The US dollar fell this morning after being boosted by a big plunge in U.S. stocks yesterday. Investors dumped stocks yesterday, pushing the Dow Jones to close at a 12-year low, on concerns that the U.S. is heading deeper into recession, despite optimism that the government plans to add more capital to banks. The Dow Jones opened higher this morning as investors hunt for bargains. Meanwhile, domestic data continues to disappoint investors. U.S. home prices fell a record 18.2 percent during the last quarter of 2008. The market is looking to Federal Reserve Chairman Ben Bernanke's semi-annual monetary policy report today to offer some relief about the sluggish economic outlook.
The yen softened as risk appetite picked up on talk that the U.S. government may raise its holding in Citigroup Inc and inject more funds into troubled U.S. banks. This reduced fears of a government takeover of big U.S. banks. Concern over the health of Japan's economy is beginning to hurt the yen. Bank of Japan said economic conditions were falling rapidly. Japan's economy shrank an annualized 12.7 percent in the fourth quarter of 2008, more than three times than the U.S. economy in the same period. News that Prime Minister Taro Aso's approval rating sagged also dented yen sentiment. The yen may trade at weaker levels in the next few days.
The euro rose, supported by U.S. financial worries. News that German business confidence fell in February suggested more rate cuts in the euro zone. Euro gains were limited on recent comments from European Central Bank President Jean-Claude Trichet voicing concern that the euro-zone financial system is under severe stress.
The British pound held gains, lifted by upbeat news UK retail sales fell at a much slower pace. However, gains were limited by comments from Bank of England's Andrew Sentence saying that the British economy needs more stimulus in order to revive its economy and mentioned possible quantitative easing. Further rate cuts are expected in the UK.
The Canadian dollar is trading below $1.2500 and taking its cue from the US dollar move. Canadian exports are expected to fall this year which would lead to more job losses. Bank of Canada is expected to cut rates by another 50 basis points to 0.50 percent on March 3. Falling equities will continue to batter the loonie as weak earnings suggests a deepening recession, luring investors into safe haven currencies.
The Australian and New Zealand dollar rebounded as the Japanese yen lost some of its safe-haven status. However, ongoing concerns that steps taken by the government to stabilize the financial markets may take a while to take effect capped currency gains. Both central banks are expected to lower interest rates in March.
10-Year Treasury Note Yield: 2.7104%
Dow Jones Industrial Average: 7,137.40 +22.62