar will also remain well supported as a proxy for market risk as investors focus on the Europe's ongoing struggles.

The EUR is sharply weaker this morning after the ECB didn't signal any increase in bond purchases.  The ECB lowered interest rates by 0.25% to 1%, now fully reversing the two rate hikes from earlier this year.  The cut had been widely expected, but most were hoping for an increase in the Bank's bond-buying program as yields remain prohibitively high in a number of the Eurozone members.  Further upping the ante before tomorrow's EU summit, S&P put the Union's long-term AAA credit rating on watch for a downgrade due to continued disagreements about how to tackle the region's debt crisis.  While last week's coordinated central bank action to lower dollar swap costs has eased USD funding liquidity, Eurozone banks remain reticent to lend to one another with the three-month Euribor-OIS spread rising above 1%, five times wider than just six months ago.  With the pressure mounting, EU leaders will struggle to meet such lofty expectations at their meeting tomorrow, thus leaving the common currency vulnerable for further weakening in the near term. 

The GBP continues to slip this morning after the BoE kept both interest rates and its quantitative easing policies on hold.  The market appears somewhat disappointed that the Bank didn't step up its asset-purchase program, but policymakers had made it clear in the run up to the meeting that they preferred not fine tuning current policy, but rather waiting for the end of the current program before initiating another round.  While the pound has come under pressure against the USD, it has gained against the EUR as demand for the perceived safety of British government bonds provides safe-haven support.

The JPY continues to strengthen as investors fear European leaders won't do enough to backstop the struggling Eurozone economies, thus testing S&P's willingness to begin a cycle of credit rating downgrades throughout the region.  However, as in months past, an appreciating yen increases the odds of BoJ intervention.  Overnight price action has thus been extremely volatile with the yen initially appreciating to 77.12 before spiking higher back to within its recent narrow range. A report released this morning added pressure on Japanese officials to consider action as Japanese machine orders unexpectedly fell for a second straight month as the strong currency has made Japanese goods less price competitive.

The Commodity Currencies are all sharply lower this morning as investor confidence quickly fades.  Raw goods begin the day in the red with oil falling to $98.50/bbl, gold slipping to $1714/oz and copper retreating to $348/lb.  The CAD fell from a four-week high early this morning despite the strong labor market data out of the US, Canada's main export market, as investor confidence evaporates and the price of oil, Canada's main export, falls.  The AUD is sharply lower this morning after a disappointing employment report in the South Pacific nation.  The Australian economy shed nearly 40K jobs in November, lifting the unemployment rate to 5.3% as signs that the fast pace of economic expansion fed by a mining boom earlier this year is losing momentum.  The NZD and the ZAR both declined as the troubles in Europe sap investor risk appetite.  The South African rand declined even after consumer spending advanced by more than expected, boosting the fledgling recovery in Africa's largest economy. 


































10-Year Treasury Yield:  




 $    1,711.20

 $   (30.40)


 $     348.35

 $    (6.55)

Crude Oil: 

 $       98.70

 $    (1.71)





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.