The US dollar strengthened against a basket of currencies in early trading today on its perceived safe-haven status. Caution grew in the market after aluminum producer Alcoa Inc. kicked off the US reporting season with a quarterly loss and speculation that General Motors Corp is in intense preparations for bankruptcy. As investors increasingly shunned risky assets, stoking demand for the perceived safety of the greenback, which typically gains in times of heightened risk aversion. With liquidity thin ahead of the Easter weekend and very few major data releases, currencies are being driven by market risk sentiment and equity markets.
The euro fell against the US dollar and the yen as jitters ahead of the US corporate earnings season pushed shares lower and dented demand for currencies perceived to be higher risk. European shares fell 0.6 percent and US S&P 500 futures lost 0.5 percent after Alcoa’s earnings report, raising concerns that other firms may also post poor results in the coming weeks. The euro also came under selling pressure after data showed German industrial orders fell a bigger-than-expected 3.5 percent during February, emphasizing the troubles facing Europe's largest economy.
Sterling fell against a broadly firmer US dollar on Wednesday as equity markets weakened, spurring investors to seek the perceived safety of the greenback. The pound, however, held up against a battered euro on views that the eurozone economy may fare even worse than the UK economy. From a fundamental perspective, sterling’s strengthening against the euro reflects the fact that the Bank of England is perceived to be doing more to secure future growth versus the ECB, who appears to be moving more slowly in that direction.
The Japanese yen rose broadly as falls in share prices and worries about upcoming earnings results for big US companies prompted investors to sell higher-yielding currencies. The yen recovered from multi-month lows struck earlier this week against most major currencies, when optimism surged that stimulus efforts would eventually filter down to the global economy, encouraged investors to return to riskier assets. Asian stocks also slid for a second day on Wednesday with investors fleeing to the sidelines to await companies' business outlooks.
The Canadian dollar rose against the US dollar today as US stock index futures steadied and data showed Canadian housing starts rose 13.7 percent, more than expected in March. Stronger than expected housing starts has had a positive influence on the Canadian dollar as well as US stock index futures paring losses or turning positive, both implying lower levels of risk aversion.
The Australian dollar extended its losses on growing concerns that the upcoming US company reporting season will be a gloomy one hit risk appetite, driving funds out of higher-yielding currencies. Although the Aussie had enjoyed a substantial rally against the greenback in the past few weeks, equity markets are softening so there is some sort of correction beginning. The New Zealand dollar also extended its retreat on Wednesday, weighed down as weaker stock markets saw investors turn more risk averse.
10-Year Treasury Note Yield: 2.854%
Dow Jones Industrial Average: 7,786.69 – 4.34