/

USD – America’s currency remained on the defensive throughout last week and this morning as demand for the dollar as a “safe haven” dissipated, and overall trading momentum has begun to favor USD losses. The recent influx of sanguine economic data, coupled with the steady ascent in all major risk barometers such as the DJIA and S&P 500 indices, have increased the risk appetite for market participants, creating a convenient excuse to jettison the greenback. The MBA Mortgage Applications Index took a stalwart leap forward (17.0% for 9/4 vs. -2.2% prior), while improvements in both Initial Jobless Claims (550K for 9/5 vs. 576K prior) and Univ. of MI Confidence (70.2 in Sep. vs. 65.7 prior) also underpinned bullish sentiment for a nascent US economic recovery. Though there has been a slight pullback this morning, the DJIA and S&P500 are still hovering near their highs for the year (9595.00 and 1043.05, respectively), while gold continues to trade above its all-time record high ($1004.58/oz), further evidencing the surge in investor risk appetite. Markets will have plenty to digest this week with a battery of key economic indicators slated for release. Inflation, retail sales, manufacturing, and housing data will provide plenty of fuel to stoke the flames of volatility and market uncertainty. The greenback is expected to continue to lose ground against its major world counterparts, particularly the JPY and EUR, as market sentiment improves, and the US Fed continues to embrace a dovish stance on monetary policy.

EUR - The euro remains buoyant at 2009 year highs and nearing 12-month peaks vs. the dollar on optimism that the global economic recovery is taking root. The single currency rose to highs of $1.4648 as the Eurozone showed signs of emerging from recession: the pace of decline in Industrial Production improved (-0.3% in Jul. vs. -0.6% prior), while job losses also moderated, (-0.5% Q2 vs. -0.8% prior). The ECB offered a cautiously optimistic assessment of the economy, keeping its forecast for the Region to Bank also predicted the economy would return to growth in 2010, upgrading its forecast to 0.4% growth for the year. The euro will likely remain underpinned per ECB comments that the EU economy appears to be at a turning point and as the global economy shows signs of emerging from recession.

GBP - The BoE decided last Thursday to leave the bank rate at its recordlow 0.5% as expected, and to keep its asset purchase program at GBP 175B. In the brief statement accompanying the decision, the Bank wrote
that the scale of the program will be kept under review and that it expects the announced program to take another two months to complete. Recent statements from the BoE have put a damper on UK yields and
brought about a weaker GBP. By the end of the year consumer prices are expected to pick up due to strong energy-related base effects and move above the bank's 2% inflation target, and inflation is seen holding above
the target in H1 2010. This suggests that the BoE will start to pave the way for rate increases during Q1 next year and begin to implement them in Q2. This week's releases include inflation, unemployment and retail
sales for August. JPY - The yen reached its strongest level in 7 months as it appreciated to 90.21 against the dollar. With the gap between US and Japanese interest rates looking unlikely to change in the near term, it limits overseas investment by Japanese investors. The BoJ's benchmark rates are 0.1% compared to the Fed's target lending rate of 0 to 0.25%. The new Japanese ruling party also supports the yen, as they have hinted that they are not going to intervene to weaken the yen as the previous administration did. Analysts also speculate that the strengthening of the yen last week was in part caused by a repatriation of profits by Japanese exporters ahead of the end of the first half of the Japanese fiscal year. Industrial production was 2.1% in July (vs. 1.9% prior), while capacity utilization increased 3.9% in July, showing that the economy has been stabilizing. The BoJ monetary policy meeting will begin tomorrow.

CAD - The loonie vacillated last week between a yearly high of 1.0678 vs. USD, and retraced as far as 1.0871 on mixed data from the US and surging commodity and equity markets. Crude oil touched $72.60 a barrel on open trading from a low of $67.94 at the start of the week's session. The BoC held rates unchanged at 0.25% last Thursday, thought the expected rhetoric concerning the potential downside to the economy from a strong CAD was noticeably absent. In an update of his budget release
last week in Ottawa, Finance Minister Jim Flaherty pledged not to raise taxes or cut transfers to provinces and individuals to balance the budget, which he now says won't happen before the year ending March 2015. He also projected cumulative deficits of C$164.4 B ($152.5 B) by then, doubling his earlier forecasts.

MXN - The peso saw a range of about 2.2% trading on USD weakness and strong commodity and equity markets. Political changes dominated the headlines last week with President Calderon accepting the resignations of Agriculture Minister Alberto Cardenas, Attorney General Eduardo
Medina Mora, and Petroleos Mexicanos's chief executive officer, Jesus Reyes Heroles. Juan Jose Suarez Coppel, a former chief financial officer for Pemex, will replace Reyes Heroles at the helm of the state-owned oil company. Calderon replaced his attorney general in a bid to rejuvenate the country's heated battle against drug cartels.

CNY - The yuan was nearly unchanged vs. the dollar at 6.8290 amid rising trade tensions between the two countries. China protested a US decision to levy additional duties on tire imports citing trade dumping and unfair competitive practices by Chinese tire makers.