The U.S. dollar retraced much of its gains from yesterday’s trading session overnight as U.S. stock futures foreshadow American shares will modestly rebound from yesterday’s rout. In the first trading day since S&P downgraded U.S. debt from AAA to AA+, U.S. stock indexes fell over 5.0%, mirroring aggressive sell-offs in European and Asian equities. Nevertheless, investor uncertainty is undoubtedly high as can be seen in the rise of the price of gold, a traditional safe-haven investment. Indeed, gold reached a new record today, trading $40 higher than yesterday’s record close. With no major economic data slated for release today, traders will shift their focus to this afternoon’s Federal Open Market Committee meeting. Some have speculated that the Fed will repeat its pledge to maintain stimulus measures to revive the economy, boosting stocks but weighing on the greenback. Fed policy makers are likely to embark on a third round of quantitative easing, moving “more decisively” to secure the U.S. recovery, Harvard economist Kenneth Rogoff said yesterday. As a result, investors will likely be hesitant to buy the dollar given the risk of further bond-purchases by the Fed.
The Euro rebounded from yesterday’s losses as some believed the common currency was oversold. However, the Euro remains near recent lows versus the U.S. dollar as global demand for riskier assets has diminished over the last two weeks. The Stoxx Europe 600 Index has fluctuated between positive and negative today after falling for the past eight consecutive days. The Euro has been buoyed as Spanish and Italian government bonds rose for a third straight day as the European Central Bank purchased the debt. Nevertheless, the European debt crisis will continue to hamper the currency’s strength over the foreseeable future.
The Japanese yen continued its push higher as global economic uncertainty boosted demand for relatively safer assets. The yen has nearly erased its decline since Japan’s unilateral intervention in the foreign-exchange market pushed the currency lower on August 4th. The Bank of Japan added 10 trillion yen of monetary stimulus on the same day. BOJ Governor Masaaki Shirakawa said today that volatile exchange rates could have a “negative impact” on the economy.
The British pound has advanced against most of its counterparts as investors sought the relative safety of U.K. assets amid global financial turmoil sparked by the U.S.’s credit downgrade and the continued uncertainty surrounding the European sovereign debt crisis. However, the pound pared its gains against the U.S. dollar after a report showed U.K. manufacturing unexpectedly fell in June and the trade gap widened, adding to evidence the economy is faltering. U.K. factory output declined 0.4% in June from the previous month, when it rose 1.8%, the Office for National Statistics said today in London.
