The U.S. Dollar rallied against its trading peers as stocks dropped on increased concerns over the European sovereign debt situation. Analysts believe that the strengthening of the dollar was mainly a result of risk aversion in the markets; however, it was also due in part to data released out of China showing that the Purchasing Manufacturer’s Index dropped to a 10-month low. This fueled concerns over a global economic slowdown. Furthermore, these fears prompted a selloff of Asian stocks as well as the weakening of the Australian Dollar. The economic calendar was light with only one report on the Chicago Fed National Activity Index which showed a drop of -0.45.
The Euro continued on its downward trend as Spanish voters punished Jose Luis Rodriguez Zapatero for the high rates of unemployment and the implementation of austerity measures. The Socialist party lost by a wide margin. In addition, the S & P reduced the outlook for Italy’s credit rating citing a slowdown in growth and a dim possibility for the government debt to be reduced. On the economic data front, the Euro was weighed down by a decrease in Composite PMI. Meanwhile, the Pound Sterling weakened against the U.S. Dollar and the Yen as the dip in the stock market boosted appetite for safe havens. The British Pound traded at its highest level in two months against the Euro as the chief economist for the Bank of England, Spencer Dale, indicated that policy makers should increase interest rates despite reigning uncertainty.
The Japanese Yen advanced against most of its counterparts on growing concerns over the Euro-zone’s debt crisis. Lower PMI out of China helped create the risk aversion sentiment that dominated the market, while investors are speculating that global growth may be coming to a halt. Data showed that Japan’s Leading Economic Index rose to 100.1 and grocery store sales dipped -1.3 percent.
In the South Pacific, the Australian Dollar slid against the greenback as stocks dropped, and as China’s PMI data was issued. The New Zealand Dollar also weakened versus the U.S. currency on worries that global economies are losing momentum.
EUR/USD- Euro Continues To Fall
The Euro-zone’s currency continued to fall as a result of increased worries over the debt crisis, the defeat of the Socialist party in Spain, a possible reduction of Italy’s credit rating and a drop of bonds in Ireland, Spain, Italy, Portugal and Greece, which pushed yields further up. The Greek 10-year note advanced to 17 percent; and despite this hike, policy makers have not come to a consensus on whether to restructure its debt. Investors are selling the Euro and the outlook continues to be bearish. The Euro traded at $1.4048 at 5:00 pm GMT.
GBP/USD- Pound Rose Against Euro
The Pound Sterling diminished in value against the Dollar and the Yen, but increased versus the Euro on a bullish commentary by the BOE’s chief economist indicating the need for a hike in interest rates. The Sterling weakened on increased debt concerns and a lower PMI out of China which boosted demand for safe assets. Speculation of contagion in the Euro region was supported by the S & P lowering the credit rating outlook for Italy from “stable “to “negative.” The U.K. struggles to reduce its debts; however, the slowdown in economic growth has dampened the possibility for a balanced fiscal policy, and higher costs for borrowing money. The Pound traded at $1.6096 at 4:48 p.m. GMT.
USD/JPY- Currency Gains On Debt Fears
The Japanese currency benefitted from risk aversion as debt concerns increased throughout. The higher demand for safe havens came as a result of China’s lower than anticipated PMI, the reduction of Italy’s credit rating and Spain’s tense political environment.
AUD/USD- China’s PMI Weighed On Aussie
The Australian Dollar reached its lowest level in five weeks against the greenback on reports showing that manufacturing slowed down in China –Australia’s biggest trade partner. Furthermore, the risk adverse sentiment dominating the market contributed to a further drop in the Aussie Dollar.
Today’s economic calendar shows that the Euro Zone will issue stats for the German IFO Business Climate Index and German Business Expectations data. The U.S. is scheduled to report on New Home Sales while Japan will release the Minutes from its last policy meeting. Investors await the metrics from the U.K.’s GDP, which are due out on Wednesday.