USD - The dollar fell for the first time in four days as investors breathed a collective, albeit momentary, sigh of relief regarding Greece, and US economic data registered better than expected. After last week's disappointing reading of nonfarm payrolls, this week's first-time claims was much anticipated. The number of American's filing for unemployment benefits dropped to 367k, just beating the forecast of 368k. However, the recovery in the labor market remains frustratingly slow with a recent poll showing that more than half of Americans that graduated from college since 2006 are not employed full time. Of those fortunate enough to have secured full employment, 50% are in jobs that do not require a college education. As such, economists are increasingly expectant of a third round of quantitative easing before the end of the year. A report this morning also showed that import price gains declined to just 0.5% on an annualized basis, down from 3.6% in the previous reading. The market will take note of whether those lower prices carry over at both the producer and consumer level, which would give the Fed ample room to ease policy further. Finally, the trade deficit widened by more than anticipated, coming in at -$51.8B versus -$45.4B in the previous reading as the gain in imports nearly outpaced the rise in exports two to one.
EUR - The euro rebounded from a three-month low against the USD and gained for the first day in nine as Greece received its next tranche of bailout funds from the EFSF. While Greece's political landscape remains uncertain, the nation's financial needs are covered, at least for the time being. However, the underlying risks of a Greek default are keeping investors on edge, especially after German ECB member Axel Weber told reporters that there was still a very real risk of a Greek default. He went on to say that Spain's current struggles with rising debt yields and an economy in contraction carry an extremely high contagion risk for Italy. In light of the ongoing concerns, a recent Bloomberg poll showed that 57% of investors believe at least one Eurozone nation will leave the currency bloc by the end of 2012.
GBP - Sterling strengthened against both the USD and EUR overnight as the BoE proved to be more hawkish than many had anticipated. The central bank left interest rates on hold and held its asset purchase program flat at £325B. However, with the UK now in its first double-dip recession since the 70's, further monetary easing would not be surprising. For a read on policymakers' stance on the economy, investors will pay close attention to the MPC's new quarterly economic forecasts, which will be published next week.
JPY - The yen fell back towards the key 80 level against the USD overnight as investors sought higher returns. However, falling yields in the other G10 nations will continue to provide support for the yen in the medium to long term. Data released yesterday evening showed that Japan posted a current-account surplus for a second straight month even as energy imports swelled, coming in at ¥1589.4B versus ¥1177.8B in the previous reading. Evidence of a sustained surplus will draw further demand for the JPY as it eases concerns that Japan would need overseas funding to service its public debt burden, the largest in the world.
Commodity Currencies - The high-yielding commodity-linked currencies pared some of their recent losses overnight as stocks and raw good prices rose. Oil gained to $97/bbl, gold rose to $1595/oz and copper recovered to $369/lb. The CAD gained by the most in two weeks against the dollar, supported by the rise in oil prices and the better-than-expected employment report out of the US. Similarly, the MXN has rebounded from its weakest since the beginning of January on the improved outlook for demand for Mexican exports. However, the peso's outlook remains rather weak as investors begin to price in further interest rate cuts. The AUD gained against all of its major counterparts, and was the best performer against the USD after Australian unemployment unexpectedly dropped below 5% for the lowest reading of the year. The Aussie also rebounded as technical studies indicated that its recent precipitous drop may have been overdone. Nevertheless, downside risks may prevail in the longer term as further interest rate cuts are expected before the end of the year with the policymakers struggling to improve Australia's terms of trade. With no major economic data out of New Zealand, the NZD has also trended higher as risk aversion temporarily eases.