v USD gains on safe-haven flows despite weak Philly Fed data.
v EUR held flat but markets are anticipating a further drop due to contagion fears.
v CAD falls as slowing US economy dims outlook.
USD continues to gain traction against a basket of currencies with the exception of the Japanese yen as investors flock to the safe-haven currency. Despite worse than expected Philly Fed factory activity in May and a drop in US Leading Indicators in April, the dollar has benefited as tension over the Eurozone's debt concern and the possibility of a Greek exit escalates. The Philadelphia Federal Reserve Bank reported a contraction in its business activity index, dropping to minus 5.8 in May from 8.5 in April, its weakest in eight months as new orders and employment slowed. The Conference Board's Leading Economic Index dropped 0.1% to 95.5 in April, the first drop since September 2011.
The EUR opened flat against the US dollar this morning due to the Ascension holiday in Europe and the prolonged uncertainty in the European market. Recent reports showed Spain's borrowing costs rose, stoking concern that Greece's crisis may be spreading to periphery regions. As a result the ECB said it will temporarily stop lending to some Greek banks with President Mario Draghi indicating it will not compromise to keep Greece in the euro area. With little European data out today, market participants will remain focused on Europe's sovereign debt yields and Greece's election set for mid-June.
Overnight, the GBP hit a one-month low against the USD as mounting concerns that Greece will exit the Eurozone and possibly the EU all together boosted demand for the safe-haven dollar. Furthermore, investors were wary after a report showed the Bank of England painting a gloomy outlook for the UK economy, leaving the door open for another round of asset buying. Many analysts are forecasting the GBP to come under pressure against the USD after the dovish report from the BoE, as many investors look at the USD as a safe-haven currency.
The JPY rallied today as safe haven flows dominated, following a positive GDP release. Japan's GDP increased to a better than expected 1.0% vs. 0.9% expected, expanding for the third quarter following last year's contraction. Policy Minister Motohisa Furukawa said in a statement that strong domestic demand backed by demand for rebuilding the northeast region hit by the earthquake revived subsidies for buying low-emission vehicles, which led to growth in Q1. With the ongoing turmoil in Europe, the yen will likely be supported by risk aversion in the near term.
Commodity currencies are mixed with some slight gains from AUD and NZD as investors retrace the sharp losses early in the week. The CAD continues to weaken, losing over 3.5% since its April 27th high, after uninspiring North American data and the declining price of crude oil, $92/barrel. The Australian and New Zealand dollars recovered modestly from five-month lows, but persistent fears from the Eurozone has limited further gains. Altogether, higher yielding currencies remain vulnerable as the political turmoil in Athens is far from over. For the time being, the market is short but recent retracements are suggesting that investors are teetering with the bout of risk aversion.
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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.