USD – The dollar is mixed this morning, but mostly under pressure against its higher yielding counterparts as the risk-on trade gathers momentum. Early optimism built after both a private and official measure of Chinese manufacturing output gained by more than expected, reflecting an impressive rebound in the world’s second largest economy. Investors were further encouraged to assume riskier positions after ADP employment and weekly jobless claims both improved, a positive sign ahead of tomorrow’s all important nonfarm payrolls and unemployment reports. The private sector added 158K jobs in October after a downwardly revised reading of 114K in August, and better than the 131K that was anticipated. Meanwhile, the number of American’s filing for first-time jobless benefits fell to 363K from 372K last week. ISM manufacturing also came in better than expected at 51.7 versus the fall to 51.0 that was forecast. A reading above 50.0 denotes expansion. However a measure of prices paid fell to 55.0 vs. expected at 56.6, and consumer confidence fell short of expectations, rising to just 72.2. Nevertheless, stocks and commodities are higher as trading continues to normalize in the aftermath of Hurricane Sandy, which in turn is weighing on the dollar’s “safe-haven” appeal.
EUR – The euro consolidated within its recent ranges overnight with little new news out of the currency bloc. The relief rally in stocks and commodities on the strong numbers out of both the US and China are providing support for the common currency. However, the ongoing debt crisis continues to limit any sustainable gains. The Greek government released its latest budget projections overnight, highlighting the fact that without further relief, debt sustainability remains out of reach. The government projects that debt will peak at 192% of GDP in 2014, far above the IMF’s worst-case projection of 171%. While little progress was made following a Eurozone policymaker conference call earlier this week, it’s likely that further relief for Greece is in the works with a goal of 120% debt as a percent of GDP by 2020 still in view.
GBP - The pound is mixed this morning, remaining flat against the dollar while gaining on the euro. British home prices edged higher in October, rising by 0.6%. The number more than reversed the 0.4% decline posted in the previous reading, and lessened the annualized decline to -0.9%. PMI manufacturing declined, however, dropping to 47.5 from a downwardly revised reading of 48.1 last month. Nevertheless, the general improvement in the British economy as of late is causing investors to pare bets that the BoE will ease monetary policy further when they meet next Thursday.
JPY – The yen weakened for a second straight day as rebounding financial markets sap demand for its relative safety. Data released overnight reaffirmed the fact that “safe-haven” demand is fading with the BoJ announcing that the amount of foreign-purchased Japanese assets declined by ¥362.9B in the week ended Oct. 26, the largest contraction in more than a month.
Commodity Currencies – The commodity linked currencies are generally higher this morning as investors seek their relatively high yields. Raw goods are mostly in the black today with oil breaking above $87/bbl, copper rising to $356/lb and consumables are higher. The CAD extended yesterday’s late-day gains against the USD as the price of oil – Canada’s main export – rises. The loonie is also gaining this morning as the strong data out of the US – Canada’s main trading partner – will provide support for Canadian exports. Similarly, the AUD neared a two-week high as data out of China – the main destination for Australian exports – provides support. The risk-on rally is also helping the Aussie higher as investors seek its G10-leading yields. However, with the RBA set to meet next Monday, the AUD’s gains will likely be limited in the near term as investors suspect policymakers may ease rates further before year end.
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