Daily Report: EUR/USD, GBP/USD, USD/CAD and USD/JPY

The U.S. Dollar declined against 16 of its most traded peers as investors sought risk assets. At the heart of the decline was an increase in risk The U.S. Dollar declined against 16 of its most traded peers as investors sought risk assets. At the heart of the decline was an increase in risk appetite brought on by optimism over the fact that six of the world’s central banks, including the Federal Reserve, took the initiative to implement measures designed to prevent the European debt crisis from dampening global growth. The six banks agreed to reduce interest rates on emergency dollar lending and to create temporary bilateral swap programs, should conditions in the market warrant such a measure. Demand for risk continued to increase as China announced it would reduce bank reserve requirements, and after the U.S. released metrics indicating a decline in Jobless Claims. The ADP Employment Change revealed a hike of 206,000 jobs in the private sector. Meanwhile, the Canadian Dollar appreciated the most since 2010 on news that the central banks, including the Bank of Canada, lowered the costs of emergency dollar funding in order to help Europe’s debt turmoil. The Loonie was buoyed by reports revealing that Gross Domestic Product advanced in the third quarter due to the biggest spike in exports since 2004.

The Euro rallied the most in one month versus the U.S. Dollar after coordinated efforts between six of the major central banks promised to avert a crisis in the financial markets. Their actions were fueled by fears that another credit crunch would devastate global economies. The measure is aimed at easing tensions in the markets by providing more funds to lenders. In the meantime, the meeting between the Euro region’s top Finance Ministers failed to produce a concrete solution for expanding the EFSF. However, the 17-nation currency added gains on the mere fact that policy makers did agree on the need to expand the bailout fund, and they reached a consensus with a great number of banks to accept 50 percent writedown on the Greek debt. The British Pound gained dramatically as optimist reigned in the markets and as investors were set at ease on the issue of liquidity in the credit sector. The Sterling benefitted from its new “safe haven” status as many traders shied away from Euro assets and opted for U.K. gilts which seem to be unaffected by the debt crisis.

The Japanese currency traded mixed, although higher than the greenback. It dipped soon after the release of news confirmed that major central banks would increase credit lines to ensure continued economic growth. The Deputy Governor of the Bank of Japan, Kiyohiko Nishimura, released statements in which he pointed to “imbalances in the E.U. region” as the culprit for the sovereign debt crisis. He added that the BOJ is willing to intervene in the event the crisis worsens and the Yen appreciates due to the demand for refuge.

Lastly, the Australian and New Zealand Dollars traded at their highest prices in two weeks versus the greenback after the central banks from six developed nations moved to make funds available to lenders. The two South Pacific currencies advanced further after China reduced the amount of required bank reserves. The Australian Dollar strengthened versus the Yen on data revealing that business investments climbed more than expected in the third quarter.

EUR/USD- Euro Rallies On Bank Actions

The Euro was at the center of the news as it rallied on the coordinated efforts between six of the developed nations’ central banks. The central banks of Canada, Japan, the U.K., Europe, Switzerland and the Federal Reserve of the U.S. agreed to lower the costs of emergency dollar funding so as to ease the “stresses” in the capital markets. Other news of China’s decision to reduce the banks’ reserve requirements fueled risk appetite. The Euro erased some of its gains as a result of lackluster data which showed that unemployment levels climbed to 10.30 percent. The Euro zone’s CPI remained unchanged at 3.0 percent, falling in line with anticipations.




GBP/USD- Cable Rallies On Market Optimism

The British Pound appreciated substantially as optimism took over market sentiment. This took place after the world’s major central banks announced their decision to ease liquidity in the credit sector. The Sterling continued to benefit from the after-effects of the release of the Autumn budget, which revealed a host of austerity measures in place. On the economic front, metrics showed that the declining Money Supply and Consumer Credit were offset by the slight climb in Mortgage Approvals. Other data revealed that Consumer Confidence dipped to -31.




USD/CAD- Bank of Canada Cooperates in Joint Efforts

The Canadian Dollar advanced the most since May of 2010 as the Bank of Canada along with 5 other major central banks joined in efforts to mitigate the stress in the credit markets. Their move to reduce the costs of emergency Dollar funding is aimed at preventing another credit crunch like the one in 2008. The Loonie rallied further as gross domestic product grew at a 3.5 percent annualized pace between July and September. Statistics Canada indicated that U.S. companies hired 206,000 workers, fueling optimism in the market and boosting the value of the Canadian Dollar.




USD/JPY- Data Reveals Growth

The Yen traded mixed although a return of risk appetite to the market caused it to dip against the Pound and the Euro. Economic releases showed that Industrial Production increased to 0.4 percent YoY in October, while Manufacturing PMI dipped to 49.1. Labor Cash earnings rose to 0.1 percent and Housing Starts dipped less than in the prior month. Both Vehicle Production and Construction Orders rose over 20 percent.




Today’s Outlook

Today’s economic calendar shows that Switzerland will report on GDP. The Euro region and the U.K. will release data on Manufacturing PMI. The U.S. will issue reports on Initial and Continuing Jobless Claims and ISM Manufacturing Index. Japan will publish Capital Spending and Monetary Base.