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US$ Pares Overnight Losses

The U.S. dollar fell across the board overnight as a rebound in risk appetite pushed the greenback lower against higher yielding currencies.  However, the dollar regained some of its overnights losses as European stocks slumped and U.S. equities pointed to a slightly lower open.  Late last week, the dollar strengthened significantly after Dubai World announced it was seeking to suspend international debt payments, sending global stocks lower.  However, the United Arab Emirate’s central bank said it “stands behind” the country’s lenders, easing concern that state-owned Dubai World will default on its debt.  Later this morning economic activity in the Mid-West is expected to expand at a slower pace in November as economists forecast the Chicago PMI to fall to 53.3 from a 13-month high of 54.2 in the previous month.  Also, the Dallas Fed Manufacturing Activity index is expected to hold flat for the same period after contracting 3.3% in the previous month.  The data is unlikely to change the direction of the greenback, so expect the dollar to continue to trade in lock step with U.S. equities. 

 

The Euro bounced back against the dollar following Friday’s sell off as investors added risk to their portfolios.  Meanwhile, a report by the European Union statistics office showed the CPI estimate increased 0.6% in November to mark the first rise in seven months, driven by rising energy prices.  The rebound in price growth may lead the European Central Bank to hold a hawkish outlook going forward as the economy returns to growth. The ECB is expected to hold borrowing costs at 1.00% later this week and is likely to maintain its 60 billion Euro covered bond purchases as the recovery remains weak however, market participants may continue to ramp up long-term expectations for higher interest rates in Europe as the central bank expects price pressures to strengthen over the following year.

 

The Japanese yen weakened against most of its major rivals, while gaining against the U.S. dollar following comments Japanese Finance Minister Hiroshisa Fujii.  Mr. Fujii was quoted by the Mainichi newspaper as saying the government will not act to curb the yen’s gains against the dollar.  However, Fujii denied saying he has ruled out intervening foreign exchange markets.  Indeed, today he told reporters “I never said that.”  Despite the mixed message from the Japanese government, it seems unlikely that the Japanese will do nothing if the yen continues to strengthen against the dollar as it will hurt their export-driven economy.

 

The British pound halted a two-day decline against the dollar but remains range bound entering the week.  A report by the Bank of England showed mortgage approvals in the U.K. increased 57.3K in October to mark the highest level of lending since March 2008.  However, consumer credit tumbled 0.6 billion during the same period, which is the biggest decline since the series began in 1993. A separate report showed consumer confidence unexpectedly fell for the first time this year as the GfK survey weakened to -17 from -13 in October, while home prices in the U.K. rose 0.2% for the third consecutive month in November, according to the Hometrack Housing survey. The data reinforces a weakened outlook for private sector spending as households continue to face tightening credit conditions paired with fading demands for employment.  Therefore many investors believe the central bank may take additional steps to encourage a sustainable recovery as the central bank keeps an “open mind” for future policy.

US$ Falls to 15-Month Low Against Euro

The U.S. dollar fell across the board overnight, trading to new yearly lows against the Euro as global equities tipped higher and the Federal Reserve refrained from voicing concern over the dollar’s decline.  Indeed, the Federal Open Market Committee called the dollar’s depreciation “orderly” in minutes from their meeting released yesterday, sending the dollar to the lowest level against Euro since August 2008.  This morning saw the release of a slew of data.  Consumer spending and personal income both registered slightly better than expected and initial and continuing jobless claims fell to the lowest level since September 2008.  The strong data continues to spur demand for higher yielding assets, weighing on the dollar.  At 10 a.m., new home sales are anticipated to increase 0.4% after contracting 3.6% in September, and the data is likely to encourage an improved outlook for future growth as the economy emerges from the worst recession since the Great Depression.  Trading volume will likely be light ahead of Thanksgiving tomorrow, causing the dollar to trade in volatile ranges due to low liquidity in the markets.

 

The Euro gained on the dollar for the third straight day, reaching a 15-month high against the greenback.  As traders take a break in observance of the Thanksgiving holiday, the thin trading conditions could spark increased volatility in the euro-dollar as risk trends continue to exchange rates.  The economic calendar showed consumer confidence in Germany unexpectedly weakened for the second month in December with the index slipping to 3.7 from 4.0 in the previous month. The data foreshadows a weakened outlook for private spending as households face a weakening labor market paired with tightening credit conditions.

 

The Japanese yen spiked to a ten-year high against the dollar, but remains under pressure against most of its other rivals as strong economic data has increased investor’s appetite for risk.  A government report in the Japan showed that the nation’s exports dropped at the slowest pace in a year as government spending worldwide has boosted demand.  The date reinforces the global economy is pulling out of the worst recession since World War II, weighing on the safe-haven currency.

 

The British pound gained against its major rivals as the U.K. economic docket reinforced an improved outlook for the British economy.  The preliminary GDP report showed economic activity weakened 0.3% during the third quarter amid an initial forecast for a 0.4% contraction.  The breakdown of the report showed private consumption held flat from the second quarter, which topped forecasts for a 0.2% drop, while business investments slipped 0.3% versus projections for a 3.3% decline.  Conditions in the U.K. are likely to improve throughout the remainder of the year as the expansion in monetary and fiscal policy continues to promote growth.  However, as policy makers see a risk for a protracted recovery, investors continue to speculate the Bank of England to expand its asset purchase program over the coming months.

 

 

US$ Largely Unchanged Ahead of Today's Data

The U.S. dollar traded mostly unchanged overnight as investor’s jockeyed positions ahead of this morning’s slew of economic data.  European stocks fell in early trading but pared their losses after strong economic data was released in the Euro-zone.  With U.S. equities pointed to flat open, traders will likely shift their focus to today’s economic docket to drive the dollar.  The second reading of U.S. third quarter GDP was released and showed a downward revision to a 2.8 percent annual rate in the third quarter, from a 3.5 percent reading last month.  However, the data was inline with investor’s expectations.  The S&P Case Schiller housing figures, consumer confidence and Richmond Fed are also on tap and offer event risk, weighing on the dollar if they numbers portray a positive outlook for growth for the world’s largest economy.  However, this afternoon’s release of the FOMC minutes will take center stage today and a dovish stance from policy makers could lead to support for equities and more dollar weakness.

 

The Euro continued to trade near the high end of recent ranges against the dollar following the release of strong economic data in the Euro-zone.  The German business confidence survey rose to 93.9 from 91.9, a fifteen month high.  Also, the final reading for German GDP helped buoy the common currency as it confirmed Europe’s largest economy grew by 0.7% in the third quarter. An unexpected jump in domestic demand from -1.4% to 1.3% helped raise the outlook for future growth in the region and a 1.5% increase in industrial new orders added to the bullish story as it advanced for a sixth straight month.  Despite the strong data, the Euro has been unable to break above recent highs against the greenback, therefore expect the Euro to remain range-bound ahead of the Thanksgiving holiday in the U.S. on Thursday.

 

The Japanese yen gained against all of its rivals as Asian equities fell, spurring demand for safety.  Chinese and Japanese banks led the decline in stocks on concern they will be forced to raise more capital.  In addition, Finance Minister Hirohisha Fujii said monetary policy is key to fighting inflation, signaling the central bank should do more to stem price declines.  Expect the yen to continue to trade with risk, gaining as if another bout of risk aversion occurs.

 

The British pound traded largely unchanged in overnight trading ahead of economic data released in the U.S.  Fundamentally the news from the U.K. continues to improve with mortgage approvals in October rising to the highest level since January of 2008. New loans edged higher to 42,238 from 42,073 the month prior as banks have started to loosen their lending standards. However, we continue to see small businesses and consumers finding it difficult to obtain funds for other ventures, which is why the BoE has left the door open for future quantitative easing.  Further purchases by the British central bank will all but certainly weigh on the sterling moving forward. 

 

 

US$ Weakens But Remains Range Bound

The U.S. dollar fell across the board overnight as investors raised their appetite for risk and market participants speculated that the Federal Reserve will keep stimulus measures in place and ensure interest rates remain virtually zero.  Indeed, St. Louis Fed President James Bullard said yesterday that he supported extending the central bank’s purchases of mortgage-backed securities beyond the first quarter next year.  The dollar weakened the most against commodity based currencies, such as the Canadian, New Zealand and Aussie dollars as the price of gold surged higher, setting new all-time highs.  At 10 a.m., economists forecast existing home sales in the U.S. to increase an additional 2.3% in October after rising 9.4% previous month, which would be the highest level since July 2007 reinforcing an improved outlook for future growth.  As U.S. equities are pointed towards a higher open, the dollar will likely stay under pressure throughout our trading session.

 

The Euro pushed higher against the greenback, but failed to break into new, higher ranges against the dollar as risk re-entered the market.  Meanwhile, the economic docket showed manufacturing and service-based activity in the Euro-Zone expanded at a faster pace in November.  Manufacturing PMI increased to 51.0 from 50.7 and service-based PMI rose from 53.2 to 52.6, showing an improved outlook for inflation in the region.  Indeed, ECB member Miguel Angel Fernandez Ordonez held an improved outlook for the economy and expects inflation to turn positive over the coming months as the economy returns to growth.  He went onto say that the markets anticipate higher interest rates in the second-half of 2010 as the central bank maintains its one and only mandate to ensure price stability.

 

The Japanese yen tipped lower against all of its major rivals on speculation that the economic recovery remains in place, spurring investors to buy higher-yielding assets. Both European and Asian equities surged overnight and with U.S. stocks pointed to a higher open, the yen is likely to remain under pressure throughout the day. 

 

The British pound retraced some of last week’s losses against the dollar as global risk appetite surged.  However, as the BoE maintains an “open mind” for future policy, the central bank may ease policy further over the coming months to encourage a sustainable recovery.  This would cause investors to continue to scale back long-term expectations for higher interest rates in the U.K.  Nevertheless, many market participants expect the exchange rates to hold a broad range going into the end of the year as investors weigh the outlook for future policy both in the U.K. and in the United States. 

 

 

US$ Soars as Global Equities Fall

The U.S. dollar gained across the board as a drop in European equities, Asian stocks and commodity prices deterred demand for riskier assets.  There is no major economic data slated for release today in the United States.  The lack of event risk during our trading session may continue to boost the reserve currency throughout the North American session as equity futures foreshadow a lower open for the U.S. market.  Traders will now shift their focus to next week’s economic docket, which is likely to spark increased volatility in the foreign exchange market.  On Tuesday, the preliminary 3Q GDP report is expected to show a downward revision to 3.0% from an initial forecast of 3.5%.  Also, the Fed minutes from the policy meeting earlier this month are scheduled to be released Tuesday ahead of the Thanksgiving holiday. 

 

The Euro tipped to the lowest level in two weeks against the U.S. dollar as investors shunned higher-yielding assets.  Also weighing on the common currency were dovish comments from the European Central Bank President Trichet who said, “it’s too early” to declare the financial crisis over. He reiterated that the Governing Council will gradually scale back its covered-bond purchases, and went onto say that “any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.”  Meanwhile, producer prices in Germany unexpectedly held flat in October, with the annualized rate slipping 7.6% for the second consecutive month amid forecasts for a 7.5% decline.  The data failed to move the direction of the Euro as the common currency continues to track global equity markets.

 

The Japanese yen gained against all of its major counterparts once again as a pullback in risk appetite sparked demand for the safe-haven currency.  The yen also benefited as the Bank of Japan left its benchmark interest rate at 0.1 percent at the end of their policy meeting today.  The move, however, was widely expected.  The central bank did raise its monthly assessment, saying the economy is picking up but maintained its dovish outlook for inflation. 

 

The pound weakened against the dollar for the third straight day and may continue to stay under pressure as investors scale back their appetite for risk.  On the heels of yesterday’s weak budget deficit number, Richard Lambert, the director of the Confederation of British Industries said that the government will need to take “ambitious” steps to reduce the public deficit in order for the Bank of England to maintain borrowing costs at the record-low for an extended period of time.  He also argued that the Treasury “should seek to balance the budget by 2015 or 2016” as the nation’s sovereign credit rating remains at risk.  Expect the pound to remain under pressure as the currency retraces its advance from earlier in the month. 

 

 

US$ Gains as Global Equities Fall

The U.S. dollar rose against all of its major counterparts, but falling against the safe-haven yen, as Euro stock markets fell, discouraging demand for higher-yielding assets.  The dollar gained the most against the New Zealand dollar as the nation’s main opposition party ended its support for the central bank’s priority of containing inflation.  With U.S. equities pointed to a lower open, the dollar may continue to appreciate as the reserve currency benefits from safe-haven flows.  This morning saw the release of initial and continuing jobless claims that were largely inline with economist’s projections, a sign layoffs are letting up as the economy recovers.  At 10 a.m., the Philadelphia Fed factory index is projected to rise to 12.2 in November from 11.5 in the previous month and the leading indicator is expected to increase 0.4% in October to mark the seventh consecutive monthly advance.  Strong data is likely to encourage an improved outlook for the U.S. as the expansion in monetary and fiscal policy works its way through the economy.

 

The Euro fell against the dollar overnight as investors pared their appetite for stocks and other riskier assets.  With no major economic data released in the Euro-zone today, expect the Euro to trade with risk, falling with global equities.  Meanwhile, the Organization for Economic Cooperation and Development (OECD) held an improved outlook for global growth and anticipates the Euro-Zone to grow 0.9% in 2010.  However, the organization argued that the European Central Bank should maintain the expansion in monetary policy “until late 2010” as growth prospects remain weak, slightly weighing on the common currency. 

 

The Japanese yen gained against all of its rivals, including the U.S. dollar, as higher yielding currencies and commodities declined.  Global stocks and U.S. index futures fell on concern the rally has outpaced the prospects for economic growth.  If equities pullback from their recent rally, the yen and the dollar should continue to benefit from safe-haven flows.  Therefore, expect the yen to continue to trade in lock step with stocks, as equities have been the best barometer for the prevailing risk sentiment.

 

The British pound fell against the U.S. dollar overnight, but continues to trade near the top end of recent ranges as the sterling continues to retrace its early October sell-off.  Meanwhile, the economic docket showed retail spending expanded 0.4% in October amid expectations for a 0.5% rise, while the annual rate of consumption jumped 3.4% from the previous year versus forecasts for a 2.9% increase. Moreover, the public deficit in the U.K. rose11.4 billion pounds during October amid forecasts for a 7.0 billion pound rise.  Also, the OECD said that the Bank of England should hold the benchmark interest rate at the record-low until 2011 in order to encourage a sustainable recovery, and held a cautious outlook for the region.  As the group calls on the central bank to support the economy throughout the following year, market participants may scale back long-term expectations for higher interest rates as BoE Governor Mervyn King maintains an “open mind” for future policy.

 

 

US$ Weakens on Risk Rebound

The U.S. dollar fell against all of its major rivals overnight, while mostly unchanged against the pound as a rebound in risk assumption drove investors away from the dollar.  European stocks, U.S. equity futures and commodity prices all tipped higher ahead of a slew of data slated for release today in the United States.  This morning saw the released of a mixed bag of data in the United States.  Consumer prices in the world’s largest economy are increased 0.3% in October, beating expectations of a 0.2% rise.  The rebound in price growth could encourage long-term expectations for higher interest rates in the U.S. as the Federal Reserve concludes its easing cycle.  The dollar has gained slightly on the back of a government report that showed U.S. housing starts and building permits unexpectedly plunged in October, discouraging demand for higher-yielding assets. 

 

The Euro gained against the dollar overnight, but failed to establish new, higher ranges against the greenback.  Meanwhile, the economic docket showed the Euro-zone current account slipped to -5.4 billion euro seasonally adjusted in September from a revised reading of positive 0.6 billion euro in the previous month.  Also, construction outputs slipped 1.1% during the same period after rising 0.1% in August. The data suggests a weakened outlook for the euro-region as policy makers see a risk for a protracted recovery.  Nevertheless, expect the Euro to continue to trade with the prevailing risk sentiment, gaining as equities continue their bullish trend.

 

The Japanese yen fell slightly across the board, but unchanged against the dollar, as higher global equities weighed on the “safe-haven” currency.  The yen has continued it strong correlation to risk, trading lock step with equities as investors jockey between risk assumption and risk aversion.  In research note released by the Bank of Tokyo-Mitsubishi, Japan’s largest bank said that the yen may rise before the end of the year as the global economy recovery shows signs of slowing. 

 

The British pound opened relatively unchanged from yesterday’s close despite mixed price action overnight.  The Bank of England minutes released this morning showed the central bank voted unanimously to keep the benchmark interest rate at 0.50%, but showed some dissent over the decision to increase their asset purchase program to an extra 25 billion pounds.  Indeed, board member Spencer Dale wanted to keep the emergency program unchanged at 175 billion pounds, while David Miles pushed for a 40 billion increase.  The split in policy makers may drag on the currency going forward as investors weigh the outlook for future policy.

 

 

US$ Gains As Global Equities Fall

The U.S. dollar rose against all of its rivals during overnight trading as investors sought the safety of the dollar as riskier assets fell.  European stocks declined from their 13-month high and Asian stocks also fell sharply.  The dollar may find continued support, as U.S. stock futures are pointed for a lower open.  The greenback also gained significantly against the Canadian and Aussie dollars as the price of gold and other commodities pulled back from their recent highs.  This morning saw the release of Producer Price index, which showed wholesale prices in the U.S., increased less than expected.  Indeed, prices rose for only the second time in past four months, indicating inflation will not be a concern for the Federal Reserve in the near term. Later this morning, industrial outputs are expected to increase 0.4% in October to mark the third consecutive monthly advance.  Expect the dollar to continue to trade with risk, gaining on poor economic data and lower equities. 

 

The Euro halted a two-day advance against the dollar as it failed to establish new, higher ranges against the greenback.  The Euro lost ground against the dollar as global risk appetite waned overnight as both European and Asian equities plummeted.  Meanwhile, the Euro-Zone economic calendar showed the Euro-zone trade surplus widened to 6.8 billion euro as exports increased 5.5% from August.  This data encourages an improved outlook for future growth as the economy emerges from the worst recession since the post-war period.

 

The Japanese yen gained against its major counterparts, while falling slightly against the dollar as global equities fell overnight.  The yen also found support as the International Monetary Fund Managing Director Dominique Strauss-Kahn said the global economic recovery may be sluggish, discouraging demand for higher-yielding assets.  The yen will continue to trade with the prevailing risk sentiment, gaining if equities continue their pullback from recent highs.

 

The British pound surged against the dollar in early overnight trading, but was unable to hold onto its gains and opened this morning slightly lower against the greenback.  Consumer prices in the U.K. increased 0.2% in October to top expectations for a 0.1% rise, with the annual rate of inflation expanding 1.5% from the previous year. The core CPI tipped higher to an annualized pace of 1.8% from 1.7% in the previous month, and the data suggests that the Bank of England will maintain a neutral policy stance going forward as policy makers aim to balance the risks for growth and inflation.  However, the pound is likely to trade in ranges ahead of tomorrow’s release of the Bank of England meeting minutes.  As policy makers see a risk for a protracted recovery, the minutes will likely reiterate its dovish outlook for future policy, weighing on the pound. 

 

 

US$ Weakens As Global Equities and Commodities Rise

The U.S. dollar feel across the board overnight as European and Asian equities, along with U.S. stock futures rose.  The dollar remained under pressure against commodity-based currencies as well, as price of commodities surged.  Indeed, the price of gold once again traded at its all-time high.  This morning saw the release of better than expected retails sales, showing an increase of 1.4% versus and expectation of a 0.9% gain.  The dollar has unexpectedly gained slightly following the release of strong data.  Fed Chairman Ben Bernanke is scheduled to speak this afternoon and comments from the central bank head could move the currency market as participants weigh the outlook for future policy. The economic docket for the rest of the week will also move markets with the Producer Price Index and Industrial production slated for Tuesday morning and the Consumer Price Index and Housing Starts on Wednesday.  Thursday sees the release of Jobless claims, Leading Indicators and the Philly Fed.  There is no major economic scheduled for Friday. As equity futures foreshadow a higher open for the U.S. market, a rise in risk appetite could weigh on the reserve currency as investors move into higher-yielding currencies. 

 

The Euro rallied against the dollar as rising global equities and higher interest expectations in the region boosted the common currency.  Bundesbank President Axel Weber held a hawkish outlook for future policy and said that the central bank must start preparing to implement an exit strategy in an effort to balance the risks for the economy. Mr. Weber argued that there is risk for more turmoil if policy makers miss the appropriate time to scale back its emergency programs, and went onto say that the European Central Bank remains committed to ensure price stability across the region.  Nevertheless, the economic docket showed consumer prices in Europe weakened for the fifth-month in October, with the headline reading falling 0.1% from the previous year after contracting 0.3% in the previous month.   Therefore, the central bank is likely to hold a neutral policy stance throughout the remainder of the year as board members continue to see a risk for a protracted recovery and expects price growth to remain subdued over the near-term.

 

The Japanese yen fell across the board, while gaining slightly against the dollar, as Japan’s better-than-forecast economic growth in the third quarter encouraged demand for higher-yielding assets.  Japan’s gross domestic product rose at an annual 4.8 percent, beating investor’s expectations.  Also, the yen strengthened against the dollar on speculation that Japanese investors will bring back earnings on overseas assets.  The U.S. will pay out over 100 billion dollars in redemptions and interest payments on Treasuries today, increasing the demand for yen as investors book profits. 

 

The British pound gained against the dollar, but fell against its other rivals following the release of poor data in U.K.  Rightmove Plc reported that the average home price fell 1.6 percent in October, the first stumble in prices in three months.  However, the pound is likely to trade within ranges early in the week.  On Thursday, the Bank of England will release the minutes of this month’s meeting when policy makers expanded their asset purchase program by 25 billion pounds.  Investors will look for hints as to future policy in the region, as many market participants expect the central bank to continue to its already expansive quantitative easing program through early next year. 

US$ Falls Across the Board as Equities Rebound

The U.S. dollar declined across the board overnight as optimism that the global economic recovery is gathering momentum spurred investors to buy higher yielding assets, shunning the dollar.  European stocks advanced after the region pulled out the recession and higher U.S. equity futures are likely to continue to weigh on the greenback.  Meanwhile, the trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles.  The data did not have an immediate impact on the direction of the dollar.  At 10 a.m. the U. of Michigan confidence survey expected to reinforce an improved outlook for private spending as economists forecast an increase to 71.0 in November from 70.6 in the previous month.  Expect the dollar to continue to trade with equity markets, falling if stocks regain yesterday’s losses.

 

The Euro advanced slightly overnight as the Euro-zone returned to growth in the third quarter.  The advanced GDP reading for the Euro-Zone showed the growth rate increased 0.4% from the second quarter amid projections for a 0.5% rise, with the annualized rate tumbling 4.1% from the previous year versus forecasts for a 3.9% drop. As the Euro-Zone emerges from the worst recession since the post-war period, expectations for higher interest rates in the region may continue to support the common currency.  However, economic advisors to the Germany government expect the European Central Bank to scale back its emergency programs before the bank begins to raise interest rates.  Moreover, the group said that the economic recovery in Germany remains fragile as the expansion in monetary and fiscal policy continues to support economic activity in the region.  They went onto say that “abrupt” changes in foreign exchange rates could hamper the prospects for the recovery, as global trade conditions remain weak.

 

The Japanese yen gained against the dollar overnight, as investors sold the greenback across the board.  Japanese Finance Minister Hirohisa Fujii said the nation’s economy is still “very unstable” and it is too early to withdraw stimulus measures because the recovery has yet to take hold.  The new government is seeking to reduce the economy’s reliance on exports and to bolster domestic spending, but may economists argue that a strong yen will hinder the export driven economy.

 

The British pound gained against the dollar overnight after falling the day prior as investors sought higher yielding assets.  However, the Financial Times reported that Chancellor of the Exchequer Alistair Darling was surprised when Bank of England Governor Mervyn King projected economic activity to expand 4.0% in 2011 during the central bank’s quarter inflation report.   This may be a sign that Mr. Darling may hold a lower outlook for future growth than the BoE in the Pre-Budget report due out next month. Meanwhile, Financial Services Authority Managing Director of Supervision Jon Pain held a cautious outlook for the U.K. mortgage market and said that credit lending should not be influenced by a handful of large financial institutions, and said “new entrants into the mortgage market should be encouraged if they have a sustainable business model.”  The dovish outlook held by policy makers could weigh on the sterling despite improving economic conditions in the U.K.