USD – The US dollar is trading slightly lower, a move showing market participants have reduced concerns over the Eurozone crisis from last week. As such, the dollar index is down 0.3% and gold prices lowered 0.02% from last week’s close. Domestically, US factory activity decelerated in March as new orders weakened, but a rebound in construction spending in February showed a sign of better economic growth in the first quarter. The Institute for Supply Management’s factory index fell to 51.3 in March from 54.2 a month earlier. Construction spending in the US rose in February, paced by the highest level of home building in more than four years. The Commerce Department reported construction spending climbed 1.2% in February, following a 2.1% decrease in January. The construction report suggested economic growth accelerated in the first quarter from the fourth quarter's anemic 0.4% annual pace. Construction spending largely benefited from a 1.3% rise in private construction projects and a 2.2% climb on private residential projects, the highest reading since November 2008. Current trends suggest the market is easing away from safe-haven assets but remain hesitant to place larger bets on riskier currencies.
EUR – The euro remains near 4-month lows vs. the dollar as European markets are closed today for the Easter holidays. The single currency is holding fragile gains above $1.28 as markets remain cautious over Cyprus and the implications of its rescue package for the rest of Europe’s troubled nations. Cyprus announced over the weekend that large depositors would lose 60% of balances over 100 thousand euros, an amount well over the initially estimated 30% to 40%. Banks in the country reopened last Thursday to strict capital controls and limits on withdrawals. Comments from Eurogroup President Jeroen Dijsselbloem last week stating that the Cyprus rescue package represented a new template for future euro zone bailouts has prompted concerns and undermined confidence in the safety of European investments. Caution is likely to continue to limit gains until investors feel more confident in the regions’ outlook.
GBP – The pound had its biggest quarterly drop against the dollar in more than four years as the economy’s contraction in the 4th quarter of 2012 has fueled concern of an unprecedented triple-dip recession. While we are trading roughly 2% higher than the low reached on March 12, mainly due issues with Cyprus, this recovery might be short lived as fundamentals remain weak in the U.K. The BoE announces their rate decision on Thursday, and they are expected to leave rates steady at 50 bps with no increase to their asset purchase program. This should lend some support to the currency.
JPY – The yen strengthened to its highest level since March 6th against the USD after BoJ surveys showed that Japanese sentiment improved in Q1 with household inflation expectations hitting a 4 ½ year high, lending support to BoJ Governor Kuroda’s continued efforts for an aggressive monetary policy. The market is trading in tighter ranges with markets still closed for the Easter holiday and as investors remain cautious ahead of both the ECB and BoJ monetary policy review later this week. The yen is currently trading 93.24, up 1% from Friday’s close of 94.19. Commodity Currencies –The commodity currencies weakened against the USD, despite stronger manufacturing data in China. The AUD weakened against the USD, as market participants await the business confidence and retail sales data due this week. The Australian central bank will meet today to discuss plans on interest rates; however, investors believe that the central bank will keep rates unchanged. Expect the AUD to remain in its recent levels until economic data is release later this week. The CAD weakened against the USD, with volumes limited by Easter holidays ahead of several central bank policy decisions due later in the week. Canada has no domestic data until Friday’s employment report, which will help illustrate the extent of hiring by businesses as the Canadian economy slowly recovers, and the Canadian PMI data. Market participants expect the CAD to remain in its recent levels until the release of economic data this week.
Renmenbi – The Chinese yuan climbed 0.05% to 6.2080 against the dollar, posting a 19-year high after the PBoC increased the reference rate and on reaction to strong manufacturing news. The central bank raised the currency’s fixing to 6.2674 per dollar, a .02% increase. China’s manufacturing also expanded at a faster pace last month, indicating a recovery in the world’s secondlargest economy is sustaining momentum. The Purchasing Managers Index was 50.9, an 11-month high and up from 50.1 in February. The moves by the PBOC seem to indicate the priority is gradually shifting towards managing inflation. The Renminbi climbed as high as 6.2073 in today’s trading, the highest level it has seen since 1993 when the government unified the official and market exchange rates.
For more market reports go to Union Bank of California