Concerns about a slowing global economy prompted investors to seek safety on Thursday, driving the dollar and yen sharply higher and the euro to a two-year low against the U.S. currency.
South Korea’s surprise rate cut on Thursday, following Brazil’s 50 basis point rate cut on Wednesday evening, as well as an unexpected drop in employment in Australia underscored the scope of the economic slowdown worldwide.
Moody’s cut Italy’s credit rating by two notches, an unexpected setback for a jittery market already bracing for a weak reading on China’s economy.
The timing of the downgrade is particularly bad as it comes just hours before Italy heads to the debt market to raise 5.25 billion Euros.
Chinese economy grew at the slowest pace in past three years at 7.6% confirming expectation of further downward trajectory.
A simultaneous slowing in the U.S., euro zone and China points to a much rougher second half of the year than the first half of the year.
The dollar index rose to 83.829 the highest since July 2010.The euro fell 0.4% to $1.2185, after an earlier drop to $1.2165, the weakest since the end of June 2010.
Asian shares are trading down on Friday, but not as bad as expected after the release of the Chinese numbers.
EURUSD (1.2212) the latest euro weakness also renewed concerns about intervention. While we believe that the European Central Bank won’t stand in the way of further euro weakness because it adds support for the region’s economy, there is no question that the euro sell-off is making the Swiss National Bank and the Bank of Japan very nervous.
The Great British Pound
GBPUSD (1.5438) the sterling is at the whim of the US, which is trading on the DX close to a recent high at 83.95. With little in the way of eco data on either side today, the pair is expected to have a quiet trading day
Asian –Pacific Currency
USDJPY (79.32) the JPY will exhibit weakness today, after the Japanese industrial production print came in well below forecast. Markets were expecting a drop of 3.1% when actual was a drop of 3.4%. Also the lack of any concrete moves by the BoJ disappointed traders
Gold (1570.25) continues to trade sideways, with little gains and little losses but no conviction to the markets and nothing forthcoming. New flow might affect the commodity otherwise it is expected to drift slowly downwards to the 1520 range.
Crude Oil (85.94) EIA inventories showed a drop in stock by 4.3million barrels, above earlier projections which supported the commodity, with Chinese GDP coming in at forecast but well below the 8.6% of last year, the demand for oil is decreasing. With a drop in global production there is little hope for higher prices.