The euro surged to fresh record
highs of $1.4097 through New York
session trade—blowing through stop orders and option barriers with force. Yet
the main story was a similar rally in the Canadian dollar, which reached parity
with its US
namesake for the first time in over 30 years. The USDCAD currently trades at an
impressive C$1.0010 after a 150 point decline. The British Pound saw a much
smaller rally against the dollar, as worries over UK financial stability continued to
depress the sterling against major trading counterparts. Yet dollar weakness
sent Cable 90 points off its daily open to $2.0096.
Speculators continued to ignore domestic economic data, as traders were
more-than-willing to send the euro higher and dollar lower on overall momentum.
Arguably the biggest news on the day came on rumors that the Saudi Arabian
government would drop their domestic currency’s peg to the dollar—eliminating
its need to hold tremendous reserves in the US currency. Such speculation came
on the fact that the Saudi central bank declined to cut rates in lockstep with
the US Federal Reserve. But many argue that the Saudi monetary policy authority
was simply acting against rampant inflation and played down the possibility of
a break of a change in the currency regime. US Treasury bond markets
nonetheless fell in the wake of the report, with fears that Middle Eastern
countries would look to sell their reserves in domestic debt.
On the US
economic front, markets witnessed a further deterioration in the
closely-followed Leading Indicator—falling more than expected at -0.6 percent
in the month of August. A breakdown of the headline figure shows little signs
of hope, with virtually all sub-indices registering declines through the
period. Notables included a worsened Consumer Confidence coefficient, as well
as worsening Jobless Claims numbers and a deterioration in Building Permits.
Markets showed little concern on the figure, as much of the data had previously
been reported. Yet it remains relatively clear that many broad measures of
economic health reflect a dim outlook for the future of domestic expansion.
A later Philadelphia Fed manufacturing report showed a slightly more
optimistic picture of regional industrial production, with the headline index
printing far above consensus estimates for the month of September. Surging Prices
and a surprising jump in New Orders boosted the overall index to its highest
since June. This is one of the few positive US economic indicators seen through
recent trade and may calm concerns over the future of industrial performance.
Yet there remained some concerns among Philadelphia
manufacturing firms, with the Number of Employees index falling from 21.2 in August
to 7.5 in July. The employment figure remains strongly above medium term
trends, but it nonetheless echoes the slowdown in payrolls growth throughout
the broader economy.
US equity markets gave back some of their gains as a surge in Treasury
yields offset renewed optimism on borrowing costs for domestic corporations.
The Dow Jones Industrial Average shed a relatively minor 50 points to 13,766,
but the broader S&P 500 lost 0.7 percent to 1,519.
Speculation that Saudi Arabia
and other Middle Eastern countries would sell US government debt sent Treasury
yields significantly higher on the day. The long-dated 30 year Note added an
incredible 12 basis points in yield to 4.96 percent. Given that these yields
serve as a benchmark for many mortgages and other loans, any sharp advances
could worsen market credit conditions. The shorter-dated 2-year likewise saw a
large tumble in price, with its yield up 12bp to 4.1 percent.
Written by David Rodriguez, Currency Analyst for DailyFX.com
