v USD extends recent gains as ISM non-manufacturing unexpectedly fell to 53.5, spurring on risk aversion; weekly jobless claims fall to 379k;
v EUR consolidates within its recent ranges as regional debt and growth concerns resurface;
v NZD falls by more than 1% against the USD as New Zealand unemployment unexpectedly increases to 6.7%.
The USD is higher this morning against most of its major counterparts as stocks and commodities extend yesterday's declines. Investors have taken note of mixed economic data released in the US this morning with weekly jobless claims registering better than expected at 365k versus the anticipated 379k. Moreover, continuing claims fell to 3276k, the lowest since September 2008, in an encouraging sign ahead of tomorrow's all-important nonfarm payrolls and unemployment reports. However, the positive news was overshadowed by a disappointing reading of ISM non-manufacturing as it unexpectedly declined to 53.5 from 56.0 in the previous reading. The reading marks the slowest growth in US services in more than four months as stagnant job and wage growth dampens consumer demand. At the same time, a gauge of consumer confidence fell to a two-month low. Nevertheless, as compared with many of its G10 counterparts, the US economy continues to outperform its peers, and the dollar remains the primary benefactor of risk-off capital flows.
The EUR remains under pressure, but has pared some of its weekly declines. Despite recent speculation that the ECB may be close to further easing, the Bank held interest rates steady and the decision's accompanying commentary was more hawkish than most anticipated. ECB President Draghi told reporters after the interest rate announcement that policymakers did not even discuss cutting interest rates at their meeting and that current monetary policy is sufficiently accommodative. However, the common currency's upside remains limited as interest rate yields are again on the rise in Spain, reminding investors that the region's struggles with debt are far from over. Political drama is also taking center stage as incumbent French President Sarkozy trails his Socialist opponent, Francois Hollande. Hollande has insisted that if elected he will oppose the German-led austerity measures throughout the Eurozone and promote more government spending and higher taxes to spur growth. Should he win, the shift could serve to undermine the relatively strong cooperation between France and Germany that has kept not only the EUR, but the broader Eurozone afloat over the past 18-months.
The GBP is relatively flat this morning as disappointing economic data has been largely offset by an increase in demand for the relative safety of British government assets. British PMI services fell short of the consensus forecast at 53.3, and is down from last month's 55.3. Yesterday, BoE Governor Mervyn King told reporters that the economy was not yet back to health and that low interest rates are required to support growth for the time being. The BoE meets next week and will decide whether it will expand its bond-buying program further. In light of recent data showing that the British economy has double-dipped back into recession and that inflation is easing, an increase in the program seems likely.
The JPY is slightly weaker this morning, but remains in a tight range with Japanese markets closed for the Golden Week holiday. Interestingly, Japan announced a mutual bond investment program with South Korea. Finance Minister Azumi reiterated that Japan seeks to diversify its FX reserves, which are currently heavily weighted towards the USD, although the purchase of S. Korean bonds will only be in a small amount to start.
The Commodity Currencies are broadly lower this morning with the NZD leading the group down. Raw goods have come under increased pressure with oil falling to $103/bbl, gold slipping to $1638/oz and copper dropping to $374/lb. The CAD and MXN are both lower, but relatively well supported as compared with their counterparts as the mixed US data weighs. However, North America's general outperformance continues to provide support for both the loonie and peso. At the other end of the spectrum, the AUD and NZD have come under increased pressure overnight as the outlook for both South Pacific nations worsens. The Kiwi was the worst performer against the dollar overnight, shedding 1.3% after New Zealand unemployment unexpectedly jumped to 6.7% from 6.3% in the previous reading, exceeding even the most pessimistic forecast.
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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.