Euro tumbled below $1.2000 for the first time since 2006 amid fears that the European debt woes could spread to Hungary together with weaker-than-expected US jobs data while the Japanese yen rose sharply across the board on renewed risk aversion.
Although the single currency moved sideways in Asia and briefly rose to 1.2216, euro swiftly retreated from there and nose-dived below Tuesday's 4-year low of 1.2110 after report that Societe Generale SA had incurred huge loss in its derivative trading.
Intra-day decline accelerated when Peter Szijjarto, spokesman for Hungary's Prime Minister said Hungary is in grave situation because the previous govt. lied about the economy. He also added Hungary had only a slim chance of avoiding a Greek-style debt crisis. His comment sparked off a massive sales of euro for swiss franc, although traders expected SNB to bid the eur/chf pair at 1.4000, such support did not occur and the pair tumbled to a lifetime low of 1.3865 after triggering the sizeable stops below 1.4000.
Euro was also pressured after French Prime Minister Francois Fillon said he was not concerned by the decline of the euro against the dollar and indicated that the previous higher exchange rate had damaged French exporters.
In NY session, the key report which showed the growth of U.S. payrolls had fallen well short of forecast suggested the recovery of U.S. economy remained fragile and this sparked pff further risk aversion.
US payrolls in May came out at 431k, however, most of these gains were due to 411k in temporary government's hirings for the 2010 Census, the net gain for the private sector was only an increase of 41k jobs after previous month's rise of 218k. DJI slumped (DJI later closed down by over 3%) and T-bonds jumped immediately after the release of the disappointing number (unemployment fell moderately to 9.7% from previous 9.9%, however).
The usd/jpy pair tanked shortly after the release of the number as traders bought the Japanese yen. Yen rallied across the board as the selloff in euro and weaker-than-expected U.S. payrolls data spooked the market, leading investors to dump riskier assets such as stocks and commodity currencies for safe haven currencies like yen and dollar.
The commodity currencies and stocks tumbled on active risk aversion, DJI fell below 10000 level and ended the day down by 323 points or 3.15% at 9932. FTSE 100 fell by 1.63%, CAC40 slumped by 2.86% and DAX dropped by 1.91%. Aud/jpy slumped from 78.68 to 75.11, gbp/jpy weakened from 136.26 to 132.19 and eur/jpy also dropped from 113.37 to 109.40 while the usd/jpy pair tumbled from 92.89 to 91.42. Other than gold, which edged higher as a safe-haven asset, commodities fell, July crude fell by $3.1 or 4.15% to settle at $71.51 a barrel.
In other news, the 2-day G20 meeting held in Busan of South Korea started on Friday (Fed chief Bernanke would be represented by FOMC Board of Governors Kevin Warsh) in the midst of global financial crises caused by debt contagion in the euro zone.
In Japan, former Finance Minister Naota Kan became Japan's Prime Minister after being picked by ruling partly DPJ. The Yomiuri newspaper said on its website today that Japanese Deputy Finance Minister Yoshihiko Noda, who favours fiscal discipline and has supported the idea of capping new bond issuance for next year, may succeed Naoto Kan as Finance Minister after Kan was appointed as the Prime Minister.
Economic data to be released in this week include: EU Sentix Investor Confi., Germany Factory orders on Monday. (Euro-Area Fin. Min. Meeting on Monday) U.K. BRC retail sales, Japan Current account, Trade balance, Leading indicators, Swiss Jobless rate, Germany Trade balance ,Current account, Industrial production, Swiss CPI and Canada Housing starts on Tuesday, U.K. N'wide Consumer Confi., Japan Machine orders, Australia W'pac consumer confi., U.K. Trade balance,U.S. Beige Book report and Wholesale inventories on Wednesday. Japan Domestic CGPI, GDP, Germany CPI, U.K. BOE rate decision, EU ECB rate decision, U.S. Jobless claims, Canada Trade balance, U.S. Fed budget on Thursday. U.K. PPI, U.S. Retail sales, Business inventories, Canada Capacity utilisation on Friday.