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US$ Maintains Yesterday's Gains, Rallies vs. Aussie

The U.S. dollar maintained its strength from yesterday against the majority of its counterparts, and extended its gains against the British pound and Australian dollar.  Indeed, the Australian dollar fell to its lowest level against the greenback in over a year after the Reserve Bank of Australia held its key rate at 4.75%.  The Dollar Index, which tracks the greenback against six major trading partners, reached the highest level since mid-January as global equity markets fell.  The Stoxx Europe 600 Index of shares fell for the third consecutive day and the MSCI Asia Pacific index slid 2.3%, boosting demand for the relative safety of the U.S. dollar.  Later this morning, the economic docket is expected to show that factory orders in the U.S. held at 0.0% in August, after rising 2.4% in the month prior.  However, expect the U.S. dollar to continue to track equity markets, gaining further if U.S. stocks continue their sell off.

The Euro held at a 8-month low versus the U.S. dollar and at its weakest level in more than a decade against the Japanese yen after European governments signaled bondholders may have to take bigger losses on Greek debt.  European finance ministers meeting in Luxembourg considered “technical revisions” to a July deal that foresaw investors (or Private sector involvement) contributing 50 billion euros to a 150- billion-euro rescue fund.  “As far as private sector involvement is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Junkcer, who chairs the group of euro-area finance ministers, told reporters today.  Meanwhile, Goldman Sachs cut its global 2012 economic growth forecast, adding it expects a mild recession in Germany and France and a deeper downturn in the euro area’s periphery over the next we quarters, according to a research note yesterday. 

The Japanese yen was unchanged versus the U.S. dollar but fell to a decade-low against the Japanese yen.  Japanese Finance Minister Jun Azumi said that the yen’s strength is “extreme” and is hurting local companies.  At the same time, Goldman Sachs downgraded its forecast for Japanese economic growth for this year and next due to the global slowdown.  Goldman expects Japan’s growth to register at 2.1%, down from 2.5% in the fiscal year starting April 2012. 

The British pound extended its decline versus the U.S. dollar after poor economic data sparked renewed speculation that the Bank of England will announce further monetary stimulus to revive the economy.  A gauge for building activity in the U.K. based on a survey of purchasing managers dropped to 50.1 from 52.6 in August, Markit and the Chartered Institute of Purchasing and Supply reported today.  The print missed a median forecast of 51.6 in a Bloomberg survey.  It is becoming “increasing probable” that another round of government-bond purchases may be needed to boost the economy, Bank of England policy makers said in the minutes of its latest meeting. 

US$ Rises to 9-Month High as Global Stocks Fall

The U.S. dollar continued to benefit from a global risk adverse sentiment, gaining against the majority of its counterparts.  The U.S. Dollar Index, which tracks the greenback versus its six major trading partners, reached its highest level since January of this year.  The greenback tends to appreciate during periods of economic and financial turmoil as investors take refuge in the world’s main reserve currency.  Later this morning, the economic docket is expected to show that manufacturing in the U.S. expanded in September at the slowest pace in more than two years, according to economists’ estimates.  In addition, construction spending is expected to fall 0.2% in August after decreasing 1.3% in the month prior.  Factory orders will hit the wire tomorrow, followed by the ADP Private sector employment number on Wednesday.  Weekly jobless claims are slated for Thursday morning, while Nonfarm payrolls, the unemployment rate and wholesale inventories will round out the week on Friday.

The Euro fell to an eight-month low against the U.S. dollar as European finance ministers prepare to weigh the threat of a default in Greece, which is making fresh budget cuts to secure an international bailout. European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters an option for including the European Central Bank in leveraging of the euro area’s temporary bailout fund will be on the table when finance ministers meet today in Luxembourg.  Today was the original target date for approving an 8-billion euro loan payment to Greece, the sixth installment of the 110 billion-euro lifeline assembled in May 2010.  That decision was pushed back until mid-October as Greek Prime Minister George Papandreou tries to close a deficit gap.  Greece’s government approved 6.6 billion euros of austerity measures, including firing state workers, the Finance Ministry said yesterday.  Also weighing on the common currency was a report that showed Europe’s manufacturing industry contracted for a second month in September. 

The Japanese yen regained its losses from Friday versus the U.S. dollar and has settled back into familiar ranges from September.  The yen found some support after the Bank of Japan said today its quarterly Tankan index of sentiment increased to 2 in September from minus 9 in June.  The reading was below 6 in March and in line with the median projection of 23 economists surveyed by Bloomberg News.

The British pound fell against the U.S. dollar for the second day as even as economic data painted a less dour picture of the U.K. economy.  The gauge for British manufacturing rose to 51.1 from 49.4 in August, a survey by Markit Economics and the Chartered Institute of Purchasing and Supply showed.  That as higher than the 48.5 median forecast and above the 50 level that indicates expansion.  S&P affirmed the U.K.’s top credit rating saying the country has a “wealthy, open and diversified economy, supported by a well-established political system and macroeconomic policy framework, which can react quickly to economic challenges.”  The stable outlook on the nation’s debt rating reflects S&Ps expectation that the government will implement the bulk of its fiscal austerity program, the statement added. Also, U.K house prices fell for a fifth month in September and the pace of decline may increase in coming months, property researcher Hometrack Ltd said in a report today.