The U.S. dollar jumped across the board, except against the Japanese yen, on concern global growth is stalling after the Federal Reserve said yesterday it saw “significant downside risks” to the U.S. economy, spurring demand for safer assets. The dollar rallied to its strongest level since January versus the Euro on poor European economic data and as global equities collapsed. Indeed, both the European Stoxx 600 index and the MSCI Asia Pacific Index declined over 4.0% and U.S. stock futures foreshadow a sharply lower open for American shares. The U.S. dollar also rallied versus commodity-based currencies as the price of oil and gold fell 5.0% and 3.0%, respectively. The U.S. dollar is now trading at a 16-month high against the Canadian loonie and 5.0% better versus the South African Rand since Tuesday’s close. New Zealand’s dollar is also under significant pressure after data showed that the economy almost stalled last quarter, reinforcing the case for central bank Governor Alan Bollard to maintain record-low interest rates until 2012. Gross domestic product rose 0.1% in the three months through June from the previous quarter, missing estimates for a 0.5% gain. Meanwhile, the U.S. economic docket showed that more Americans than forecast filed first-time claims for unemployment insurance payments last week as the labor market struggles to improve. Later leading indicators are expected to register at an anemic 0.1%, down from a 0.5% gain in July.
The Euro traded to a fresh 8-month low against the U.S. dollar and a decade low versus the Japanese yen on widespread risk aversion and as data showed euro-area services and manufacturing contracted this month, adding to concern the region’s debt crisis is deepening. Euro-area services indicator fell to 51.5 last month from 51.6 in July and the manufacturing gauge slipped to 49 to 50.4, Markit Economics said today. A reading above 50 indicates growth. Many analysts have blamed the poor data on tougher austerity measures and waning global demand for European goods. Meanwhile, Greece continues to struggle to secure its sixth payment from the bailout orchestrated by the EU and the IMF last summer. Greece said it will target civil servants’ wages and pensioners to secure its next aid payout. Austerity measures announced yesterday include a 20.0% cut in pensions of more than 1,200 euro a month and lower wages for 30,000 state employees.
The Japanese yen held a tight range against the U.S. dollar but rallied versus all of its other counterparts as falling global stocks boosted both safe-haven currencies. However, the Japanese yen remains near its strongest level since World War II against the U.S. dollar, sparking concern the Bank of Japan will act to curb currency gains. Finance Minister Jun Azumi said yesterday he’s closely watching markets and will take “bold” action on currencies if needed.
The British pound continued its fall, pushing to a yearly low against the U.S. dollar and an all-time low versus the Japanese yen. The pound has been a victim of falling global risk appetite and an increasingly bearish central bank. Minutes of the central bank’s September 8th decision showed that officials now see second-half growth being “materially weaker” than previously projected. They will announce their next policy decision on October 6th. There was no major economic data released in the United Kingdom today.
