Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

EUR – The euro fell back within its recent ranges overnight after European leaders failed to even discuss Spain at a two-day summit in Brussels.  Meanwhile, Spanish PM Rajoy told reporters that he “doesn’t feel under pressure to seek aid” from the ECB or EU.  In the lead up to the summit, anticipation had reached a near fever pitch that Spain would soon be requesting a sovereign bailout.  Both Moody’s and S&P stopped short of cutting the nation’s debt rating to junk status largely on expectations that the ECB’s Outright Monetary Transactions program would soon step in and buy Spanish bonds.  Finally, with a report yesterday showing that Spanish banks may in fact require more of the €100B from an ECB bank recapitalization program than previously thought, investors appeared confident that action would be forthcoming.  The lack of even a discussion, and Rajoy’s continued anti-bailout stance, are thus taking a bit of the wind out of the EUR’s sails.  Nevertheless, declines have been limited as it appears Eurozone leaders did make progress towards establishing a regional bank supervisor by the end of 2012.  The system will see the ECB as the top supervisor by the start of ‘13 with a network of regional regulators overseeing all 6,000+ Eurozone banks by ‘14. 

GBP - Sterling extended its fall against the dollar overnight, but is higher versus the euro for the first time in four-days.  The move up against the EUR came after the British government deficit unexpectedly narrowed to £12.8B from last month’s £14.4B, with the improvement largely coming from an unanticipated uptick in tax receipts.  Nevertheless, the pound is headed for a fourth-straight weekly decline against the dollar as the risk-off trade takes its toll.

JPY – The yen continued to fall overnight, slipping to its lowest level against the USD since August.  The move comes as data out of the US improves, worries over the Eurozone ease and M&A related activity directs capital flows out of Japan.  On the last point, the yen’s relative strength makes foreign investment historically attractive, with a clear example being Softbank’s recent $20.1B bid for a majority stake in US cell provider Sprint.  However, declines will likely be slow and steady as the improved economic picture takes some of the pressure off of the BoJ to intervene in currency markets or ease policy.

Commodity Currencies – The commodity currencies are generally lower this morning as stocks and raw goods limp into the weekend.  Commodities are in the red with oil falling to $91/bbl, gold dropping to $1735/oz and copper slipping 2% to $366/lb.  The CAD’s recent gains were largely erased this morning after a weaker-than-expected reading of Canadian CPI leads speculation that the BoC will deemphasize a possible rate hike before year end.  Similarly, the AUD has pared much of its recent gains, but still remains higher for the week as the global economic outlook improves modestly.  While falling commodity prices suggest further declines for the Aussie, data this week that showed an unexpected pick up in Chinese economic activity is proving to be supportive.  The ZAR was the best performer with employees at one of the nation’s largest gold mines agreeing to go back to work.

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