Downward pressures for the US dollar flared as fresh employment data amplified recessionary concerns, and spurred many investors to dump their holding of the troublesome currency. The US dollar took the biggest plunge against the Australian dollar as the currency rose above the 0.92 mark, and was followed by the New Zealand dollar as commodity prices gained. The US dollar also faltered against the lower yielding Yen as risk adverse investors pulled out of higher yielding assets, and added more losses against the Swiss franc as rising inflationary pressures stirred bets of a future rate hike by the Swiss National Bank. Against the European currencies, the US dollar weakened against the euro to bring the pair back above 1.57, while it appreciated against the British pound as market participants bet on a 25bp rate cut by the Bank of England next week. Meanwhile, the greenback picked up its biggest gains against the Canadian dollar as many investors speculate that the US slowdown will have negative implications for the Canadian economy.
The economic outlook for the US grows increasingly dim as employment situations worsen, with mounting fears that the US recession may drag out longer than expected. Job creation in the US declined for the third consecutive month as Nonfarm Payrolls fell to minus 80K from minus 76K – marking the biggest decline in five years. Manufacturing Payrolls added to the grim outlook as the index fell to minus 48K from minus 46K. Unemployment also spurred downside risks for the economy as it rose to 5.1 percent from 4.8 percent, and heightening the bearish sentiment for the economy.
Stock market investors showed surprising resilience as the rode out the mixed price actions, with the markets ending the week on a better note as it marked a weekly gain. As a result, the DJIA swayed back and forth throughout the session, but ended 16.61 points lower at 12,609.42, with GM and Verizon taking the biggest hit out of the big 30. However, the broader S&P500 rose 1.09 points to 1,370.40 points, with 116 stocks hitting a new 52 week high.
Mounting downside risk eroded the demand for high risk/reward investments, and led US Treasuries to advance as risk adverse investors moved into the safe have of risk free bond. As a result, the benchmark 10-Year yield dropped to 3.470 percent from 3.581 percent, while the 2-Year yield plunged to 1.827 percent from 1.887 percent.
Looking ahead, next week will bring an eventful week as three major central banks - Bank of Japan, European Central Bank, and the Bank of England – will meet to set their monetary policy, with the Fed’s Fisher speaking on the economy later in the week. For Monday, we do not expected major price actions as the Consumer Credit index is the only US data to be released, but expected to see US dollar volatility to picked up on Tuesday as the FOMC will release their Minutes report at 18:00GMT.