The greenback and Japanese yen rose on Monday as global stock markets declined due to concerns over the possibilities of bankruptcy at U.S. automakers (General Motors Corp. and Chrysler LLC) and Obama administration warned that some banks will need more government aid. The dollar index surged to a session high of 86.125 and last trading up 0.62 percent at 85.668 in New York afternoon while the yen rallied broadly and sent euro, sterling, Australian dollar to session lows of 129.34 yen, 135.76 yen and 64.96 yen before stabilising respectively.
Against the dollar, the euro fell to as low as $1.3113 after Spain was forced to take over a regional savings bank and Standard & Poor’s cut the credit ratings of Hungary and Ireland, the single currency was last trading down 0.8 percent at $1.3190 while the British pound also tumbled to a session low of $1.4110 before recovering to 1.4270 in late New York, down 0.3 percent.
On the other side, Japanese yen rallied across the board on risk aversion and Japan’s fiscal year-end demand. In late New York session, the yen rose 0.6 percent against the U.S. dollar to trade at 97.22 yen, 1.4 percent versus the euro to 128.22 yen, 1.0 percent to 138.80 yen against the sterling and 2.5 percent to 66.20 yen versus the Australian dollar.
Looking ahead, the ECB is widely expected to cut interest rates to 1 percent on Thursday and investors are keen to see if it will follow the U.S., British and Japanese central banks in buying government or corporate debt to boost the availability of credit, however, ECB President Jean-Claude Trichet said on Monday that no such decision has yet been made and he also stated that eurozone growth is likely to remain sluggish this year before starting to rebound in 2010.
U.S. stock markets tumbled on Monday as investors booked profits from a recent rally as risk aversion increased. By the end of New York trading, the Dow Jones Industrial average fell 254 points, or 3.27 percent to 7,522, while Standard & Poor’s 500 index and Nasdaq Composite index dropped 3.48 percent and 2.81 percent to 787 and 1,501 respectively.
On the data front, Japan Trade Ministry said Japanese companies cut inventories at an unprecedented pace (-4.2% and the biggest decrease since record began in 1953) in Feb while industrial production slid 9.4 percent from January, when it plunged a record 10.2 percent. Other data from eurozone showed the consumer sentiment in the region declined to 64.6, the lowest since the indicator began in 1985, with business climate also fell to –3.58 in March from -3.51 in previous month.
On Tuesday, economic data releases include U.K. Gfk survey, Japan manufacturing PMI, unemployment rate, household spending, housing starts and construction orders, German unemployment rate and unemployment change, eurozone HICP flash Y/Y, Canada GDP and PPI data, and U.S. Chicago PMI and consumer confidence.