v USD heads for a weekly loss after Q1 GDP fell short of expectations at 2.2%; personal consumption gains by more than forecast, registering an impressive 2.9%;

v S&P downgrades Spain's credit rating to BBB+, just three steps above junk status;

v BoJ increases their asset purchase program, but by less than initially expected; JPY gains as Spain downgrade and US data drive flight to safety.

The USD is headed into the weekend lower against nearly all of its major counterparts after disappointing economic data prompts investors to increase bets that the Fed may soon ease monetary policy. US Q1 GDP fell short of expectations, showing that the economy expanded at a 2.2% annualized pace in the first three months of the year. Forecasts had been for a reading of 2.5%, both of which are down from 2011's Q4 3.0% growth rate. However, while the GDP numbers are troublingly low, personal consumption gained more than expected, rising to 2.9% versus 2.1% in the previous reading. The Fed kept policy on hold at their meeting earlier this week, but the accompanying commentary was far more dovish than investors had expected with Chairman Bernanke suggesting that the FOMC was prepared to do more if necessary. In light of the recent data, those additional actions may mean that the Fed will take actions to ease policy further in the coming months. Meanwhile, U. of Michigan confidence came in better than expected, rising to 76.4 versus the flat reading of 75.7 that was anticipated.

The EUR traded through a rather volatile overnight session, but remains towards the top of its recent ranges. The common currency initially fell against all of its major counterparts after S&P surprised the market late Thursday afternoon by downgrading Spain sovereign debt rating to BBB+, three notches above junk status. Moreover, Spanish unemployment, already the highest in the EU, jumped to 24.4%, just short of the 24.5% record set back in 1994. Even still, Spanish Economy Minister Luis de Guindos told reporters that nobody has asked Spain, either officially or unofficially to turn to Europe's bailout mechanisms. He insisted that, [Spain] doesn't need it. The common currencies initial losses were quickly reversed after the worse-than-expected reading of US GDP, but its upside remains limited.

The GBP extended its recent winning streak this morning, rising against the USD for a 10th straight day, the longest such stretch since 1992. The pound also gained against its mainland European counterpart as the Spanish credit downgrade prompted investors to seek the relative safety of GBP-denominated assets. While British economic fundamentals remain rather weak, with the BoJ and SNB actively warding off capital inflows, and with the Fed appearing set to do much the same, the lack of credible safe-haven options adds to the GBP's attraction. The pound has now cleanly broken above its October highs with last August's highs at 1.6545 now the next likely level of resistance.

The JPY extended its weekly gain against the USD to more than 1.5% this morning after the Spain downgrade and disappointing US GDP led investors to seek the yen's safety. Initial gains were reversed after the BoJ expanded its asset purchase program to 70T JPY from 65T JPY. However, losses were quickly reversed as safety demand far outweighed the smaller-than-expected increase in the program. With the BoJ now increasingly focused on fending off deflation, monetary easing will likely remain tempered in the short term, thus leaving the yen susceptible to continued gains in times of increased risk aversion.

The Commodity Currencies are broadly higher this morning as investors expect further stimulus measures from the Fed. Raw goods are generally higher with gold rising to $1668/oz, copper gaining to $380/lb while oil held steady at $104/bbl. The CAD gained despite the flat price of oil and disappointing GDP report out of the US, Canada's main export market, on speculation that the BoC may be gearing up for higher interest rates in the near term. Similarly, the MXN is sharply higher this morning as the encouraging personal spending report out of the US, Mexico's main trading partner, suggests strong demand for Mexican exports going forward. The AUD and NZD are also higher this morning despite the apparent increase in risk aversion. Interestingly, Australian government bond yields fell to record lows this morning as assets in the rather stable Pacific nation increasingly draw safety demand with the ongoing growth and debt woes plaguing many of the G10 nations.





































10-Year Treasury Yield:





 $ 5.90



 $ 4.00

Crude Oil: 


 $ (0.11)





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.