USD - The USD begins the week higher against nearly all of its major counterparts as European debt concerns come back into focus and as prospects of further Fed monetary easing fade. After last week's surprisingly strong labor market reports out of the US, the prospects of another round of QE have grown fainter as the Fed's dual?mandate of managing price pressures and supporting employment appear fulfilled, at least for now. The dollar has also rebounded this morning against a number of its emerging market counterparts as central banks in countries from Brazil to Turkey buy dollars to stem their currencies' recent sharp gains. For the week ahead, European debt woes will likely take center stage as private sector involvement in a haircut on Greek debt has yet to be agreed upon. Domestically, the slate of economic data is unusually light this week with no major reports due before weekly jobless claims and wholesale inventories on Thursday. The week closes out with US trade balance and the University of Michigan confidence report for January, both expected to show a modest decline from the previous reading.
EUR - The euro is near recent lows as European leaders ratchet up pressure on Greece amid a looming deadline for reforms. The single currency fell to the lower end of recent ranges just above $1.30 and off from last week's highs above $1.32 achieved on hopes of progress in Greece. German Chancellor Angela Merkel, expressing frustration amid a lack of progress, urged Greece to approve the terms for a new EU/IMF bailout in comments today. As a condition for securing a EUR 130 billion aid package, Greece must pass budget reforms and renegotiate its debt with creditors, but has shown little tangible progress to date. Separately, Germany reported that Industrial Orders rose an above forecast 1.7% in December, demonstrating it resilience as other European countries slide into recession. Despite Germany's solid gains, the euro and the region will remain only as strong as its weakest members as they struggle to pass reform and return to growth.
GBP - The BoE meets on the 9th to determine their next policy move. It is widely anticipated that they will increase their asset?purchase program to support their struggling economy, which some would argue is heading back into recession. With that being said, Sterling opens the week slightly stronger against the dollar after two of the three PMI releases last week came in stronger than expected.
JPY - JPY is flat from Friday's close, early in the North America session. On Friday, USDJPY moved higher, in tandem with where interest rates would suggest, however all in all USDJPY has been firmly within a tight 76.03 to 78.98 range since the last round of BoJ/MoF intervention on October 31st (making it a favored funding carry currency). There is a slew of Japanese data this week (including current account, GDP and industrial production); none of which are likely to push USDJPY outside of its recent range.
Commodity Currencies - The CAD fell the most in three weeks versus the greenback on dampening investor appetite for riskier assets. The CAD was further impacted at the end of last week after data showed Canada's unemployment rate unexpectedly rose to 7.6% in January, as employers added only a net 2,300 jobs during the month. However, the loonie pared losses as an index showed Canadian business and government spending rose more than forecast. Crude oil, Canada's biggest export, slid amid concern supplies will be disrupted. The AUD is down 0.5% against the USD - after a weak retail sales report that showed a 0.1% drop in December from a month earlier. This week's key event for AUD is the RBA's rate decision at 7:30PM PST today. In anticipation of the outcome, the AUD weakened for the first time in five days as economists forecast RBA Governor Glenn Stevens will cut the benchmark rate to 4% from 4.25% after a three?month hiatus, damping investor appeal for Australian assets.
MXN - The Mexican peso weakened for the first day in four as Greece's failure to progress toward a debt reduction weighs on investor's risk appetite. Greece's debt concern is having a large impact on markets world?wide and investors have sold emerging market currencies, in a move towards safe?haven currencies considered less risky. However, the MXN is the best LatAm performer, gaining nearly 10% in a five week period. The peso will likely continue to firm as the perception of a US monetary stimulus lingers and as better?thanexpected economic data in the country is released.
RMB - The CNY market was flat last week, with exception of a temporary spike last Monday after the market reopened from the holiday. Focus for China last week was Premier Wen Jiabao's reiteration that the government will fine?tune its policies to support growth of the Eurozone amid its debt crisis. Europe is currently China's biggest export market and there has been speculation that China will participate in resolving the European debt crisis via capital injection into the IMF or by purchasing EFSF bonds. However, any role China may take on assisting the debt?strickened Europe should be limited as European bonds are considered a risky investment for China. The IMF commented on the yuan by saying that upward pressure on the currency have diminished recently and the pace of reserves accumulation should resume this year. In an annual assessment of China's economy, the IMF continued to press for yuan gains, stating that the currency remains below the consistent with medium term fundamental.