v USD consolidates towards the lower end of its recent ranges as consumer confidence registers at 70.2 and house prices fall to the lowest level since 2002;
v Lack of major economic news keeps EUR relatively well supported despite continued concern over the debt situation in many of the region's economies;
v JPY breaks back above 83 against the USD on speculation that the BoJ will introduce further stimulus measures.
The USD consolidated within its recent ranges overnight as investors weigh slightly better than expected economic releases against signs that the Fed will maintain its dovish bias. Consumer confidence data barely beat forecasts, holding near a yearly high at 70.2 versus the 70.0 expected. However, the measure fell versus last month on growing speculation that the rebound in the labor market is unsustainable. Meanwhile, home prices declined at a slower pace than expected, suggesting that the housing market may be bottoming, but average prices are still at their lowest levels since 2002. However, Fed policymaker Dudley told reporters this morning that US households and banks have reduced debt loads and are in a stronger financial position than before the financial crisis began. Dudley went on to reiterate that future Fed policies will depend on what's best for the US, and that the central bank aims for maximum employment and price stability. While the US economy is still showing signs of struggling to turn the corner from recovery to growth, its general outperformance as compared with many of its G10 peers is providing support for the USD. With investors still focused on economic structural deficiencies within the Eurozone and slowing growth in China and other major economies, the dollar will remain rather well supported, albeit within its recent tight ranges.
The EUR is relatively flat this morning after paring overnight gains which saw the common currency near the key 1.34 resistance level against the USD. While there have been no new major negative developments out of the Eurozone, investors are still cognizant of the deteriorating fiscal and economic situation in many of the regions member nations. Late last week, the ECB granted member central banks the option of not accepting bonds as collateral underwritten by countries receiving international assistance. While this may have little immediate impact, if there is a new sovereign debt flare up in say Portugal or Spain, this could compound the difficulties banks in the distressed country will have in securing funding. Meanwhile, data released last week showed that bank deposits in many Eurozone nations are declining with Greece showing the largest fall (-17.6% YoY), followed by Ireland (-6.1%), Spain (-2.8%) and Italy (-1.9%). Even nations that added deposits like France and Finland have seen growth steadily slow since late last fall. Thus, the EUR's gains have been more a product of weakness seen in other currencies rather than as a result of improving fundamentals within the Eurozone.
The GBP pared overnight gains against both the EUR and USD as investors speculate that the BoE may add further liquidity to the financial system. BoE Chancellor Mervyn King told reporters this morning that the British economy continues to struggle and that he doesn't know yet if more QE will be needed. He reiterated that the Bank's policymakers examine the case for further easing at every meeting. King did also mention that any tightening in policy would first entail higher interest rates followed by the sale of acquired assets. However, with the British economy still teetering on the edge of recession, investors are choosing to focus on the more dovish half of King's remarks.
The JPY slipped past the key 83 handle against the dollar this morning on expectations that the BoJ will ease monetary policy further. With policymakers enjoying the effects of their most recent increase in their asset purchase program as seen through better-than-expected growth and a steady weakening of the yen, the market is beginning to price in further stimulus measures. Volatility in the yen has also picked up considerably over the past several weeks as Japanese corporations consolidate overseas profits before repatriating revenue in the run up to fiscal year end.
The Commodity Currencies are generally lower this morning despite relative stability in raw good prices. Oil remains above the $107/bbl mark, gold pushed higher to $1686/oz and copper pulled back to $388/lb. The CAD halted its recent gains as stocks and commodity prices come under pressure. The loonie also weakened this morning after the disappointing consumer confidence report was released in the US, the primary destination for Canadian exports. Similarly, the MXN is slightly lower as well as investors pare back expectations for demand for Mexican exports. Nevertheless, the peso remains the best performer against the USD year to date, having gained just over 10%. The strength is surprising in an election year and a sharp departure from the selloff in Mexican bonds and the peso seen ahead of the last two presidential votes. The AUD and NZD are both lower this morning on waning risk appetite and after data showed that earnings fell at industrial companies in 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.