Global Equities Fall As Dollar And Yen Make Gains

The 2008 trend of the dollar and the yen rising has continued as both currencies made gains early in trading on Tuesday, January 13, 2009 while global equity markets plunged yet again. The dollar index traded at 83.536 from its closing number of 8.105 in North America on Monday against a basket of six major currency counterparts.

Stephen Gallo, the head of market analysis at Schneider Foreign Exchange commented on the move, “The greenback will tend to do better in an environment where global growth worries are increasing.” He went on to cite that the Federal Reserve’s “extremely proactive approach has jam-packed the global financial system full of dollar liquidity.” He also feels that 2009 will be a volatile year as markets continue to assess the approaches of the central banks in response to the continuing global crisis, noting that they are all taking different approaches.

With the dollar and the yen gaining once again, Asian stock markets saw a broad based sell off Tuesday morning with European stocks sustaining some extended losses as well. Oil and mining companies are getting worried that the slowdown in the overall global markets and equity trading is going to add pressure on the already fragile commodity prices. The weakness in the equities has caused investors to shift from higher-yielding currencies and repatriate both the dollar and the yen.

Standard & Poor’s issued a warning on Monday that they may have to downgrade Spain’s sovereign credit rating from AAA status and the warning cast a bit of a pall over the euro. The financial markets are waiting for information on the euro-zone interest rates that will be determined at a European Central Bank meeting on Thursday, January 15, 2009. Standard & Poor’s already downgraded Greece’s credit rating last week and changed Ireland’s outlook from stable to negative.

The euro entered 2009 with the currency markets looking at is as ‘sceptical’ and strategists at KBC Bank in Brussels commented that ‘credit headlines on the European governments only reinforces this euro-sceptic market attitude. We continue to have serious doubts on the chances of a protracted dollar rebound,” they added when asked about long-tem movement, and strategists believe that short-term movement is not good for the euro/dollar trading combination. The euro slipped against the dollar during Monday’s trading, going from $1.3373 to $1.3310. The euro also fell against the yen from 119.09 yen to 118.55.

The yen itself traded against the dollar with very little movement, closing at 89.04 yen for every dollar. The pound fell 1.2% against the dollar and was down 0.8% on the day against the euro. December was the worst retail month the United Kingdom has seen in over 14 years.