Tuesday, August 9, 2011

Fears of another Global Recession - August 9, 2011

Previous session overview

The yen and Swiss franc strengthened in Asia Tuesday as fears of another global recession sent investors fleeing for safe-haven assets. 

Asian bourses plunged deeply amid the sprint to safety, pushing down higher-yielding currencies like the Korean won and Australian dollar, which dipped below USD1.00 for the first time since March 21. 

The euro was higher on speculation that the U.S. Federal Open Market Committee might signal monetary easing in a statement following its monthly meeting later Tuesday. Easing by the Fed supports the euro because it highlights the relatively more hawkish policy stance of the European Central Bank. 

The euro was at USD1.4245, up from USD1.4180 late in the New York day. The ICE dollar index was broadly lower at 74.564, down from 74.940 Monday in New York.

Investors were on watch for possible renewed intervention by Japanese authorities as the U.S. dollar fell as low as JPY77.08, about where authorities kicked off a furious round of yen-selling last Thursday to let some air out of the yen. 

The dollar was last at JPY77.39, down from JPY77.77 late in New York Monday. The euro was at JPY110.24, from JPY110.26 late in New York. 

The Australian dollar plummeted Tuesday, moving below parity with the U.S. dollar for the first time since March, as a sell-off on Wall Street filtered into a global sale of all perceived riskier assets. At 0610 GMT, the Australian dollar was at USD1.0179, down from USD1.0354 late Monday and off a 30-year high of USD1.1080 in late July. Still, the currency had reached a session low of USD0.9924 before a late-afternoon bounce back.
Market expectation
The USDJPY is off its low of JPY77.05 as some investors bet that the Fed may take steps to ease recent market jitters, say dealers. The pair is now at JPY77.38 from JPY77.79 in New York trade Monday. There are talks in the market that the Fed may do something later in the day, they say. Other dealers say due to such a speculation, the USDJPY will fall sharply if the Fed fails to announce any possible steps. Dealers tip a JPY77.00-JPY77.50 range. Despite the USDJPY being close to a level where Japan intervened last week, some dealers say the risk of intervention will likely be low before the FOMC statement later in the global day.

Traders say investors of many asset classes are stocking up cash, bonds and so-called safe-haven currencies as they speculate weak U.S. economic fundamentals and uncertainties over some European bonds will weigh on growth in the global economy.

European stock markets are set to tumble at the open Tuesday, extending previous session losses as fear and panic continue to dominate investor psyche over worries of another recession in the U.S. and debt contagion across the euro zone.