v USD is higher against nearly all of its major counterparts as risk aversion takes hold of the market after Chinese and European manufacturing data disappoints;
v EUR pushes lower after regional PMI fell to 48.7 and industrial orders fell 3.3%;
v JPY rebounds against all of its major peers as a surprising Japanese trade surplus adds further support to an already rising yen amid this morning's risk-off rally.
The USD is sharply higher against all of its major counterparts other than the JPY as signs that global demand is slowing sharply weighs on investor confidence. Global equities and commodities are beginning the day deep in the red after separate reports showed manufacturing slowing by more than forecast in both China and the Eurozone. Chinese PMI fell to 48.1 from 49.6 in the previous reading, with a fall below 50 denoting contraction. The decline reflects the systemic impact of a drop in demand for Chinese goods from the Eurozone, the primary destination for China's exports, and the impact that it is having on domestic demand as more factory workers find themselves out of a job. Joblessness on the mainland has risen to the highest levels in more than three years, and wage inflation that saw paychecks rise 10% so far this year in some provinces has eased. Meanwhile, US data registered slightly better than expected with weekly jobless claims declining to 348k, a fresh four-year best. Leading indicators also outpaced expectations at 0.7% after last month's downwardly revised 0.2% gain. As such, the dollar is outperforming many of its peers this morning on signs that the US economy is doing better than the rest.
The EUR is under renewed pressure this morning, albeit remaining within its recent ranges against most of its peers as regional data declined by more than expected. Eurozone PMI dropped to 48.7, short of last month's reading of 49.3, and far from the consensus forecast of 49.6. A separate report showed new orders for industrial goods also dropped in the region, registering -3.3% on an annualized basis after last month's -0.4%. The weak data highlights the difficulties that lie ahead for the Eurozone economies despite an apparent improvement in sentiment after the threat of imminent default in Greece was greatly reduced. Beyond declining economic fundamentals, the common currency's upside potential remains limited by a growing political divide within individual member nations and the currency bloc as a whole. Despite popular protest, Germany has upped its Q2 debt plan by EUR 2B to EUR 68B in total to pay for its portion of the EFSF. While Germany does not run the risk of undersubscribed debt auctions just yet, an increase in the nation's otherwise fiscally conservative balance sheet is a significant development that could polarize the German populace much as EUR-politics has divided France or The Netherlands in recent months.
The GBP is mixed this morning, gaining slightly against the EUR while pushing lower against the USD. Sterling extended its decline against the dollar and nearly erased all of its gains against the EUR after British retail sales fell short of expectations. Sales including fuel fell 0.8% in February, the most in nine months, and worse than the expected decline of 0.5%. Moreover, the 0.9% increase realized in January was downwardly revised to a much smaller increased of just 0.3% suggesting that the UK economy is still teetering on the edge of recession. However, sterling remains relatively well entrenched within its recent ranges as the overnight gain in risk aversion provides increased demand for the relative safety of British assets.
The JPY is sharply higher this morning with a rally sparked early as falling global equities and commodities prompted investors to seek the yen's relative safety. The gains were further supported after Japanese exports unexpectedly rose for the first since last September. While this is good news for an otherwise shaky economy, the resulting spike higher in the yen is not. The yen's 7% decline against the dollar since the BoJ introduced more monetary stimulus in mid February, has made Japanese goods more competitive in foreign markets, but if the JPY rebound gains further momentum, those improvements in trade may soon reverse.
The high-yielding Commodity Currencies have been the worst performers overnight as falling stocks and raw goods spur investors to seek less-risky assets. Commodity prices came under increased pressure as the disappointing Asian and European manufacturing data suggest a cooling of global demand in the months ahead. Oil fell back to $104/bbl, gold slipped to $1635/oz and copper tumbled to $376/lb. The CAD fell back towards parity with the USD on the lower price of oil, Canada's main export, and after a report showed that January retail sales expanded by less than expected. Similarly, the MXN is sharply lower this morning as investors seek safer investments and after an easing of drought conditions in Northern Mexico all but reversed inflationary pressures seen in foodstuffs. The AUD and NZD are both more than a percent lower against the USD on the disappointing data out of China, the main destination for Australian and New Zealand 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.