The U.S. dollar rallied significantly overnight, extending yesterday’s momentum against the majority of its trading partners on renewed concern Greece will default. The dollar gained nearly two percent against the Euro yesterday and added over 1.0% of gains overnight as European equities faltered nearly 5.0%. The greenback also found support against its higher-yielding counterparts after a report showed that Chinese manufacturing slowed, causing a sell-off in Asian shares. The U.S. dollar gained the most versus the Australian dollar after the Reserve Bank of Australia lowered its cash rate by 25 basis points to 4.5%, representing the first cut since April 2009. Overall, the U.S. dollar index, which tracks the dollar’s performance against its six largest trading partners, rose 1.0%. Later this morning, the economic docket is expected to show construction spending rose 0.3% in September, down from 1.4% the month prior. In addition, the ISM Manufacturing index is expected to rise to 52.0 in October from 51.6 in September. With U.S. equity futures foreshadowing a lower open, the U.S. dollar is likely to extend its gains in early trading.
The Euro weakened for a third day against the U.S. dollar, extending yesterday’s slump after Greek Prime Minister George Papandreou pledged to put the European Union’s latest accord to a referendum. The proposed vote risks derailing the European bailout effort and may push the country to a default if rejected by voters. An opinion poll published over the weekend show most Greeks believe the accord on a new bailout package and debt writedown is negative. European stocks fell nearly 5.0% on the news. The common currency was also under pressure on speculation the European Central Bank may cut interest rates in the coming months. The ECB next meets November 3rd. A Credit Suisse AG index based on swaps show that traders expect the central bank to cut its benchmark rate by 35 points over the next 12 months.
The Japanese yen gained modestly across the board against its higher-yielding counterparts, as falling stocks led investors into the relative safety of the yen. However, the yen remained mostly unchanged versus the U.S. dollar. Indeed, the yen maintained its losses from yesterday against the dollar, which occurred after Japan sold its currency to weak it and protect exporters. Finance Minister Jun Azumi said in Tokyo today the government will continue to take appropriate action on the currency.
The British pound fell against the safe-haven U.S. dollar as global equities fell sharply. However, the sterling rose against the Euro and pared its decline versus the greenback after U.K. gross domestic product data showed the economy grew more than forecast in the third quarter. GDP rose 0.5% from the second quarter, when it increased 0.1%, the Office for National Statistics said today. Economists forecast a 0.3% increase.
