The US Dollar is mixed this morning against its 16 most actively traded counterparts a day after Fed Chairman Bernanke reassured nervous investors that the central bank has the tools at its disposal to promote stronger growth. The Fed's current undergoing, Operation Twist, in which they are swapping near-dated assets for ones with longer maturities, is projected to have a meaningful but not enormous effect, equivalent to a 0.5% reduction in the Fed funds rate. With this limited expected impact, it's no surprise that the Fed would step in, possibly with another round of QE, should economic conditions deteriorate further. The reassurance led to a 180-degree turnaround in global equities, and has fostered a modest rebound in risk appetite, at least for the time being. Further adding to the risk-on rally, data this morning registered better than expected. ISM Non-manufacturing registered 53.0, down from last month's 53.3, but a bit better than the 52.8 forecast. A private payrolls report showed that the US economy added 91K jobs in September, better than the 75K expected, despite increased fears of a global economic slowdown. However, a measure of expected job cuts rose by 212% over the same time last year, with the drop largely coming from an Army troop reduction plan and layoffs at Bank of America. In the short term, the dollar will remain under pressure against its higher-yielding counterparts as stocks remain in the black. However, with persistent concerns over the health of the global economy and with the Eurozone's ongoing debt saga, the USD will remain largely within its recent ranges.
The EUR moved back towards the top end of its ranges overnight, but has since pared those gains as the Eurozone's debt crisis roils on. In the latest blow to the less fiscally conservative regional economies, Moody's downgraded Italy's sovereign credit rating yesterday by three notches to A2, the same rating held by Malta and Botswana, and lower than that of S. Korea and Estonia. However, the downgrade has had little immediate effect on Italian bond yields and doesn't necessarily spell disaster for the Eurozone's third-largest economy. Meanwhile, a Greek default remains a cause for concern after EU Economic and Monetary Commissioner Olli Rehn told reporters that there is no concrete plan to recapitalize banks. The ECB meets tomorrow, and while no action is to be expected, comments following the meeting will be closely watched for any hints as to the Bank's policy bias going forward.
Sterling is lower against nearly all of its major counterparts this morning after a government report showed that British economic growth slowed by more than expected in the last quarter. GDP registered a paltry gain of 0.1%, down from 0.2% last month, bringing annual growth to just 0.6%. The British economy has essentially stagnated for a full three quarters now, which has led investors to expect further monetary easing from the BoE in the short term. However, persistently high inflation limits the Bank's potential scope for further liquidity. On a more positive note, PMI Services came in better than expected at 52.9 versus the 50.5 forecasted.
The JPY is relatively flat this morning, but off its recent highs as rebounding stocks and commodities encourage investors to seek higher yields. However, the yen has continued to strengthen against the EUR after Moody's cut Italy's debt rating. Japanese companies have been feeling the pinch as a strong currency and slowing global economic growth erodes overseas earnings.
The Commodity Currencies outperformed their peers overnight as investors shifted capital back into riskier, but higher-yielding assets. Oil rebounded to $78.50/bbl, gold and copper were flat and consumables were generally higher. The CAD is marginally higher against the USD this morning on the rising price of oil, Canada's primary export, and on the better than expected data out of the US, Canada's main trading partner. The AUD remains relatively well supported within its recent ranges, but the longer term outlook remains rather bearish as investors begin to price in interest rate cuts from the RBA. The NZD is also marginally better against the USD this morning as stocks build on yesterday's late-day gains prompting investors to seek higher yields.
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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..