USD - The dollar is headed into the weekend mixed against its major counterparts as financial markets close out a tumultuous week of trading. While stocks have staged a comeback from early losses, commodities remain under pressure on continued fears that the broader global economy is headed for contraction. Equities began the day sharply lower after JP Morgan announced a $2B trading loss with a warning of further shortfalls to come, thus raising questions about the health of the banking sector. However, data this morning has proved supportive as investors bet that the Fed will soon be spurred into action. After the unexpected drop in import prices earlier this week, PPI contracted by 0.2% versus a flat reading last month. Producer prices are on pace for a 2.7% gain this year, down from 2.8% in the previous reading. With next Tuesday's CPI report likely to reflect easing inflationary pressure, the Fed may have the room necessary to pursue another round of quantitative easing. Fed Chairman Bernanke told senators this morning that the economy faces serious challenges ahead with the scheduled end of tax cuts and extended unemployment benefits as well as a variety of budgetary cuts set to take affect at the beginning of next year. Bernanke stated that if no action were to be taken...the fiscal cliff is so large that there's absolutely no chance the Fed would have any ability whatsoever to offset that effect on the economy. With such road bumps ahead, the Fed may become increasingly proactive in the second half of the year.
EUR - The euro consolidated within its new lower ranges as the political struggle within the Eurozone intensifies. In Greece, the Democratic Left party announced that it will not form a coalition with the New Democracy and Pasok parties given that they are responsible for the current situation. The lack of an effective majority will likely send Greek's back to the voting booths next month, but with increased support for the leftist New Democracy and Syriza parties. Both have made it abundantly clear that they will not conform to the outgoing government's capitulations to the rest of the EU, which could in turn jeopardize future bailout payments necessary for Greece to continue servicing its debt load. However, an inevitable Greek exit from the Eurozone appears to be more palatable. In a telling sign of resignation, German Finance Minister Schaeuble stated that the Eurozone could now handle the departure as contagion risks have eased.
GBP - Sterling is lower against most of its major counterparts after a report showed that British consumer confidence fell last month as the economy slipped into a double-dip recession. The GBP fell for the first day in six against the EUR as signs the British economy is faltering prompted investors to increase bets that the BoE will ease policy further.
JPY - The yen pushed back towards the top of its recent ranges, but remains well supported below the key 80.0 handle against the USD. Current account data released yesterday reminded the market that while Japan's terms have trade have weakened considerably, strong demand for JPY-denominated investments continues to provide a substantial revenue stream. Disappointing data out of China is also providing support for the yen after Chinese CPI fell to 3.4% and industrial production tumbled to 9.3% from 11.9% in the previous reading. In light of the soft data, further easing from the Chinese authorities may be imminent, thus prompting further safe-haven demand.
Commodity Currencies - The CAD and MXN are both stronger this morning while the AUD, NZD and ZAR remain under pressure. Raw goods extended their recent declines with oil falling back to $96/bbl, gold slipping to $1589/oz, and copper declining to $365/lb. The CAD strengthened past parity with the USD after Canadian net employment change beat out even the most optimistic forecasts at +58.2k. Combined with last month's gain of 82.3k, March and April accounted for the best two months of jobs growth in at least 30 years. The unemployment rate remained at 7.3%. Similarly, the MXN is slightly higher this morning on the heels of the strong Canadian labor report and improved confidence in the US. The AUD and NZD both came under pressure after the disappointing data out of China, the main destination for Australian exports. The Aussie is headed for a second weekly drop against the USD, and a third against the JPY on waning risk appetite, weakening economic fundamentals, and increased speculation that the RBA will cut interest rates further before year's end.