USD - The US dollar weakened against the majors with exception of the Swiss Franc as market risk aversion subsided and equity gained as a data heavy week begins. Last week, the market focus will be on broader recovery and with releases of negative US economics, the dollar was unable to sustain much of its gains from the beginning of the month. Last Friday, US consumer confidence plummeted to a 31-year low, well off expectations at 54.9 vs. 62.0 forecasted. The fall took the University of Michigan reading below the post- Lehman low of 55.3 set in September of 08'. With the loss of the country's AAA credit rating, continuing debt ceiling debate, and ongoing weakness in the labor market, investors are currently reluctant to buy into the dollar. However, this week could prove to be a key in setting the tone for US markets, with the FOMC holding its first policy meeting of the year and advance Q4 GDP data due for release. The GDP data is forecast to show some pickup in growth. In further news, the near term growth trajectory will be detailed in today's Empire State Manufacturing Index, followed by tomorrow's industrial production and Thursday's Philly Fed, all of which are expected to improve. Fed member's Lockhart will be speaking this evening which may give investors insight on how far the US is from a potential QE3.
EUR - The euro rose vs. the dollar after US data showed a decline in foreign capital flows into the US while market participants remain cautious after last week's market volatility. The single currency rose to a 2-week high at $1.4476, breaking out of recent ranges below $1.44, after the data reported that net capital flows into the US fell -$29.5 billion in June. Easing risk aversion from last week's downgrade of US debt and concerns over Euro-Zone member countries and the region's banks are also lending support to the euro. With a long term solution to Europe's ailments still elusive, caution is likely to remain the undertone of the markets this week as participants take a wait and see approach in determining the euro's direction.
GBP - Amid a background of rioting and looting across the nation, Great Britain's Chancellor of the Exchequer, George Osborne, stated the U.K.s recovery will "take longer and be harder" than previously expected. The BoE's Governor, Mervyn King, also signaled that he may resume pumping cash into the economy to boost growth. These two comments have led investors to pull money out of the country at the fastest rate in the last two decades. Despite this, Sterling is relatively flat to the USD over the past week as the USD stayed under pressure across the board. A number of economic releases are due this week, led by CPI and consumer confidence, which should help shape the tone for the pound going forward.
JPY - is down slightly following a negative but better than expected GDP for Q2. GDP fell by 0.3% from the previous quarter, which had also seen a 0.9% contraction. Despite the weakened fundamental environment, JPY remains near its recent highs and any hint that the recession in Japan will not be as bad as expected will be favorable. USD/JPY has closed lower every day since official intervention on August 4 and official rhetoric, this time from finance minister Noda, remains cautious with regards to JPY strength, one of several "factors posing downside risks to the economy."
CAD - The CAD has gained this morning, extending its rally from late last week after nearing parity with the USD for the first time in more than eight months. The move higher was prompted by rebounding equities and the rising price of oil, Canada's main export. However, while the loonie has gained against the USD, it has underperformed against the majority of its other main counterparts on concern of a slowdown in the US economy, the primary destination for exported Canadian goods. Anticipation of future BoC monetary policy has also been quite volatile, with recent forecasts pricing in a 0.5% hike before the end of the year, but after last week's selloff in risk-assets, those forecasts have been revised to account for a 0.25% cut by December.
MXN - The Mexican peso recovered from losses as stocks around the world stabilized, restoring demand for riskier assets. Mexico's economy is closely tied to that of the US and economists have been cutting their expectations for Mexican growth this year. Finance Minster Ernesto Cordero said growth could come in as low as 4% this year while Mexico's central bank said the economy should grow between 3.8 and 4.8%. Previous forecasts for Mexico's growth were 4.3% and between 4 to 5% respectively in 2011. The peso had lost nearly 5% on the month and is now cautiously gaining ground due to uncertainty north of the border.
AUD - The AUD rallied early this morning as Asian stocks extended last week's gains, supporting demand for higher-yielding assets. Japan, Australia's second largest trading partner and the world's third largest economy, reported a smaller than expected contraction in GDP for Q2, suggesting that the recovery from natural disasters earlier this year is progressing at a faster pace than expected. The AUD has also found support in dovish commentary from Japanese officials threatening more intervention should the yen not weaken further on its own. However, expectations for Australian monetary policy remains mixed with slower growth in China, the nation's main trading partner, likely weighing on forecasted growth, thus reducing room for the RBA to hike interest rates, at least through the end of the year.