v USD gained on risk aversion as investors exit their equities positions before Fed Chairman Ben Bernanke's testimony;
v EUR remains under pressure despite progression of a Greek bailout;
v Commodity Currencies were initially supported by higher oil prices but weakened as the threat of a slowdown in China brought risk aversion back to the market;
The USD traded higher against all major currencies today despite weaker than expected existing homes sales. Sales of previously owned US houses unexpectedly fell in February to 4.59 million annual rate from a revised 4.63 million pace in January, while forecast called for a rise to 4.61 million. Despite a drop in sales, there was a rise in the average price of a home sold which indicates that the market is moving in the right direction. Currently, the market is reacting to Fed Chairman Ben Bernanke's testimony on Capitol Hill this morning about the European Sovereign Debt crisis. As expected, policymakers sense that the financial sector has eased but warned that the crisis is not over. With risk aversion pressuring the equities market lower, the dollar continues to be driven higher.
The EUR gave up gains against the US dollar and the yen as investors began to shed risk. Although the Greek bailout appeared to progress, which prompted some investors to pare back bets against the single currency, many analysts said the approval had been seen as a formality which limited gains for the euro zone common currency. Though Greek parliamentary support for the new 130-billion-euro bailout package seems encouraging, tomorrow's PMIs will be significant, as recent data has pointed to some stability in several European economies and the PMI would help confirm this, which would be positive for the euro.
The GBP dropped versus a basket of currencies today after minutes from the Bank of England's meeting showed two policy makers supported more easing. The seven remaining members voted to keep the current 325B pound target, however, the market is still concerned that the debates of further quantitative easing may be revisited which will be very bearish for the pound. The currency also fell lower as Britain's budget deficit almost doubled in February as taxes fell and spending surged. The country's net borrowing, excluding support for banks, was the highest for any February exports, at 15.2B pounds vs. the previous 8.9B pounds.
The JPY pared losses against the US dollar after data showed US home sales unexpectedly fell in February and the supply of properties on the market rose, underscoring the many hurdles for a housing market recovery. The Japanese currency, however, dipped to a fresh five-month low versus the euro and hit a nine-month low against sterling, staying on the defensive in the wake of the Bank of Japan's monetary easing last month. With sentiment toward the yen still weak after its sharp drop over the past month, any selling of dollars from Japanese exporters ahead of the end of their financial year on March 31 may continue to pressure the yen.
The Commodity Currencies initially gained against the US dollar today after oil prices advanced. However, risk aversion quickly moved the AUD, NZD, CAD, and ZAR back into the negative zone. Crude oil, Canada's largest export, jumped 0.8% to $106.48 a barrel, while copper traded at $387/lb. The AUD and NZD are struggling to make headway against the US dollar as markets continue to be sensitive over slower growth in China, as it has been the major driver of global growth, and is a big export market from Australia and New Zealand. The MXN also slightly weakened against the US dollar, also affected by signs China's demand for raw materials is waning.
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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.