The US dollar strengthened against a basket of currencies after disappointing Bank of America earnings changed risk tolerance and sparked safe-haven buying against currencies that had touched multi-month highs against the greenback. The dollar's broad recovery, though modest, was enough to take it further away from the psychologically key $1.50 level against the euro and further above the 90.00 yen mark. Bank of America Corp posted a quarterly loss of $1 billion on consumer credit woes, disappointing markets after more upbeat bank earnings results earlier in the week. Adding to a renewed safe-haven buying was US consumer sentiment falling unexpectedly this month on persistent worries that the dismal state of personal finances would not recover quickly from the worst recession in decades.
The euro fell against the US dollar as risk tolerance dropped on data showing US consumer sentiment eased in October and prompted safe-haven buying. The single currency should continue to see resistance on the psychologically key $1.50 level.
Sterling hit a three-week high against the US dollar, extending the previous day's dramatic gains as traders who had bet on further falls in the battered pound rushed to cover their positions. The pound extended gains a day after the market took talk that Qatar's sovereign wealth fund was planning a renewed offer for British supermarket chain J Sainsbury. Adding to overall positive sentiment for the UK currency were this week's comments from a Bank of England policymaker that quantitative easing is working.
The Japanese yen gave in to broad pressure as an increasingly positive mood on the global economy has been supporting higher-yielding currencies. Since the yen is not one of these currencies, it had been firming, but now we are seeing some correction. The yen also slid against other currencies, as Japanese investors sought out higher returns from foreign fixed income markets.
The Canadian dollar fell versus the US currency after domestic inflation data did not alter expectations that the Bank of Canada can keep its pledge to leave interest rates steady through mid-2010. Canadian CPI data showed consumer prices dropped in September from a year earlier due largely to tumbling gasoline prices in a mixed report that ruled out any specter of either prolonged deflation or unruly price pressures. The CPI is expected to permit the Bank of Canada to hold the line on interest rates next Tuesday and repeat a conditional pledge that rates will stay unchanged at 0.25 percent through mid-2010.
The Australian dollar struck fresh 14-month highs and soared to a one-year peak against the yen as investors added to long positions on higher-yielding currencies. The Aussie has gained over 4 percent so far this month, helped by a 25 basis point rate hike, greater demand for carry trades and a recovery in the global economy and commodity prices. The New Zealand dollar was within sight of a 15-month high as confidence in the global economic recovery prompted investors to buy high-yielding assets.
10-Year Treasury Note Yield: 3.432%
Dow Jones Industrial Average: 9,967.27 -95.75