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US$ Looks Likely to Renew Test of All-Time Lows Ahead of Jobs Figure

The US$ continues to remain under pressure as traders focus on a new set of financial market oversight proposals from Washington and ahead of the release of US economic data this week. The market remains convinced that the US economy will continue to struggle for some time, ultimately leading to recession. Add this economic weakness to the recent turmoil and Wall Street and investor confidence in US assets continues to decline. This “struggle of confidence” continues to erode the US$, leading ultimately to further greenback declines. At 9:45 a.m. this morning the Chicago PMI is to be released expected to gain to 46.0. Tomorrow sees the release of ISM Manufacturing and Construction Spending, while Wednesday sees the release of Mortgage Applications, the ADP jobs report and Factory orders. The week winds to a close with the release of the jobs report on Friday expected to decline 50,000 jobs with an increase in unemployment to 5.0%. Expect traders to watch the flow of data this week as a bottom is looked for amidst ever disappointing data. This flow of data will ultimately further reinforce the negative sentiment pervading markets and keep the US$ under pressure.

The euro gained modestly overnight after the release of data in the Eurozone showing an acceleration of inflation pressures. Eurozone CPI accelerated to 3.5% in March the highest rate since June of 1992 as recent gains in food and energy prices accelerated consumer prices. These gains in prices will likely force the ECB to keep rates steady at 4.0%, to combat this growing inflation threat, preventing the Bank from acting in an interest rate supportive manner to jumpstart economic growth should growth slow. However, recent data has shown that business confidence in France and Germany continues to remain robust, while unemployment holds near a record low of 7.1%. This strong economic performance in the Eurozone’s two largest economies gives the ECB some breathing room for the time being and enables the Bank to maintain its current interest rate stance. This should continue to support the euro for some time.

The yen continues to trade in wide looping ranges as traders use the Japanese currency as a proxy for market risk and the overall health of the US financial sector. Traders remain hesitant to use the yen in the “carry trade” as uncertainty pervades the health of the US financial sector, while stock markets continue to gyrate in wide ranges. Expect this trend to continue for some time, leading ultimately to a period of pronounced yen strength within current ranges.

The pound fell overnight after the release of a report showing that the UK housing prices dropped for the sixth straight month in March. Further weighing on the pound is an increased belief that signs of weakness in the UK economy could lead to a rate cut by the Bank of England when it meets next week. As the global credit crisis appears to be working it’s way through the UK economy, there is a mounting concern that UK industry will slow considerably as banks’ lending practices tighten considerably. In response to this expected industry slowdown and weakness now pervading the housing market, it is expected that the BOE will slash rates next week, ultimately contributing o some sterling weakness.

US$ Rallies this Morning, A Bottom in the Greenback Might Be In Place

The US$ was mixed overnight following steady declines over the previous two days. With economic data continuing to disappoint the market, concerns have emerged over just how short this economic downturn will be. The longer the data takes to respond to the Federal Reserve’s policy action, the longer the US$ will remain under pressure. Today, the final release of fourth quarter 2007 GDP was released at 8:30 a.m. The number showed GDP grew at 0.6%, in line with expectations. Along with the release of GDP, personal consumption showed a gain of 2.3%, compared with expectations of 1.9%. Additionally, the Fed’s preferred measure of inflation, the personal consumption expenditure came out lower than expected at 2.5%. Expectations were calling for an increase of 2.7%. This is welcome news as it suggests that the longer-term damage that would come from a period of stagflation might not occur in the U.S. In total, this is welcome news for the greenback this morning and could well spark a mini-rally ahead of next week.

After posting its biggest two-day decline against the euro in over two years, the US$ gained overnight as concerns emerged that European banks will also begin to show major writedowns from the credit crisis. Following a warning yesterday from Deutsche Bank that it will miss 2008 profit targets, a report was released today by Oppenheimer & Co. that claimed UBS will report a loss this quarter. The euro, which came within 0.3% of its all-time high yesterday, has remained firm on expectations that Eurozone growth will continue to impress. However, this latest news involving the European banking sector suggests that Europe is yet to be hit by the fallout from the U.S. subprime crisis. As these concerns mount, and speculation of European or coordinated G-7 intervention grows, the scope for US$ gains against the euro grows. Until, however, the European Central Bank changes its focus from inflation fighting, dips in the euro will be seen as buying opportunities and the trend will remain intact.

The yen fell overnight as squaring of positions occurred before the end of Japanese fiscal year on March 31. The yen gained over 4% in March against the US$ as Japanese exporters repatriated funds and investors fled from risk as the credit crisis expanded. The safe haven status of the yen is still well entrenched within the market, as bad news continues to support the currency. The yen’s rise, near 11% against the US$ this year, has come as investors remain ever more uncertain about the future of financial markets and the U.S. economy. Until concerns are quashed and financial markets stabilize, the market will be unwilling to aggressively sell yen.

The British pound gained overnight as risk reentered the market. With the U.K. now offering the highest interest rates in the G-7, it is sure to benefit from increased appetite for risk. The speculation in upcoming days will center on whether the Bank of England will lower interest rates at its next meeting. Though current market expectations are pricing in the move lower, the BOE’s status as the most unpredictable central bank will leave many in the market guessing until after the meeting. Speculation on further cuts is likely to keep sterling from experiencing long rallies.

US$ Weakens As Stark Contrast Drawn Between Consumer Confidence and European Business Climate

The US$ fell again overnight after data yesterday showed that consumer confidence is slowing – one of the first signs that the largest part of the U.S. economy is slowing down. The Conference Board’s measure of consumer confidence fell to 64.5 in March, compared with expectations of 73.5. This is the lowest level since March 2003, when the U.S. invaded Iraq. Financial markets have calmed considerably in recent weeks since the Fed moved to aggressively provide liquidity to the banking sector. In coming weeks, the US$ is likely to move in a consolidated range following the near uninterrupted 8% fall on the US$ index since early February. This morning, data for purchases of durable goods showed purchases of these declined 1.7% in February, which purchases excluding transportation declined 2.6%. The US$ has had little initial reaction to these figures as the market likely awaits data on new home sales at 10:00 a.m. this morning. These figures are expected to show that sales slightly declined in February to 578K from 588K in January.

The euro was significantly higher overnight following data that showed business climate in the Eurozone unexpectedly increased in March. The IFO Business Climate Survey showed an increase to 104.8, compared with expectations of 103.5. Even more impressive, however, was the increase in future expectations, which rose to 98.4 from an expected 97.8. With the disappointing figure released yesterday for consumer confidence in the states, this number likely had an amplified effect on the market, again highlighting the differences between the Eurozone and U.S. The euro was also supported by comments from ECB President Jean Claude Trichet, who stated that high interest rates will help to contain inflation. These comments, combined with strong data, should continue to keep the euro firm against the US$.

The yen gained versus the US$ overnight as risk aversion continues to enter and exit the market. Equity markets in the U.S. are indicated lower today, following recent gains. The yen also gained on a report by Goldman Sachs Group, which stated that it expects another $460 billion in write-downs by banks, brokerages, and hedge funds in the coming months. This figure is roughly four times the size that is currently reported. The potential for sudden, market-altering news to emerge in these uncertain times should keep the yen supported even as short-term calm enters the markets.

The pound fell overnight as it continues to suffer from the same economic slowdown as in the US$. Bank of England Governor Mervyn King stated in testimony in front of Parliament overnight that the central bank is seeking “longer-term” solutions to the U.K.’s credit crisis. He also emphasized that inflation should slow towards the Banks 2% target beginning later this year. Following the minutes of the BOE’s last meeting, which showed a much closer vote to leave interest rates steady than expected, the market began to price in expectations that the Bank would lower rates to 5.00% when it met on April 10th. Governor King likely reinforced these expectations overnight with his comments. Therefore, sterling will continue to experience pressure.

US$ Better After Holidays, Range Trading for Time

The US$ weakened overnight as the Europeans returned from their Easter holidays and resumed their exertion of downward pressure on the greenback. While the US$ has enjoyed a respite over the past several weeks, it seems that traders are now resuming their focus on the ever-widening interest rate differential gap between the US and the remainder of the industrialized world. As the market has adopted the belief that some stability is returning to US financial markets there is an ever-widening view that the US economy is in recession and likely to remain in that place for at least one more quarter. This view about an economic slowdown will likely contribute to an environment of low US interest rates for some time. The market will remain focused on the flow of US economic data to determine the extent of this US recession. At 9:00 a.m., the S&P/CaseShiller Home Index is to be released today expected to decline 10.5%. At 10:00 a.m., Consumer Confidence is to be released expected to decline to 73.5. Weakness in the US Consumer sector will further reinforce the view that the rates will move lower and that recession will prevail for some time, exerting continued downward pressure on the US$.

The euro gained overnight as traders refocused on interest rate differentials, moving away from the view that stability had returned to financial markets. As the US economy moves towards recession it seems likely that US rates will remain at current levels or push lower in the coming months. This interest rate position is being sharply contrasted with the ECB and its hawkish Chief Jean Claude Trichet. Trichet is slated to address the European Parliament tomorrow and is widely expected that he will maintain his position that anchoring inflation expectations remains his “highest priority.” This will almost certainly provide an upward bias to the euro over the next several months. However, extensive euro gains could ultimately be limited as traders begin to speculate about the prospect of market intervention by Central Banks. The G7 is scheduled to meet on April 12th and whispers continue to gain volume that some plan to bolster the US$ will be created.

The yen gained overnight as traders squared some short positions ahead of US economic data this morning and on the back of overall US$ weakness. However, the yen appears to be regaining its position in the “carry trade,” as evidenced by its movements yesterday, shadowing US equity markets. Also the yen has emerged in the “carry trade” surprisingly against the Icelandic Krona. The Central Bank of Iceland raised interest rates overnight to 15.0%, causing the currency to surge and further enhanced its position in the “carry trade.” Expect the yen’s fortunes to remain closely ties to the market’s appetite for risk, ultimately leading to wide trading ranges.

The pound gained overnight as traders refocus on the divergence in interest rates between the US and UK. With the US economy slowing and US rates likely to remain low for some time, investors have focused on the outlook for the UK rates. With rising inflation pressures and accelerating consumer spending, the Bank of England is unlikely to shift arts lower any time soon. This yield advantage continues to attract investors to the pound sterling.

US$ Gains as Top Might Be in Place

The US$ continues to gain across the board as a growing view is forming amongst traders that financial markets might have weathered the recent storm. Actions by the Federal Reserve last week and earlier this week seem to be buttressing investor confidence. The bailout and acquisition of Bear Sterns, coupled with the Fed injecting liquidity into the overnight cash markets started this cycle of calm. It was further supported as the Fed cut interest rates by only 75 basis points on Tuesday, less than the 100 basis points forecast, signifying that the Fed was not in a “panic mode.” Further helping this air of calm and stability returning was the announcement by the Federal Housing Authority yesterday that they were easing the capital requirement for both Fannie Mae and Freddie Mac. This action of reducing the reserve requirement could have the desired effect of injecting an additional $60 billion into an already tight mortgage lending market. This sentiment seems to be reflected in the recent steep drops in both the price of gold and oil. Gold has dropped some $100 over the past several days while oil prices have now broken back below the $100 per barrel. Earlier this morning the US released higher than expected weekly jobless claims reinforcing the view that US jobs market remains under duress. The market will next turn its attention to the Philly Fed Index expected to register –19.0 and Leading Indicators expected to decline 0.4%, both slated for release at 10:00 a.m. Traders will likely continue to watch the direction of debt and equity markets, as well as the trading cycle of oil and gold, to see if stability has indeed returned to markets. Overall, the US$ could likely continue to post further gains today as traders unwind short US$ positions ahead of the long Easter holiday.

The euro fell overnight, as traders seem to be gaining some confidence in the overall health of the US financial sector and after the release of some surprisingly weak data in the Eurozone. With traders unwinding positions in commodities and cautiously vacating long euro positions, the US$ continues to gain. Also supporting this euro drop overnight was the release of a report showing a significant drop in Euroozne service output. This decline in output has refocused the market on the prospect that the Eurozone economies will slow later this year as the US economic slowdown transfers across the Atlantic. This could ultimately lead the ECB to begin slashing rates, making the euro less appealing. However, expect trade to be guided over the next several weeks, as analysts remain squarely focused on the overall health of US financial markets.

The yen fell modestly overnight as the seeming calm descending upon financial markets is leading traders to cautiously reenter riskier positions financed with short yen positions. Expect the yen to continue to maintain its position as a proxy for market risk, as traders cautiously reenter the “carry trade.” It is likely that the direction of the yen will be determined over the next several months by the levels of confidence traders exhibit towards financial markets and the overall health of the US economy.

The pound fell modestly overnight as US$ strength steers trade, despite the release of a report showing that UK retail sales rose more than forecast in February. This robust data reinforces the view that inflation pressures are accelerating in the UK economy, likely leading the Bank of England to keep rates firm if not push them higher in the next few months. This environment of high rates will keep the pound firm for some time.

Have We Seen the Turn in the US$?

The US$ was lower overnight against the euro and yen, while extending gains yesterday against the British pound. The Federal Reserve moved yesterday to lower the Fed funds target rate by 75 basis points to 2.25%. The market was largely anticipating a cut to 2.00%. However, the move helped to spark a rebound in the US$ and a large rally in U.S. equity markets. Today, U.S. equity markets are indicated modestly lower, but with a large rally yesterday, this can be expected. Morgan Stanley this morning reported first quarter earnings that beat expectations, helping to extend the belief that brokerages will weather the subprime mortgage crisis. This could help continue to bolster confidence within the market that a solid bottom might be in place. Ultimately, this would benefit the US$ as confidence is restored in US$ backed assets. No significant data is set for release today and ahead of European holidays on Friday and Monday, the market is likely to digest recent information. This could help the US$ rally in coming days.

Overnight, the euro moved higher after a report by Bank of America suggested that the Federal Reserve might have another 75 basis points in easing to do. Each time a report like this is released, the market is reminded of the stark contrasts between the ECB’s policy and the Fed’s. Other news overnight suggested that the ECB might be bracing itself for an eventual slowdown of its own. ECB member Mersch stated that the Eurozone will not withstand the “ripple effects” of a U.S. slowdown. This should be beneficial for the US$ moving forward.

The yen continues to remain supported by expectations that the crisis is not contained. The statement overnight by ECB’s Mersch reinforces the idea that the crisis is really of a global nature and that, even if the U.S. is pulling out, risk aversion will continue to play a large role. Therefore, it is difficult to imagine that the yen will weaken substantially until a period of calm has entered markets and sentiment for risk reemerges. When it does, you might see yen weakness snowball as investors again take advantage of Japan’s low interest rates.

Sterling was lower overnight after risk aversion was sparked again. The high yielding currencies continue to remain volatile during these periods, as investors move in and out of carry trades. Overnight, news was released that the Bank of England voted 7-2 to maintain rates in March, with the two members suggesting the bank should lower rates. In addition to this news, additional news suggested that the U.K.’s largest mortgage lender, HBOS Plc., was struck by rumors that it too had liquidity concerns. Though the lender denied these concerns, the risk aversion struck the market and reminded investors that the U.K. economy is also in a housing-led slowdown.

US$ Set for Fed Meeting, Market Expects 100 bp Move Lower

The US$ fell yet again overnight as traders speculate about the prospect of significant and deep rate cuts from the Fed when the US Central Bank meets later today at 2:15 p.m. The market has priced in an 88.0% probability that rates would drop 100 basis points with a 12.0% chance assigned to a 125 basis point cut. Recent action by the Fed to reduce the discount rate (the rate banks borrow from the Fed) and the bailout of Bear Sterns have added further credence to aggressive action by the Fed later today. Traders will likely focus on earning news from Lehman later today, viewed as a surrogate to Bear Sterns, to gauge the financial strength of the investment bank as the entire sector remains under duress. Adding a further level of volatility to markets today is the release of US data today. At 8:30 a.m., PPI is to be released, expected to gain 0.4%, while Housing Starts and Building Permits are also slated for release expected to register a decline to 995,000 and 1,020,000 respectively. Expect anxiety to prevail in markets today, as worries about liquidity in the banking sector converge with concerns about faltering investment banks and the prospect of steep rate cuts from the US Fed. These worries should ultimately weigh on the US$ through the majority of today, promoting excessive volatility.

The euro gained yet again overnight as traders shift capital into the Eurozone currency as concerns about sharp rate cuts from the Fed later today prompt an exodus from the US$. Higher Eurozone interest rates coupled with robust economic growth continue to make the euro an attractive substitute for the greenback. Added to these factors, there has been significant reserve shifts by many Middle Eastern global central bakers away from the US$ and towards the euro in their reserve mix. This combination of events, coupled with a seeming “US$ crisis’ continues to bolster the common currency. However, the currency could be nearing a top, as increased rhetoric from Central Bankers about “excessive volatility” will likely prevent further gains above the all-time high of Sunday night.

The yen traded in rather flat ranges overnight as conflicting sets of news steer the Japanese currency. Traders continue to use the yen as a proxy for market risk. Given the current environment of steep rate cuts from the Fed coupled with the prospect of other investment banks ultimately failing, traders have been very hesitant to introduce any risk on to their balance sheets. This has resulted in an unwinding of the carry trade and ultimately purchasing of yen. However, the yen has come under some modest pressure, as a replacement has still not been named at the Bank of Japan. The Democratic Party announced that they would be rejecting the first choice of the LDP government, igniting fears that there would be no chief at the BOJ in these difficult financial times. However, with market concerns about the overall health of the banking system pervading, traders will keep the yen firm for some time.

The pound gained overnight as traders remain squarely focused on interest rate differentials between the US and UK. With the Fed certain to slash rates later this today, traders have shifted their attention to the Bank of England. Overnight, data was released showing that UK consumer inflation accelerated at the quickest pace in nine months. This data led traders to speculate that UK rates will remain steady for some time, further reinforcing the divide between US and UK deposits resulting ultimately in sterling strength for some time.

Bear Stearns News Hits Greenback

The US$ continues to gyrate in wide looping ranges as markets seize amidst the news of Bears Sterns collapse and continued unrest in the overall environment of financial services. With the emerging prospect of a liquidity crisis, which could lead to further declines and failures in financial markets, the Fed has taken extraordinary steps over the past few days. On Friday, the Fed announced that it would guarantee all outstanding debt from Bear Sterns as JP Morgan Chase put together a deal to buy the troubled brokerage. This morning Morgan announced that it was buying Bear for $2 per share, significantly lower than $60 plus it was trading on Thursday. In addition to backing the Bear Sterns acquisition, the Fed announced a 25 basis point cut in the discount rate (the rate at which banks can borrow from the Fed) overnight to 3.25% and also announced that the window would now also lend to investment banks. The Fed continues these aggressive actions as it acts to prevent a further liquidity crisis in the banking center amidst credit market meltdowns. On Tuesday, the Fed is poised to lower rates aggressively. Currently futures markets have priced in an 88.0% chance of 100 basis point cut, with a 12.0% chance price of a 125 basis point cut. These aggressive acts by the Fed seem to be an all out push by the central bank to prevent further major crises in the US banking sector. Unfortunately, this aggressive pattern of rate cuts by the Fed has fallen squarely on the US$, as traders continue to abandon the greenback en masse as risk aversion takes hold. This abandoning of the US$ has led both gold and oil to spike to record highs as oil trades above $110 per barrel and gold moves towards $1,030 per ounce. Expect volatility to pervade markets today as traders abandon risk and remain uncertain about the course of trade and wary about the prospect for other market crises to quickly develop. There are several economic indicators on the docket for release this morning, each unlikely to have any significant impact on the direction of trade. The Current account Balance is slated for an 8:30 a.m. release and expected to decline to a deficit of $183.8 billion. At 9:00 a.m. TICS data is to be released and is expected to register $85.0 billion. At 9:15 a.m. Industrial Production and Capacity Utilization data is to be released expected to register a decline of 0.1% and 81.2% respectively.

The euro gained overnight as traders shed US$ holdings after the Fed announced a 25 basis point cut in the discount rate amidst guaranteeing Bear Sterns debt and ahead of another likely 100 basis points in cuts tomorrow. With the market squarely focused on risk prospects and lower US rates, the euro has emerged as a safe-haven currency leading gains in the currency to accelerate. Traders, are however, now focusing on the prospect of some coordinated Central Bank action to avert further US$ declines. However, with the current turmoil in credit markets, now steering trade it is unlikely that any such action will occur until some calm overtakes markets. In the interim, expect the euro to remain firm as traders continue to shift capital into a safe-haven vehicle.

The yen continues to gain as the Japanese currency’s role as a proxy for risk steers trade. With traders almost certainly abandoning risk from their books, the yen gains. With the “carry trade’ still in place and almost certainly steering overall direction, the yen will continue to gain as asset positions are liquidated on a global scale. This pattern of risk avoidance continues to keep the yen firm and will likely dominate the direction of trade over the next several weeks. It is unlikely that there will be any significant yen declines until some stability returns to credit and financial markets.

The pound fell overnight as traders continue to liquidate positions amidst an unwinding of all carry trades. With sterling the beneficiary of late of some modest “carry trade” flows, traders took the opportunity o unwind these positions overnight, as cash has become king in markets. Expect this pattern of risk avoidance and a shift away from riskier positions, to keep sterling under pressure in the short-term. However, high UK interest rates and a vibrant economy should ultimately bolster the pound over the next several months.

The Swiss Franc traded to record high against the US$ overnight, as risk avoidance bolsters the currency. With traders abandoning any “carry trade” positions, the Swissy has gained as it also has emerged as a solid proxy fro market risk.

Intervention Concerns Stem US$ Losses, For Now

The US$ rebounded overnight as concerns about coordinated Central Bank intervention in currency markets appears to have put a short-term bottom in markets. Both Goldman Sachs’ and Morgan Stanley have issued statements that there remains an “increased likelihood” of action from Central Banks to stem the US$ recent freefall. However, any such action will likely only provide some short-term relief to the greenback. The US$ remains weighted down by a slowing US economy moving towards recession, continued declines in housing and a credit crunch brought about by defaults in the sub-prime lending sector. Adding to the US$’s woes has been a push by the US Federal Reserve to aggressively cut rates. The market is currently pricing in a 94.0% probability of a 75 basis point cut on March 18th, with a 6.0% chance assigned to a 50 basis point cut. Lower US rates will certainly continue to weigh on the greenback, however, expect the market to also watch the flow of US economic data for any signs of a recovery. As it is unlikely that these signs will emerge any time soon, traders will watch data releases slated for today. At 8:30 CPI is to be released, expected to show a gain to 4.3%. At 10:00 a.m. U. of Michigan Confidence is to be released, expected to decline to a 16-year low of 69.3. Later this morning, President Bush will address a council of business leaders in New York and it remains likely that he will mention the US$. However, with weak data and low interest rates keeping the US$ under pressure, it seems that only rumors of intervention will steady the recent freefall. Regardless, expect volatile ranges to persist for some time.

The euro fell overnight as traders begin to speculate that there will be coordinated Central Bank action to bolster the value of the US$. However, with high interest rates, the ECB likely to keep policy unchanged for some time, and strong growth prospects within the Eurozone, the euro will likely remain well supported for some time. This divergent view concerning interest rates and economic growth has helped bolster the euro and present it as a surrogate for the greenback. This trend will likely continue for some time.

The yen continues to consolidate in ranges, with its ultimate overall direction being determined by the market’s appetite for risk and the overall direction of global equity markets. Despite the recent rebound n US equity markets, the yen continues to remain firm, as traders remain uncertain about the outlook for credit markets and the overall health of the US economy. Until some stability returns to markets, trade will ultimately remain volatile, with the yen having an upward bias.

The pound fell overnight as some minimal US$ strength entered the market, as rumors swirl about the prospect of coordinated Central Bank intervention to bolster the greenback. However, expect sterling strength to remain intact as UK interest rates will likely remain steady for some time amidst increased domestic inflation pressures. Overall volatility will pervade market as this Central Bank watch emerges.

US$ Slumps Further - News of Credit Defaults Rock Markets

The US$ slump continues to accelerate, with some traders now calling the recent dollar rout bordering on “crisis.” Overnight Carlyle Capital Corp. announced that it was bankrupt, having defaulted on some $16.6 billion in debt as of yesterday. All of its remaining assets were to be liquidated immediately as sub-prime losses crushed the fund. Market fears continue to rise that there will be continued defaults amongst hedge funds leading to further instability in credit markets and ultimately US$ declines. These US$ declines come amidst a period when the US economy is moving into recession. The biggest job losses in over five years, coupled with record fuel costs continue to erode consumer confidence and spending amidst the largest housing decline in over 20 years. This has led to a global shift in confidence away from the US$, leading the greenback into a seeming period of freefall. This perceived period of instability has led oil to spike to levels above $112 per barrel, gold to trade above $1,000 per ounce, and US equity markets to continue to remain under duress. Futures point to a 200-point drop when stocks open today, further pointing to investor anxieties. The US released worse than expected retail sales data this morning declining 0.6% vs. an expected 0.2% gain. Expect these woes to continue to weigh on the US$, pushing it ever lower, unless there is some action by global central bankers. It will be important to watch the wire for any rhetoric concerning the prospect of direct intervention as a device to bolster the greenback.

The euro continues to gain as its role as a US$ surrogate continues to expand. With the woes dominating the US market continuing to build, investors are looking to alternatives beyond the US as a safe-haven investment vehicle. High interest rates, a vigilant central bank, and robust growth continue to make the euro an attractive investment. In addition, with an ever weakening US$, speculation continues to mount that many nations who have previously used the greenback as a peg to stabilize their own currency are now thinking of abandoning that peg. Also, continued chatter about repricing oil contracts in euros, continues to bolster the common currency. Until there is some shift in sentiment back in favor of the US$, the euro will continue to push higher as it benefits from significant capital safe-haven flows.

The yen surged overnight as the announcement by Carlyle Capital that it was bankrupt prompted another round of carry trade unwinds as market avoidance of risk pervades trade. With traders concerned that credit markets could tighten further, prompting further financial collapse, the yen gains as risk unwinds from the market. Expect this pattern of yen strength to continue for some time as market worries continue to influence traders and as risk abandons most portfolios.

The pound continues to gain as US$ weakness pervades markets. With the Bank of England likely to keep rates steady for some time, as the Fed continues to drive US rates lower, the pound is benefiting, as traders look fro safer higher yielding assets. Expect this pattern of US$ weakness to persist fro some time, as traders look to alternatives other than greenback.