EUR – The euro begins the week on a resilient tone despite gloomy forecasts for Eurozone growth. The single currency is trading near the upper end of recent ranges above $1.33 after returning from the May Day holiday last Friday. The European Commission downgraded its outlook for growth, forecasting that the E-16 would not start recovering until mid- 2010, predicting the economy to shrink by 4% this year. The commission report revised downward an assessment made just 3 months prior, and also forecasted a tripling of the budget deficit to 6.5% of GDP. Despite recent economic news pointing to improving conditions in the Eurozone, the report provides a stark assessment of the difficulties in the region which will likely weigh on the euro and limit its upside.
JPY – The yen fell broadly this morning as US and European stocks rallied, prompting investors to take on more risk with higher yielding currencies. Positive data out of China, India, and the Eurozone helped bolster risk appetite and pull markets higher, which typically undermines the demand for the “safe haven” yen. Today’s weakness follows a week that saw the yen fall significantly amid less than promising domestic data and increasingly stronger risk demand globally. With Japanese markets closed for the holidays until Thursday, trading for the yen looks to remain volatile for most of the week and subject to larger price movements.
GBP – News out of the UK continues to be mainly positive. In the past week the Distributive Trades Survey rose to the highest level since January 2008 indicating improvement in retail sales. The GfK Consumer Confidence Index rose appreciably in April (-30 vs. -27 prior), beating the consensus estimate of -28. House prices nationwide fell 0.4% in April (vs. -1.2% exp.). The PMI manufacturing report rose from 39.5 in March to 42.9 in April, while today’s PMI services release came in at 46.3 vs. 45.5 prior. Looking at growth indicators, the picture seems to be improving gradually: Consumption is doing better, consumer confidence is higher, house prices seem to stabilize, PMI is rising and the news-flow outside the UK is generally better-than-expected. Notwithstanding the ostensible improvement of economic activity, the BoE still expects to undershoot its target of 2% in the medium term, and is expected to be on the sidelines while waiting for more data in order to evaluate the situation.
CAD – The loonie continues its steady and precipitous climb (3.5%) vs. USD begun last week, as the economic picture (i.e., policy redirect, commodities prices, and fundamental data) have begun to point to a turnaround in the Canadian economy. Last Monday saw Canada’s dollar decline against the US dollar for the first time in three days as stocks dropped amid concern over a possible swine flu pandemic. The CAD fell as much as 1% as crude oil traded below $50/bbl, while copper, aluminum, lead, and zinc slipped. By mid-week, however, CAD had risen to its highest level since November ’08 as speculation that the worst of the recession may be over, boosted investor appetite for commodity-linked currencies. CAD currency gained 5.5% in April—the best month since September 2007—as the nation’s central bank last week refrained from mmediately deploying a policy of printing money to buy debt assets.
MXN – The peso has posted a modest recovery of 3.5% on the heels of improving commodity-linked currencies, even in the midst of the continuing economic, epidemic and criminal blight. The Minster of Health, Jose Cordova has confirmed 727 cases and 26 deaths from Swine Flu thus far in the country, but commented that the outbreak may have peaked. A recent survey of Mexico’s leading economists forecast that the economy will likely contract 4% this year and that the annual inflation rate will be 4.38% by the end of 2009. In continued efforts to bolster the peso, Mexico’s central bank bought $100M worth of pesos at an average weighted price of 13.4543 per dollar at a local auction this morning.
CNY – The yuan is at 6.8230 vs. the dollar after holidays last Friday. The currency rose to its highest levels of the year at 6.8206 following signs the PBoC will resume gradually strengthening the CNY in response to improving economic conditions.
USD– America’s currency once again undulated last week and this morning amid volatility stemming from technical trading and a mixed bag of US economic data. With traders and investors increasing their risk appetites, the “safe haven” greenback tested new lows last week, as key technical support levels, vis-à-vis its major world counterparts, were breached. On the data front, Q1’09 GDP revealed the largest peak-to-trough economic contraction since 1958 (-6.1% annualized vs. -4.7% exp.). Nevertheless, an amelioration in the ISM Manufacturing (40.1 in Apr. vs. 36.3 prior), and an uptick in the Chicago PMI (40.1 in Apr. vs. 31.4), boded well for the greenback and the overall sentiment for the world’s largest economy. While the FOMC rate announcement last week proved largely to be a “non-event”, a strong improvement in the U. of MI Consumer Confidence reading (65.1 in Apr. vs. 61.9 prior) suggests that the rate of economic contraction is slowing, and stabilization may be on the horizon. Markets will be closely attuned to tomorrow’s ISM Non-Manufacturing Index release—an indicator that accounts for more than 70% of all economic activity. Moreover, this Thursday and Friday will deliver a “one-two punch” as far as key events with strong market-moving potential are concerned: The results of the US government’s “stress test” on the nation’s 19 largest financial institutions—originally scheduled for release today—have been deferred to 5/7 amidst objections from the banks about the outcomes. Friday will mark the release of the closely-anticipated NFP employment report, which is largely expected to mark the 16th straight month of job losses, and the sixth month in which job losses amounted to more than 500K.