The greenback rose to a 3-week high of 92.41 against the Japanese yen on the first trading day of 2009 due to the rally in stock markets together with an increase in Treasury yields from near record lows, prompting investors to buy dollar-denominated assets.
The Standard & Poor’s 500 Index increased by 28.13 points or 3.13% to close at 931.56. The Dow Jones industrial average rose 257.82 points or 2.94% to finish at 9034.21. The Nasdaq Composite Index rallied by 55.18 points or 3.50% to end at 1632.21. Ten-year note yields rose 0.19 percentage point to 2.40 percent. The yield was 1.24 percentage points higher than Japanese government securities of comparable maturity, the widest gap since Dec. 10.
The single currency fell to a two-week low of 1.3840 against the dollar after a European manufacturing report indicated the recession is deepening. The eurozone PMI manufacturing declined to 32.7, the lowest in the survey's 11-year history, adding speculation of further interest rates cut by the ECB. The yield advantage of two-year German bunds over similar-maturity Treasuries narrowed to 0.97 percentage point from 1.09 percentage points two weeks ago, reducing demand for euro-denominated assets.
The British pound tumbled to 1.4375 on Friday, just above 7-year low made earlier this week, due to U.K. mortgage approvals slid in November to the weakest level since at least 1999. A separate Bank of England survey showed credit conditions looked set to tighten further in the next three months. House prices also fell by a bigger-than-expected 2.2% in December. The figures added speculation that the Bank of England will cut key interest rates by at least 50 basis points next week from the current 2.00%.
An industry report showed factory activity fell more than expected to a 28-year low in December. The U.S. ISM manufacturing came in at 32.4 versus the forecast of 35.5.
Next week will see the release of German retail sales and U.S. construction spending on Monday; German, eurozone and U.K. services PMI respectively, eurozone HICP, U.S. durable goods, factory index and ISM non-manufacturing on Tuesday; German unemployment rate, eurozone PPI and ADP employment on Wednesday; German trade balance, eurozone GDP and unemployment rate, German industrial production and factory orders and U.S. jobless claims on Thursday; Japan’s leading indicators, U.K. industrial and manufacturing production, U.K. PPI, eurozone retail sales, U.S. non-farm payrolls, unemployment rate and U.S. wholesale inventories on Friday.