v US core inflation gains by just 0.1% over last month; Industrial production unexpectedly registers flat and U. of Michigan confidence falls to 74.3;

v Eurozone fiscal pact in question as French opposition party leads incumbent President Sarkozy in the run up to next month's election;

v Commodity Currencies are mixed with the CAD and MXN falling after the disappointing US data while investors are attracted to the AUD and NZD's high yields.

The USD looks to be headed for a soft close to the week, extending its two-day decline against the majority of its counterparts. The pullback has come as investors seek higher yields amidst an easing of global economic tensions. However, data this morning has been mixed with Industrial production and University of Michigan confidence both falling short of expectations at 0% and 74.3 respectively. Despite the recent signs that the recovery in the labor market is gaining momentum, relatively high fuel prices are pinching consumers' wallets and weighing on their outlook for the future. Nevertheless, inflationary pressure remains in check with a month over month gain of 0.4%. With the volatile food and energy stripped out, so-called core inflation gained just 0.1% from last month and is on track to gain 2.2% this year. The report confirms the Fed's view that inflation remains subdued and appears to be altering the markets view that the central bank would not pursue further monetary easing in the coming months. Policymakers signaled earlier this week that oil will push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. As such, with price pressures largely under control, the dollar may be undermined in the coming months by the Fed's adherence to supportive monetary policy while they focus on encouraging maximum employment.

The EUR pared much of its weekly losses overnight, pushing back towards the top of its recent ranges. The common currency continues to struggle to post sustainable gains supported by its own positive economic news, but rather benefits as the dollar weakens. As positive economic data send investors searching for higher yields than those found in US and Japanese assets, high-yielding commodity and emerging market currencies have seen a spike in demand. In an attempt to stem those gains, Asian Central Banks in particular have sold their respective currencies and bought dollars. In accordance with their diversification mandates, a portion of those dollars must subsequently be converted into euros and other currencies in their strategic reserves, thus providing support for the common currency. Meanwhile, the proposed fiscal pact between most EU members is now in question as the French presidential election threatens to derail the process. Socialist candidate Francois Hollande is currently ahead of incumbent President Sarkozy in the most recent polls ahead of next month's election. A Hollande victory would raise questions about the close ties between France and Germany and their ability to work together, a likely negative development in light of recent regional turmoil.

The GBP is higher this morning against both the USD and EUR as improving conditions in the Eurozone provides support. As the main destination for British exports, the health of the Eurozone economies is paramount to growth in the UK. As such, with the recent improvement in sentiment, expectations have eased that the BoE will increase its asset-purchase program further. However, the pound does remain bound to its recent ranges with near term resistance at the key 1.60 level against the USD.

The JPY is off its recent lows this morning, but is still headed for its sixth straight weekly loss against the USD as it appears the BoJ will remain proactive in the coming months. At their most recent meeting, the BoJ expanded its asset purchase program by 10T JPY and set an inflation target of 1%. However, minutes released this week showed that several policymakers pushed for a higher inflation goal of 2%, suggesting that their comfort with higher prices would give the Bank room to ease policy further if deemed necessary.

The Commodity Currencies are mixed this morning with the AUD and NZD both gaining, while the MXN and CAD take a step back. Raw goods are relatively flat with oil at $105/bbl, gold at $1659/oz and copper coming in at $389/lb. The CAD pared early gains after the disappointing industrial production data out of the US, Canada's primary trading partner. Similarly, the MXN is lower after posting overnight gains after the disappointing US data. Meanwhile, the AUD and NZD are both set to close out the week at the top of their recent ranges as investors seek greater returns.





































10-Year Treasury Yield:




 $ 1,658.10

 $ (1.30)


 $ 389.35

 $ 0.15

Crude Oil: 

 $ 105.78

 $ 0.66





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.