USD – The dollar is again mixed this morning, gaining against the JPY and EUR, but losing ground versus many of its higher yielding counterparts.  Investors were treated to relatively strong economic data out of the US, with a strong reading of durable goods stealing headlines.  The measure rose to 9.9% after last month’s 13.1% contraction and better than the 7.5% gain that was widely expected.  With the volatile transportation component stripped out, orders still came in twice what was expected at 2.0% – the first gain in four months – versus the consensus forecast for an expansion of 0.9%.  Elsewhere, weekly jobless claims registered marginally better than expected at 369K, and better than last week’s upwardly revised reading of 392K. Continuing claims also extended their recent declines, falling to 3,254K from 3,256K last week.  However, job growth remains lackluster with the economy adding roughly 150K per month, sufficient to keep pace with population growth, but not enough to significantly improve the unemployment level. Fed policymakers clearly recognize this as they maintained their rather dovish tone at the conclusion of a two-day FOMC meeting yesterday.  Policies were held unchanged, but the door was left open for further easing should it be warranted and it was reiterated that interest rates will remain at or near 0% through mid-2015.  Nevertheless, the dollar will remain relatively well supported in the near term by the general outperformance of the US economy. 

EUR – The euro edged back towards the lower end of its recent ranges, with little fresh news out of the Eurozone.  Investors are still digesting yesterday’s disappointing regional PMI reports with it further reaffirming that the ECB’s policies are not supporting the real economy.  Data is in line with a modest region-wide economic contraction in both Q3 and Q4 as austerity measures makes it near impossible for domestic consumption to make up for a decline in foreign demand. The EUR’s relative strength is a major contributing factor to the drop in competitiveness. Eurozone politicians are surely cognizant of the benefits a weaker euro could afford, but getting policymakers onboard is easier said than done.  As Russian President Putin put it, “one could die listening to 27 countries and 27 languages.” His comments can be taken both literally and figuratively with the ongoing austerity vs. growth debate between the region’s core and periphery economies highlighting the cultural and economic divides within the bloc.  Consequently, the common currency’s upside potential remains limited, but with the ECB’s relative inaction as compared with its other global central bank counterparts provides moderate support.

GBP – The pound rose for a second straight day against both the EUR and USD after British GDP surprised to the upside.  The UK economy got a bump from the Olympic Games this summer with gains in the services sector spurring the best quarterly growth seen in nearly five years.  The figure came in at 1.0% after a contraction of 0.4% in the previous quarter, and exceeding the consensus forecast for a more modest rise of 0.6%.  However, with the ongoing weakness in the Eurozone – the main destination for British exports – the surprise bump in economic growth may prove temporary.

JPY – The yen tumbled to a four-month low overnight as investors suspect that the BoJ will ease policies further at a meeting next week.  With a further ¥10T expected to be added to the Bank’s own quantitative easing program, the yen has fallen past the key 80 and 105 handles against the USD and EUR respectively.  The positive data out of the US has further encouraged a bit of risk taking this morning, which in turn curtails demand for the yen’s relative safety.

Commodity Currencies – The commodity linked currencies are mostly flat this morning, but with modest gains seen in the higher-yielding EM currencies.  The CAD is flat despite the encouraging data out of the US – Canada’s main trading partner – as the falling price of oil largely offsets an otherwise positive outlook for the Canadian economy.  Similarly, the AUD and NZD are both flat this morning after the RBNZ held rates steady 2.5% with policymakers expecting inflation to accelerate in the months ahead.  The MXN and ZAR are both higher as rising stocks prompts investors to seek the relative high interest rates and strong economic growth prospects in Mexico, South Africa and elsewhere in emerging markets.

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