v Euro weakens to lowest level vs. the USD since January as German sentiment surveys showed mixed report;
v USD remains stable ahead of FOMC despite a rise in S&P;
v AUD and NZD recovers as risky assets rise before FOMC and US retail sales report.
The US dollar was mixed against most major currencies as the Fed prepares to make its policy announcement at 11am PST. The Fed is expected to keep rates unchanged while mentioning recent improvements in the economic outlook including the climb in retail sales, drop in unemployment and rise in consumer confidence. However, many analysts are anticipating any signal from the Fed that it may take further monetary action next year which would prove negative for the dollar. The US IBD economic optimism index rose to 42.8 from 40.6 in the previous month.
As the holiday season approaches, US retail sales are expected to rise and jobless claims to soften. With positive sentiment on the horizon, the US may still have difficulty in reaching its forecasted growth this quarter. The economy expanded at a 2.0% annual rate in the third quarter and it is hoped to top 3% in the current quarter.
The EUR fell close to 1% from yesterday's close after Germany released a softer than expected ZEW survey. The current outlook component fell to 26.8 from 34.2 while economic sentiment improved to -53.8 from -59.1. Disappointment in last week's EU Summit, from the inability to arrive a comprehensive solution to the debt crisis, was the main reason behind the reading. The euro initially rallied modestly after the EFSF sold EUR1.97bn of bills with a yield of 0.22%. However, risk aversion re-emerged after German Chancellor Angela Merkel rejected raising the upper limit of funding for the European Stability Mechanism. In the meantime, European bond yields continued to rise, with Italian yields up 0.1% to 6.563%, suggesting that the European bond market is facing significant pressures.
The GBP remains weak against the USD, but strengthened to a 9-month high against the euro as risk aversion remains high. Domestically, UK inflation data for November was as expected with the consumer price index falling to 4.8% YoY from 5.0% previously. With the drop on yearly inflation, BoE officials are speaking about the prospects for monetary policy and further quantitative easing. Under pressure to act against the fallout from the EU debt crisis, the BoE recently held its asset purchase target at GBP 275B after increasing the measure by GBP 75B in October.
The JPY remained relatively flat, gaining slightly against the USD as markets are quiet ahead of the FOMC meeting today. As a safe-haven currency, the JPY is gaining as speculators cut risky assets on worries of possible Eurozone sovereign ratings downgrade. The yen has risen +4.21% against the USD so far this year, and should risk aversion continue, the currency will likely remain strong in the near-term.
The Commodity currencies are generally strong today as risk aversion eased on news that the auction of Spanish government short term debt was well received, and recovering global equities. AUD and NZD rose against the greenback while the CAD fell shortly after the markets began the North American trading session. Commodities were mixed with oil rising to $99.90/bbl, and gold retracing back to $1650/oz. The AUD was the leading currency today, lifted by a higher global equities market. However, gains for the Aussie and Kiwi were limited after Moody's Investor Service said yesterday it will review EU sovereign debt rankings.
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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.