v USD mixed as US personal spending gains while personal income falls;
v EUR headed for its biggest quarterly gain in more than a year after EU officials agree on a permanent EUR 700B European Stability Mechanism;
v CAD falls back towards parity with the USD as Canadian GDP growth slows to a near standstill at +0.1%.
The USD is heading into the weekend varied against its major counterparts after the release of a mixed slate of economic data. Personal income fell short of expectations, registering 0.2% versus the 0.4% forecast, but personal spending rose by more than anticipated at 0.8%. While the gain in spending is good for GDP, combined with falling incomes, the strain on household net worth may prove unsustainable. Nevertheless, U. of Michigan confidence registered sharply higher than expected at 76.2, the highest reading in a year, versus 74.3 in the previous reading as Americans are more upbeat about the overall health of the economy. The improvement comes despite the recent sharp increases in gas prices as a healing labor market and rising stocks is largely offsetting the burden of inflation. Stocks have erased early losses, which in turn is prompting investors to seek higher yields than found in the USD.
The EUR bounced back towards the higher end of its recent narrow range against the USD as the common currency headed for its biggest quarterly gain in a year. The support comes after Eurozone finance ministers agreed to expand the regional anti-debt-crisis firewall to EUR 700B. Under the agreement, the temporary EFSF will continue in its current form, providing financing to Greece, Ireland and Portugal. A newly created permanent fund, the European Stability Mechanism (ESM), worth a fresh EUR 500B, will be implemented on top of the EFSF. Including another EUR 102B that has been paid out in bailouts to Greece earlier in the crisis, the overall value of the region's firewall is north of EUR800B, or roughly $1T. While the number seems high, the ESM agreement is short of the EUR 1T called for by the IMF and G20 earlier this year.
The GBP is ending the week relatively flat from where it began amid increased speculation that BoE policymakers are split over future monetary policy. Economists are currently expecting that the MPC will hold their asset purchase program steady at GBP 325B and keep interest rates flat at 0.5% at their next meeting, but look to increase stimulus in coming months. However, clear divisions amongst the policymakers has emerged as surging oil prices are threatening to further push up inflation rates. With CPI now in its third year above the Bank's 2% target, any push higher could see the BoE remain on the sidelines for the foreseeable future.
The JPY pushed back towards the stronger end of its ranges, supported by increased demand on the last day of the Japanese fiscal year. Nevertheless, the Japanese currency remains near its weakest levels in more than twelve months as investors feel generally more optimistic about the health of the global economy. Further supporting the drop in safe-haven demand, a report this morning showed that the BoJ refrained from selling yen in March, meaning the yen weakness was not skewed by central bank intervention.
The Commodity Currencies are slightly lower this morning despite the modest uptick in risk appetite and rising raw good prices. Oil rebounded to $103.41, gold rose to $1662/oz and copper pushed higher to $383.50/lb. The CAD pushed lower as Canadian GDP declined to +0.1% from +0.5% in the previous reading. The AUD rebounded from losses earlier this week as better than expected Australian housing data offset expectations of falling Chinese demand for Australian exports. The NZD also pushed higher as investors cautiously seek higher yields.
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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.