The US dollar weakened against a basket of currencies after GM auditors voiced concern whether it could survive without bankruptcy and investors took profit in anticipation of hefty job losses in the US. Data showed the US unemployment rate hit a 25-year high of 8.1% after employers cut 651,000 jobs in February. These figures reinforced worries of a deepening US recession. In addition to worries of a deepening US recession, a top International Monetary Fund official indicated the world’s developed economies were in the deepest slump since World War II, and this downturn could last well into the next year.
It seems the dollar trends higher in response to bad news because investors see it as the safest store of value when the global economy is contracting. Additionally, the dollar role as one of the main funding currency outside Europe has enhanced its “safe-haven” status.
The euro strengthened against the dollar as investors anticipated US jobless figures to be very dismal. Furthermore, European Commission President Jose Barroso said the European Union is facing an unprecedented crisis and needs to work at different levels to restore credit flows during this economic crisis. Barroso indicated that the recovery of the Euro Zone was the executive Commission’s main focus, so they will be accelerating spending this year in hopes to boost the economy.
The British pound rallied against the dollar even after negative producer price inflation data in the UK, as dealers squared their position before the US non-farm payrolls figure was released. Producer price inflation fell to 3.1% last month which was the lowest annual rate since September 2007. BoE Governor Mervyn King said the rate cut on Thursday would probably be the last and their main focus was quantitative easing by injecting money directly into the economy by buying assets.
The Japanese yen strengthened against the dollar ahead of US non-farm payrolls data. The rally also came after announcement that Japan’s government is considering tripling their low-interest loans and cash injection to 3 trillion yen ($30.6 billion) to help firms in need. Deputy Governor Hirohide Yamaguchi said the Bank of Japan may also take more action to ease corporate funding if conditions worsen towards the fiscal year end of March 31st.
The Canadian dollar recouped some of its losses from earlier this week as oil rose near $45 a barrel, buoyed by China’s optimism on economic rebound, and ahead of US unemployment figures.
The Australian and New Zealand dollar rebounded from lows against the US dollar after dismal US unemployment data. Although the Aussie and the kiwi strengthened against the greenback, those gains were capped by fragile sentiment. Many are anticipating the Reserve Bank of New Zealand to cut rates by 50 basis points next week, and the Reserve Bank of Australia to cut rates by another 50 basis points at their next meeting in April.
10-Year Treasury Note Yield: 2.833%
Dow Jones Industrial Average: 6,631.48 + 37.04