v US Q4 GDP registers 3% and weekly jobless claims remain relatively low at 359k; stocks and commodities extend recent declines;
v GBP gains against both the USD and EUR as safe-haven demand for British assets provides support;
v BRICS nations agree to increase direct cross currency trade settlement within the group rather than through either the USD or EUR.
The USD is stronger this morning against all of its major counterparts except for the JPY as resurgent fears of a global economic slowdown support safe-haven assets. The final reading of Q4 '11 GDP was released in line with expectations at 3.0%, but recent data has the market beginning to discount a further uptick in growth in the first quarter of 2012. Meanwhile, weekly jobless claims remained near a four-year best, but fell short of expectations at 359k. Continuing claims continued their steady decline, falling to 3340k from 3381k in the previous reading. However, as Fed Chairman Bernanke pointed out earlier this week, the apparent improvement in labor market conditions is more due to companies firing less people rather than hiring new employees. While this is a necessary development, a surge in new hires, and the resulting boost in consumer spending, will be needed before the US economy turns the corner from recovery to expansion.
The EUR retreated back to the lower end of its recent ranges overnight despite Fitch reaffirming the EU's long-term credit rating at AAA. While there has been no new news regarding funding constraints within the Eurozone, investors are increasingly focused on EUR-politics with French and Greek presidential elections scheduled for later this year. The current ruling party in Greece risks not winning an outright majority with its coalition partners. This could severely hinder the government's ability to implement stringent austerity measures that are required by the newly agreed upon EU/ECB/IMF. bailout package. Meanwhile in France, incumbent President Sarkozy is trailing his main adversary who has vowed to renegotiate France's position within the Eurozone. While the EUR has remained relatively well supported within its recent ranges, the longer term view for a much weaker common currency remains largely intact.
The GBP rebounded against both the USD and EUR overnight, benefitting from the return of risk aversion. A report showed that British house prices unexpectedly fell, reversing last month's 0.9% gain, as the British economy continues to teeter on the edge of recession. Nevertheless, UK government assets remain a relatively safe bet, and as such, demand for Gilts is again on the rise. Further providing support for the pound this morning are growing expectations that capital will begin flowing in to the UK as British corporate valuations are historically low. Overnight, EU utility GDF Suez SA announced it would be buying the shares it doesn't already own of British power provider International Power Plc for GBP 6B.
The JPY extended yesterday's gains overnight, but is off its strongest levels as stocks rebound from steep early losses. Nevertheless, the yen remains at the best levels seen in more than two weeks as risk aversion prompts investors to turn to the safe-haven USD and JPY. While Japanese officials appearing determined to keep the yen under pressure through further rounds of monetary easing, risk-off demand will provide significant downside support in the near term.
The Commodity Currencies are generally lower this morning as falling stocks and commodities prompts investors to seek less volatile investments. Raw goods are generally lower with oil falling back to $103/bbl, gold slipping to $1653/oz and copper down to $378/lb. The CAD fell back towards parity with the USD as the price oil, Canada's main export, fell back to its lowest levels since the middle of February. The MXN is also lower this morning on the waning price of raw goods, but also on the relatively stagnant GDP report out of the US, the main destination for Mexican exports. The AUD and NZD both weakened towards the lower end of their recent ranges on fears that China's economy is slowing. Meanwhile, the CNY strengthened slightly overnight, but remains on track for its first quarterly loss, albeit a marginal one, seen in the last two years. Leaders from Brazil, India, Russia, China and South Africa (the so-called BRICS) agreed overnight to increase financial ties within the group and rely less on using the USD and EUR for bilateral trade. With the BRICS representing more than 40% of global GDP, an increase in direct cross currency trade settlement, rather than through the dollar or euro, will likely add to further volatility in these currencies.
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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.