v US jobless claims continue to fall and manufacturing data rebound as the economic recovery gains momentum;
v EUR consolidates within its recent ranges as investors shift their focus from Greece's struggles with debt to Portuguese funding concerns;
v Commodity Currencies are generally higher as the risk-on atmosphere encourages investors to seek their relatively high yields.
The USD is mixed this morning, but has generally come under pressure against its higher yielding counterparts on the resurgence in risk appetite. Investors have been encouraged by a number of economic releases that registered better than expected. Empire manufacturing and Philly Fed, both regional manufacturing reports, outpaced expectations gaining to 20.21 and 12.5 respectively. PPI jumped by the most in five months, but registered slightly lower than expected as policymakers project that the recent rise in fuel prices will be temporary. Despite the increase in oil prices, the pressure likely won't prove to be enough to pass on price hikes to the consumer level. With headline inflation thus unlikely to push higher in the near term, the Fed maintains the room to keep interest rates low. Elsewhere, weekly jobless claims fell by more than expected to 351k, down from 365k last week. Continuing claims also fell by more than was anticipated, sliding to 3343k, a fresh three-year low. Nevertheless, while the recovery appears to be alive and well in the US, the USD has come under increasing pressure as investors look for higher yields. With the volatility index falling to a five-year low yesterday, demand for the dollar's relative safety is beginning to ease. However, a paradigm shift appears to be underway in which the USD is beginning to outperform its peers on the back of supportive economic data rather than as a proxy for market risk appetite.
The EUR is relatively flat this morning, but remains well entrenched towards the bottom of its recent ranges just over the key 1.30 handle. While concerns remain over Greece, with no new developments overnight, investors' focus has quickly shifted to other parts of the Eurozone. EU Economic Commissioner Olli Rehn spoke to reporters in Lisbon in an attempt to dissuade speculators from setting their sights on Portugal as the next target for a credit event. However, Rehn did tell reporters there is a need to take a careful look at the tight financing conditions so that it will not become a bottleneck for export growth. Elsewhere, sovereign yields in Italy and Spain are sharply lower, easing some of the concern that they too may need financial support in the coming months.
The GBP is mixed this morning, remaining largely flat against the USD while slipping for the first time in three days against the EUR. The move lower against its mainland European counterpart comes after Fitch Investor Services signaled that the UK could lose its top investment grade. However, the warnings are not completely unexpected as the BoE has signaled its comfort with higher inflation by stepping up their asset purchase program, and as fiscal policy will likely limit economic growth. While this doesn't uncover any surprises about the British economy, the potential for a credit rating downgrade will likely weigh on the sterling in the near term.
The JPY pared some of yesterday's losses against the dollar, but remains lower against the majority of its major counterparts as the general risk-on atmosphere prompts investors to seek higher yields. The yen's weakness has come as the gap between US and Japanese yields has widened, but the falling yen has presented a good opportunity for speculators and Japanese exporters to lock in hedges for the later part of the year.
The Commodity Currencies are mixed with the AUD, NZD and MXN all rising while the CAD is slightly lower. Raw goods are generally higher with gold gaining to $1648/oz, copper rising to $387/lb while oil consolidated at $104.50/bbl. The CAD is marginally lower this morning despite the supportive data out of the US, Canada's main trading partner, as the price of oil looks to have reached its peeks, at least for the time being. The AUD and NZD are both sharply higher as investors are attracted to their G10-leading yields. However, the gap between US and Australian and New Zealand yields is narrowing, and may close further in the months ahead. While this will likely limit the Aussie and Kiwi's gains in the longer-term, relatively high returns will continue to garner investor attention in the near term. The MXN retraced much of its losses from yesterday's session as the positive economic reports out of the US leads investors to expect higher demand for Mexican 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.