The US dollar ended the day higher versus most of the majors, but fell versus the currencies that tend to gain the most during times of risk aversion: the Swiss franc and Japanese yen. Indeed, the Dow Jones Industrial Average plunged 7.7 percent while the S&P 500 plummeted 8.93 percent, as the outlook for the global economy and financial markets remains bleak.
Not only did ISM Manufacturing fall more than expected to the lowest level since 1982, but the National Bureau of Economic Research (NBER) also confirmed that the US fell into recession in December of 2007. The tone of the markets remained bearish as Federal Reserve Chairman Ben Bernanke said that economic conditions would “remain weak for a time” and while further rate cuts were “certainly feasible,” there may be little that the Fed can do with conventional monetary policy to alleviate persistently tight credit conditions and to lift the US out of recession.
Looking ahead to Tuesday, there are no major economic releases scheduled, but speeches by government and Federal Reserve officials can be just as market-moving for the US dollar and stock markets. At 11:30 ET, US Treasury Secretary Henry Paulson is due to speak on the US-China Strategic Economic Dialogue, which could provide some insight on future stimulus plans in the US and abroad. At 12:30 ET, Philadelphia Federal Reserve President Charles Plosser will speak on the economy. Regarding both Mr. Paulson and Mr. Plosser, comments that reflect information the markets are already aware of will not illicit much reaction, but if they issue dour outlooks for growth or suggest any new policies, volatility could increase rapidly.
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