The US Dollar fell against most of its higher-yielding counterparts overnight, but gained against the safe-haven JPY and CHF as risk appetite rebounds. While developments in Europe have been the driving force behind the currency market over the past several days, better than expected US labor data spurred on a risk-on rally this morning. Weekly jobless claims fell by more than forecast, registering 418K versus last week’s upwardly revised reading of 432K. A report from private payrolls provider ADP showed that the private sector added more than twice the amount of jobs as expected in June, posting a 157K gain versus last month’s meager 36K addition. Both reports have come as welcome news before the all-important nonfarm payrolls and unemployment reports due tomorrow. While the improvement has encouraged investors to seek higher yields this morning, with weekly claims still above 400K, the economy will struggle to grow with consumers making up the bulk of economic activity.
The EUR pared yesterday’s drop as investors shrug off the downgrade of Portuguese debt and focus on an interest rate hike from the ECB. As was widely expected, the Bank hiked rates by 0.25% for the second time this year, raising the benchmark rate to 1.5% even as the region’s periphery economies teeter on the brink of default. ECB President Trichet cited above-target inflation as the impetus for higher rates, with Eurozone inflation rising to 2.7% in June versus the Bank’s 2% annual target. Trichet also hinted at further rate hikes saying that price pressures remain the Bank’s primary cause for concern, and as they eased restrictions on minimum credit-rating thresholds for member nations a day after Moody’s downgraded Portuguese bonds to junk status. With the ECB more focused on containing inflation in the near term, the EUR will remain well supported despite the risk for default.
The GBP is under pressure this morning against most of its major counterparts after the BoE left interest rates on hold at the current historical lows. BoE Governor Mervyn King has been persistent in his tolerance of rising inflation as the British economy languishes. The Bank also maintained its quantitative easing program at 200B GBP for purchasing government bonds. Until economic data begins to turn for the better in the UK, the pound will remain under pressure as the BoE has shown repeatedly that it will error on the side of caution when it comes to monetary policy.
The JPY fell back towards the lower end of its recent ranges overnight as gaining market risk appetite weighed on the “safe haven” currency. With an interest rate hike from the ECB, and relatively strong economic data out of the US this morning, investors have shrugged off the Eurozone’s ongoing struggles with debt and have shifted capital into higher yielding assets. However, the risk-on rally could prove temporary with any further negative developments out of Europe or should the US NFP report tomorrow miss expectations.
The Commodity Currencies are generally higher this morning as gaining risk sentiment benefits these high-yielders. Oil is inching back towards $100/bbl, currently at $98.95/bbl, copper is also higher at $443/lb, and consumables pared recent declines. The CAD was one of the best performers overnight, helped higher by rising oil prices and on better-than-expected labor market reports in the US, Canada’s main trading partner. The AUD also extended recent gains despite slower growth in China, Australia’s main trading partner, as employers in the South Pacific nation added more jobs than expected last month. The Aussie’s G-10 leading interest rates of 4.75% also continue to attract significant investor demand. The ZAR was the biggest winner against the dollar, gaining by more than a percent on improved risk appetite, but also as fears of an imminent debt default in the Eurozone, the main destination for South African exports, eased. In the near term, investors’ optimism and gaining commodity prices will keep this group of currencies well supported.
One of the essentials of a well-rounded financial education is learning how to give. Children naturally want to do what they see others doing, and that includes giving gifts to others. You can help you child get in the habit of giving gifts to others, and teach them to use their money for good, whether it involves thoughtful gift-giving, or philanthropy.