EUR – The euro has pulled back from a one-month high as Greece’s debt sustainability remains a cause for concern. Eurozone and IMF leaders are willing to consider cutting their interest charges on Greece’s various “bailout” loans and giving it more time to make good on its debts. However, it appears that the deal will be contingent on a pending sovereign debt buyback operation planned for some time before December 13th. If that proceeds without any delays, EU and IMF officials have preliminarily agreed to cut the goal for Greece’s debt as a percent of GDP to 124% by 2020 rather than 120%. Greek leaders appear positive for the time being with the country’s finance minister Yannis Stournaras telling reporters this morning that the decision “keeps Greece in the euro.” Despite the apparent progress, investors are not yet convinced that Greece is in the clear just yet. Consequently, the euro will likely gravitate back towards the convergence of its 50 and 200-day MAs, currently in the mid 1.28’s, against the USD.
GBP – Sterling is mixed this morning, gaining against the EUR, but falling versus the dollar. The GBP gained against its mainland European counterpart as investors seek the relative safety of British government debt and the pound itself as an alternative to Eurozone assets. However, gains have been limited against the USD as the future of British monetary policy grows cloudier with yesterday’s announcement that current BoC Governor Mark Carney will replace BoE Governor Mervyn King at the end of the latter’s term. Carney’s rather hawkish policy stance will contrast growing calls for more BoE stimulus with Bank member Fisher telling reporters just this morning that more QE will likely be needed before the end of the year.
JPY – The yen pared much of yesterday’s gains before a report is expected to show a sharp rise in the purchase of foreign government bonds. With PM frontrunner Shinzo Abe continuing to call for further powerful monetary easing and debasement of the yen, Japanese investors have nearly tripled their holdings of overseas debt. Conversely, it is expected that foreigners reduced holdings of both Japanese stocks and bonds, thus putting the yen under further pressure.
Commodity Currencies – The commodity linked currencies are mostly lower this morning as investors turn a bit more risk averse. Raw goods are in the red with oil falling to $87/bbl, gold down to $1745/oz, and copper slipping to $353/lb. The CAD is marginally lower against the dollar, but is higher versus most of its other major counterparts as the strong data out of the US – Canada’s main trading partner – provides support. Similarly, the MXN continued to strengthen overnight with Mexican President elect Pena Nieto set to meet with his US counterpart later this week. The AUD jumped to a two-month high overnight, but has since pared some of those gains as stocks and commodities decline.
Foreign exchange, and derivative transactions are not Bank deposits, are not insured by the FDIC or any government agency, and may involve substantial risk, including significant volatility and the potential risk of loss of principal. These materials are not intended to provide investment, financial, accounting, legal, or tax advice. These materials are for discussion purposes only. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. All rates and quotes are indicative and are subject to change at any time without notice. Neither this, nor any other communication received from Union Bank, whether written or oral, is, or should be construed as, a recommendation or solicitation with respect to the purchase or sale of any security or instrument or the execution of any particular transaction with Union Bank or any other potential counterparty. No information received from us is any assurance or guarantee as to the expected results of any foreign exchange or derivatives transaction. Before entering into any foreign exchange or derivatives transaction with Union Bank, you must make your own independent decision to enter into that transaction, understand the terms, conditions and risks (financial and non-financial) of that transaction, and be willing to accept those terms and conditions and to assume those risks.
For more market reports go to Union Bank of California