The ECB held key rates at 4.00 percent and pushed the sinking US dollar into troubled waters as ECB President Trichet signaled that ‘strong upward pressure on inflation’ will remain their central focus. The EUR/USD pair touched an all time high of 1.5379, while the Swiss Franc picked up the most gains against the crumbling dollar. The British Pound also advanced against the US dollar to hit a daily high of 2.0117 as the BOE held key rates at 5.25 percent, but fell to a new record low against the euro. Meanwhile, risk aversion left the USD/JPY heavy as the pair fell to a two year low, while high yielders like the Australian and
Furthermore, investors unwound their holding of the Australian dollar as the nation’s trade balance crept deeper into deficit, signaling that growth prospects for the country are becoming bleak. Fresh data for Canada also portrayed a worsening picture for the economy as Building Permits unexpectedly declined, raising speculation that the US housing crisis is beginning to spill over into Canada. On the other hand, Ivey PMI proved to be much stronger than expected, suggesting that business conditions remain robust and boding well for Friday’s Canadian employment data.
Turmoil in the financial sector sent securities prices lower for the fifth consecutive day as the financial giant Merrill Lynch announced that they will no longer conduct business in subprime lending, with Ambac opting to sell $1.5B in stocks in order to hold on to its triple-A rating. As a result, the DJIA fell a bolstering 214.60 points to hold off at 12,254.59 points, with Wal-Mart posting the only gains out of the big 30. Among broader indices, the S&P500 fell -29.36 points to leave the index at 1,332.20 points, with Thornburg Mortgage Inc shares taking the biggest plunge, while Head NV and Blue Square-Israel led the advancers.
US Treasuries prices picked up as the stock markets plunged, and sent risk investors seeking the safe haven of risk free bonds. During the session, the benchmark 10-Year yield fell to 3.57 percent, with the 2-Year yield following as it dropped to 1.48 percent.
For tomorrow, all eyes will be focused on the Nonfarm Payroll release due out first thing in the morning, and will lift spirits as it is expected to pick up after falling for the first time in January. More employment data is to follow during the morning hours as the Average Hourly Earnings index along with the Unemployment Rate is due out for released before the markets are opened.