The U.S. dollar traded in relatively quiet ranges overnight, holding steady versus the Euro and the British pound as traders brace for what is expected to be another roller coaster day in global markets. Indeed, American stocks lost nearly 6.0% on Monday, only to recover 4.0% the next day after the Fed pledged to keep lending rates at an all-time low through at least the middle of 2013. However, as fears of slowing U.S. growth and possible downgrades to France sent stocks 5.0% lower yesterday. Dow Industrial futures show American stocks are expected to open another 100 points lower. The U.S. dollar did rally against the Swiss Franc after Swiss National Bank Vice President Thomas Jordan said a temporary peg to the euro would be legal as policy makers try to stem the currency’s gains. “Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability,” Jordan said. The Swiss currency has rallied to records against the Euro and the dollar earlier this week as Europe’s sovereign debt crisis and U.S. economic weakness spurred refuge demand. Meanwhile, the U.S. economic docket showed that claims for unemployment insurance payments unexpectedly fell last week to a four-month low. Applications for jobless benefits decreased 7K to 395K, the fewest since early April.
The Euro fell to the lowest level since mid-July versus the U.S. dollar as global risk aversion kept downward pressure on the higher-yielding common currency. The Stoxx Europe 600 Index is currently down over 1.0%, erasing earlier gains as financial stocks continue to tumble. Indeed, Societe Generale SA, France’s second-largest bank, fell 8.2% today after falling 15.0% yesterday. The Euro was also under pressure overnight on rumors that France would be the next AAA rated economy to have its public debt downgraded. The European Commission has rejected the rumor.
The Japanese yen maintained is bullish direction versus the U.S. dollar, approaching its post-World War II high versus the greenback. Global economic uncertainty has led investors into the yen, but the gains may be short-lived as investors increase their bets the Bank of Japan will once again intervene in currency markets. The intervention earlier this month, which Japan may have spent a record amount, was Japan’s third after six years of a hands-off approach.
The British pound remained near a three-week low versus the U.S. dollar as Britain continues to suffer from its worst riots in 30 years. Chancellor of the Exchequer George Osborne is expected to address parliament this morning at a special meeting called after riots, looting and arson in the capital spread to other cities this week. Osborne is expected to defend the steepest government spending cuts since World War II as Europe’s debt crisis deepens. Prime Minister David Cameron is facing pressure to review his policy of cutting spending on the police following the civil unrest. Opposition politicians may seek to take advantage of a Bank of England warning yesterday that the economic outlook is worsening as they call for a roll back of austerity measures. Economic and political uncertainty will likely weigh on the strength of the sterling throughout the rest of the week.
