USD – The dollar extended its recent gains overnight against many of its major counterparts as a worsening outlook for Europe supports the risk off trade. Despite its own set of persistent issues, the US economy looks relatively healthy as compared with the Eurozone in particular. Data released this morning showed continued improvement in the US labor market with weekly jobless claims unexpectedly dropping to 355K from the 363K recorded last week. Similarly, continuing claims dipped lower, falling to 3127K, the best reading since the fall of 2008. Meanwhile, the trade deficit unexpectedly narrowed to -$41.5B from -$43.8B in the previous reading as exports unexpectedly climbed to a record high. Growing demand for US goods – energy in particular – from emerging markets in South and Central America are largely making up for the drop off in demand from Europe. Exports headed south of the border surged to $2.2B in October, up from just $400M two months earlier. The Fed’s third round of quantitative easing, and the depreciative effects the policy has had on the dollar, have made US-made goods more competitive as similar goods from China for instance continue to go up in price as the RMB appreciates. The trade report also suggests that consumption in the US is picking up, led by consumer demand for electronics; a strong sign with the holiday shopping season set to shift into high gear in the coming weeks.
EUR – The euro is lower this morning as a key decision over Greece’s next tranche of aid payments likely won’t be made until later this month. Finance chiefs are set to discuss a €31.5B payment that has been frozen since June when they meet in Brussels on Nov. 12th. However, a final decision won’t be made until a progress report from the so called Troika (EU/ECB/IMF) is completed later this month. Meanwhile, in Greece, PM Samaras was able to scrape together enough support to pass further austerity measures, which have been met by popular protests and labor strikes throughout the country. Elsewhere, the ECB met today, leaving interest rates unchanged at a historic low of 0.75% and reiterated that its OMT bond program is ready to buy regional debt should a Eurozone member nation meet its requirements. Policymakers also tempered their outlook for the region’s economy, saying the “economic outlook remains on the downside.” While the ECB could lower rates another 0.25% - 0.50% at next month’s meeting, the impact of further conventional easing would likely be limited. Consequently, the euro’s direction will likely be determined by developments in Greece and whether Spanish or Italian debt yields again become a cause for concern.
GBP – Sterling is mixed this morning, falling against the dollar while extending its recent gains against the euro. The BoE decided to halt their bond buying program at a meeting today as their current QE plan expires. British policymakers have turned a bit more hawkish as of late with the Bank also keeping interest rates on hold at 0.5%. While the British economy continues to underperform, policymakers seem to believe that the effectiveness of monetary policy may be nearing its limit.
JPY – The yen continued to gain overnight against both the USD and EUR as investors fear the fiscal cliff in the US and the ongoing debt crisis in Europe. Despite Japan’s own struggles with a mounting debt load, the relative stability of the yen continues to attract investors seeking a “safe-haven.” In the near term, the USD/JPY looks to be headed back towards the convergence of its 200-day and 50-day MAs, currently at 79.15.
Commodity Currencies – The commodity linked currencies are generally lower despite a rebound in raw good prices. Oil is higher at $85/bbl, gold gained to $1719/oz, and copper rebounded to $345/lb. The CAD fell back towards parity with the USD after a measure of Canadian housing starts declined by more than expected, coming in at 204K after 225K in the previous reading. The loonie also came under pressure as the trade gap in the US – Canada’s main trading partner – unexpectedly narrowed. Similarly, the MXN weakened to a two-month low versus the dollar after a report showed Mexican bi-monthly CPI unexpectedly slowing. The AUD consolidated towards the top of its recent ranges against most of its counterparts as the Australian economy added more workers in October than expected. Employment rose by 10.7K versus an anticipated gain of 0.5K, pushing the unemployment rate a tenth of a percent lower to 5.4%.
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