The US dollar and Japanese yen continue to garner strength from safe haven flows in this extremely risk averse market. With little fresh economic data to trade on, markets will focus on Wall Street.
Global markets remain range bound as persistent fears about financial industry losses has confidence and risk appetite diminishing, pushing dollar interbank rates higher for the third day.
The dollar was also supported by comments from U.S. Treasury Secretary nominee Timothy Geithner, who said a strong dollar is in the United States' interest.
The euro plummeted to six-week lows against the dollar, weakening over 4% throughout the week, as weak data and global economic concerns kept investors extremely wary of risk.
Investors took little encouragement from earlier surveys showing the euro zone manufacturing and services sector contracted at a slightly slower pace in January, since they remain deep in recessionary territory.
Mirroring the euro’s decline, European shares fell to six-year lows as well today.
The British pound has come under severe pressure falling 8% since Monday against the USD, breaching a fresh 23-year low against the dollar as worries about a very weak economy combined with concerns about the UK's troubled banking sector and the parlous state of government finances.
UK data released today showed the UK economy contracted by 1.5% in the fourth quarter, far more than analysts had expected. This contrasted sharply with an unexpected 1.6% monthly jump in retail sales, though a 2.6% drop in the annual deflator suggested that this rise came at the cost of hefty discounting.
The dire economic situation fueled speculation that key interest rates, will fall toward zero and Bank of England Governor Mervyn King has indicated the central bank was considering more unconventional measures to supply liquidity and bolster growth. This news is expected to weigh on sterling.
Continuing to gain momentum from safe haven currency flows, as the rest of the globe is rocked by financial and banking strife, the Japanese yen remains firm.
The yen hit record highs against the pound and is nearing seven-year highs against the euro as financial sector woes pushed European shares down over 2 percent to a six-year low. The Japanese currency hovered near a 13-½ year high against the USD.
Investors are on the lookout for any comments from Japanese authorities about possible currency intervention to stem the yen's rise. The 85 yen level seems to be where markets are expecting talk of JCB intervention to increase.
The Canadian dollar extended its earlier losses after official data showed that downward pressure on Canadian consumer prices intensified in December, giving the central bank more room to cut interest rates again.
The bank is expected to lower its key interest rate at least once more in the first half of the year to help steer the economy out of recession, most likely in March.
The beleaguered Australian and New Zealand dollars remain on the defensive; near 6-week lows as mounting concerns about the global banking system hammered equities and drove extreme risk aversion.
Economic indicators due out next week from Australia are the NAB business conditions and confidence index out on Tuesday as well as Q4 PPI. Q4 CPI will be released on Wednesday. The significant decline in oil prices would have contributed to lower PPI as well as CPI figures, although businesses are likely to remain pessimistic despite interest rates having been lowered significantly.
From NZ the focus will be on the RBNZ rate decision which will be released late on Wednesday. Concerns over a deepening recession in New Zealand have led to the expectation of a 100bp cut.
