The dollar climbed as better-than-expected retail data pointed to a US led economic recovery. Sales at US Retailers rose 2.7% in August, bolstered by the government-sponsored Cash for Clunkers program. The increase was the largest jump in retail sales in over three-and-half years and easily surpassed analysts' estimates. US PPI also topped analysts' forecasts for August, coming in up 1.7%. The positive economic data helped to raise speculation that the US economy was on the path to recovery, boosting the dollar.
The euro failed to extend the recent rally against the dollar as investors risk appetite waned after a disappointing start for equities in Europe and the US. Germany, Europe's largest economy, posted a three-year high in September's investor sentiment, but still fell short of expectations. The ZEW economic sentiment index rose to 57.7, topping the 56.1 reading in August. Despite the lower-than-forecast report, the recovery scenario is still viewed as intact.
The British pound fell to a one-week low against the greenback after Bank of England Governor Mervyn King made statements that he would consider rate cuts on commercial banks' reserves held at the central bank. The news raised speculation that the BoE may continue to extend its 175 billion pound quantitative easing program. British CPI came in better-than-expected, up 0.4% but failed to boost the sterling as investors focused on King's announcement.
The Japanese yen fell from the seven month highs reached on Monday as bullish US PPI and retail sales data led to a stronger dollar. Newly elected Democratic party lawmaker Hirohisa Jujii voiced his support on Monday for a strong yen to support consumers' purchasing power, but analysts are still unsure how the Democratic party will deal with a rising yen.
The Canadian dollar firmed against the greenback as the bullish retail sales and PPI out of the US increased demand for higher yielding currencies. Oil also made gains, topping $69 a barrel and helping support the loonie. Canadian Labor Productivity was unchanged for the second quarter, but the disappointing data was not enough to stop the loonie's gains.
The Australian and New Zealand dollars both slipped after minutes from the Reserve Bank of Australia's last board meeting were released and failed to give any indication of when the bank will start raising interest rates. The minutes showed the bank was still waiting for more evidence of a recovery, both from economic data at home and abroad in coming months before it makes any changes to its current 3% interest rates. Higher gold and oil prices helped to support both commodity linked currencies.
10-Year Treasury Note Yield: 3.445%
Dow Jones Industrial Average: 9,6343.89 +8.09
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.