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Daily Update

October 3, 2013 
  • USD remains under pressure as government shutdown continues
  • EUR continues surge on better-than-expected retail sales data and improved political stability in Italy
  • Commodity currencies flat, RBNZ says interest rate hikes may be on horizon

USD – The dollar remained near recent lows against a basket of currencies with most investors and speculators cutting long bets with no sight of when the government shutdown will end. Concerns that a prolonged shutdown, now in day three, will take a toll on the U.S. economy and prompt the Fed to delay its tapering, will weigh on the US dollar in the near term. Yesterday, President Obama met with Republican and Democratic leaders in Congress, however, there was no solution and instead both sides blamed each other. President Obama told Republicans that “he will not stand” for their tactics, which included undercutting continued government funding to healthcare measures for Obama’s signature healthcare law. With hundreds of thousands of federal employees still without pay and no government economic data reports, the standoff comes a few weeks ahead of the next political battle to discuss raising its $16.7 trillion debt ceiling.

EUR –  The euro continued its climb trading at near 8-month highs following better-than-expected euro zone data and the ECB’s lack of concern over the currency’s recent strength. Retail sales and service sector numbers in the euro zone came in higher-than-expected. In Italy, the services sector grew unexpectedly in September for the first time in more than two years. The Markit/ADACI Business Activity Index, covering a range of companies from banks to hotels, jumped to 52.7 from 48.8 in August, beating the forecast of 49.1. Also in Italy, there was an improvement in political stability following yesterday’s Italian government winning a confidence vote. Surveys from a poll last week showed the majority expects the ECB to offer another long-term offering of cheap cash to banks that will need it by the end of 2013 or early 2014, which is expected to weigh on the euro.

GBP – The Pound sterling weakened slightly against the USD as BoE Governor Mark Carney has been under pressure over his forward guidance policy. His policy of increasing interest rates from a record low 0.5% will be considered when the UK jobless rate falls to 7%, from its current 7.7%. The BoE does not expect the unemployment rate to fall below 7% until Q3 of 2016 with some surveys showing it will hit the target by the end of 2015, considering the rate at which it has been falling recently. In today’s market session, sterling had a brief rise, touching the interbank market rate of 1.6244 against the USD after data showed that Britain’s service sector posted robust growth in September. The PMI for services came in at 60.3 from the August 60.5, which was better than the expected 60.0 forecasted and shows solid growth. The intraday high was short-lived however with markets not convinced that the BoE’s current monetary policy guidance is accurate.

JPY – The yen is slightly stronger today vs. the dollar, up 0.1% leading into tomorrow’s BoJ monetary policy meeting. The BoJ is widely expected to keep interest rates the same, and discussions will also be held regarding the potential economic impact of PM Abe’s recent decision to increase the sales tax. Many analysts think the increase could have a negative effect on the Japanese economy, although the BoJ also announced plans of introducing a stimulus package to help soften the impact of the tax hike. Overall, while markets will be focused on tomorrow’s meeting, most traders are not expecting any major surprises.

Commodity currencies – The NZD initially rose today after hawkish comments by the RBNZ but has since pared its gains, currently down almost 0.4% from yesterday’s close of .8327. RBNZ Governor Graeme Wheeler stated that an increase in interest rates might soon be necessary if the newly introduced mortgage lending limits fail to cool New Zealand’s housing market, which is adding inflationary pressures to the kiwi. He also went on to say that rates may rise by 200bps between 2014 and 2015, a substantial increase from current record low rates of 2.5%. The AUD also received some immediate strength after the RBNZ comments, but slightly retreated and is now flat on the day. Still, the Aussie dollar is up almost 1.0% since Monday, as markets have pared back chances of further monetary easing by the RBA. Meanwhile, the Canadian dollar is modestly stronger vs. the dollar today, with no major news or economic data releases. The loonie continues to trade within a tight range, but could weaken if economic growth in the US becomes negatively affected by the ongoing government shutdown.



 Indications of Overnight rates and % Change

10Y Treasury
WTI Crude





Indications of overnight currency exchange rates are provided by Bloomberg © 2013 as of <8:30AM 10/03/2013> and may be different from rates offered or reported by Union Bank at that time or any other time. Indications of overnight currency exchange rates reflect rates for large interbank transactions and do not reflect rates offered to Union Bank customers. Rates offered to customers may differ depending on such other things as different transaction amounts, different payment media (such as bank notes, checks and wire transfers), and rates offered or reported by third parties. Rate information provided is not a guarantee of future exchange rates or trends.