The US dollar recouped some of its losses after weakening against most major currencies overnight. Wall Street opened flat as a slew of earning reports from major US companies fall short of expectation, buoying the dollar. Disappointing first quarter earnings reports from major companies has heightened risk-aversion sending investors into the “safe haven” status dollar and yen.
As the global equity markets have tumbled the past two days, most major crosses have also come under pressure.
The euro strengthened against the dollar and yen overnight after a report showed improvement in German investor confidence. The ZEW monthly poll of German economic sentiment rose to 13.0 in March, the first time the index has been in positive territory since July 2007. However, gains were limited amid a slide in global bank shares and stocks, and looming uncertainty over what unconventional policy steps the European Central Bank may adopt next month.
Sterling rose against the dollar recovering from steep falls overnight as investors bought the currency at cheaper levels. Sterling gains were also supported in tandem with the euro strengthening against the dollar. The sterling showed little reaction to annual CPI rate dropping to 2.9% in March, and retail price inflation turned negative for the first time in nearly 50 years. Investors remain cautious ahead of Wednesday’s annual budget, putting pressure on the sterling.
The Japanese yen strengthened against the dollar as risk-averse investors unwind their carry trade after dour earnings reports from major companies. In other news, the Japanese government announced they would issue bonds worth $110 billion to fund its planned stimulus package, as plunging exports, capital investments and sagging domestic demand reflected a sharp deterioration in the economy.
The Canadian dollar weakened against the US dollar after Bank of Canada cut its key benchmark rate 25 basis points. Upon announcing the rate cut, BoC provided guidance on rates saying they will keep their new benchmark rate until mid 2010, but made no explicit promise to take unconventional measures to boost the economy.
The Australian and New Zealand dollar remains fairly steady against the US dollar as oil and gold prices firm. Reserve Bank of Australia Governor Glenn Stevens said Australia was in the midst of its first recession since 1991 and there was no precedent for escaping the global recession currently taking place.
10-Year Treasury Note Yield: 2.818%
Dow Jones Industrial Average: 7,866.41 + 24.69