US dollar pessimism heightened as consumer confidence in the US plunged to a 26-year low, and led to increased bets of additional rate cuts as the economy faces a recession. As a result, the US dollar fell the most against the low yielding Yen, with the Swiss franc following as the pair traded in parity. Against the European currencies, the euro advanced against the US dollar as rising wholesale prices added to inflationary concerns, while the British Pound inched lower to hold at 1.971. Amid the mounting losses, the US dollar strengthened against the commodity currencies as investors moved out of carry trades, with the New Zealand dollar taking the biggest fall as it fell to 0.793.
Investor sentiment in the stock markets wavered as General Electric posted a 6 percent decline in first-quarter profits, and pushed the markets to consolidate most of the week’s gains. As a result, the DJIA plunged 256.56 points to 12,325.42 points, with 29 of the 30 components declining. The broader S&P 500 fell 27.72 points to 1,332.83 points, with the amount of decliners more than tripling the amount of advancers.
Rising uncertainties for the US economy has lowered the attractiveness of high risk/reward investments, and in turn, pushed many risk adverse investors into the safe haven of risk free bonds. As demands for bonds increased, the benchmark 10- Year yield dropped to 3.475 percent from 3.541 percent, while the 2-Year plunged to 1.754 percent from 1.839 percent.
Looking ahead, Advance Retail Sales are expected to kick off the week on a better note as we forecast sale to pick up from minus 0.6 percent to 0.1 percent, and expect Business Inventories to follow as we predict the index to fall to 0.5 percent from 0.8 percent. Following economic data, our focus will be turned to ECB President Trichet’s speech at 21:30 GMT.