v EUR is stronger after a pickup in US housing raising risk appetite
v Commodity Currencies are broadly stronger against the USD on improved outlook
The US dollar weakened against most major currencies following a two-day policy meeting that finished on Wednesday. At the meeting, Fed Chairman Ben Bernanke said policymakers were ready to launch another round of bond buying if the US economy weakened. The central bank also reiterated that interest rates were unlikely to rise before late 2014. Today, the Labor Department reported initial weekly jobless claims rose to 381,750, the highest since the week ended January 7. Initial claims for state unemployment benefits dropped by 1,000 and have settled to a seasonally adjusted 388,000. In addition, Employers added only 120,000 new jobs to their payrolls in March, the least since October, after averaging 246,000 jobs per month over the prior three months. The main driver for volatility this week has been the FOMC, as Bernanke's dovish remarks have weighed heavily on the USD. The global environment, however, is more positive following the Fed meeting yesterday. The fact that the Fed is prepared to add liquidity into the market is supporting some of the higher yielding currencies.
The EUR strengthened to a three-week high against the USD, before the common currency flattened on data showing Eurozone economic sentiment fell more than expected in April. The euro climbed higher after a report showed contracts to purchase previously owned US homes increased solidly to a near two-year high in March, offering hopes of a pickup in housing and raising risk appetite. However, the euro pulled back as weak sentiment data increased concerns about the economic outlook for the Eurozone. However, losses were limited by the Federal Reserve pledging stimulus.
The GBP rose to its highest level in over seven months against the USD, primarily driven by weakness in the greenback. The pound recovered from a sharp sell-off earlier this week after data showed the UK economy unexpectedly slipped back into recession with a drop in GDP the first quarter of this year. Domestically, British retail sales fell slightly more than expected in April, but stores reported the strongest outlook in more than a year. A survey by the Confederation of British Industry showed sales dropped to -6 from 0 the previous month, compared to analysts' forecasts of a dip to -4. However, the balance of expected sales for May rose sharply to +19; it's highest since February 2011. In addition, a survey by lender Nationwide showed British consumer morale rose in March to its highest level in nine months as people became less worried about the job market and more willing to splurge on big-ticket items like houses and cars. The pound has had nine consecutive up-days against the dollar and may hold towards the top of its ranges as a less dovish BoE continues to provide support for the sterling.
The JPY strengthened against the USD following rumors that the BoJ is likely to ease monetary policy on Friday by boosting asset purchases another 10 trillion yen ($123 billion). If enacted, the program will be the central bank's second easing in just over two months and would show the BOJ's determination to overcome deflation. The central bank has been under constant pressure from politicians to do more to overhaul economy, and BOJ policymakers have signaled their readiness to provide more stimulus.
Commodity currencies are broadly stronger with USD/CAD leading the way up 0.2% following yesterday's FOMC meeting. The Loonie has now pushed higher for five consecutive sessions rising 1.3%. Look for USD/CAD to benefit on the improved outlook for US growth, post yesterday's FOMC meeting. AUD/USD has traded within a range in April from 1.0200 to 1.0500. Despite expectations for a rate cut from RBA, look for the Aussie to remain supported by China's demand for its commodities. NZD is up 0.4% from yesterday's close despite a potentially dovish hint toward easing following yesterday's central bank meeting. Continued strength in the currency may prompt RBNZ to look at easing in the future.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.