The dollar jumped and currencies of commodity exporters tumbled on concerns that global growth might slow after the Federal Reserve yesterday said it saw “significant downside risks” to the US economy.
The Dollar Index climbed to a seven-month high as Fed’s statement stoked concern the global economy was headed for a recession and currency volatility surged to a 16-month high. The euro fell to the weakest level since January versus the dollar and reached a fresh decade-low against the yen after eurozone services and manufacturing contracted this month. Australia’s dollar slid below parity with the greenback for the first time in six weeks as a preliminary index showed China’s manufacturing might shrink for a third month.
The dollar appreciated 1.2 per cent to $1.3412 per euro at 9:04 am in New York, after reaching $1.3385, the strongest since January 19. The yen strengthened 1.3 per cent to 102.40 per euro, after reaching 102.22, the most since June 2001. Japan’s currency rose 0.1 per cent to 76.37 per dollar.
The Dollar Index, which IntercontinentalExchange Inc uses to track the greenback against the currencies of six US trading partners, increased 1.7 per cent to 78.685, after rising to 78.789 — the highest level since February 14.
DOWNSIDE RISKS
Fed said yesterday following a two-day meeting that it would extend the average maturities of the Treasuries in its portfolio by purchasing $400 billion of long-term debt, while selling an equal amount of shorter-term securities.
The seven-day relative strength index for the Dollar Index surged above 70 for the first time in more than a week to 77. A reading over that level indicates an asset may have strengthened too quickly and may be due for a correction.
STOCKS, TREASURIES
US stock index futures also dropped 2.1 per cent. Yields on Treasury 10-year notes declined to records as investors demanded the perceived safety of the debt and anticipated extra demand after Fed said yesterday it would buy bonds due in six to 30 years through June while selling debt maturing in three years or less.
The euro fell for a fifth day against the yen after data showed eurozone services and manufacturing output shrank for the first time in more than two years in September, as the region’s worsening debt crisis added to concern that the economy could slide back into a recession.
One-month implied volatility for the euro-yen exchange rate jumped to 19.53, the highest since June 2010. It was at 14.16 at the beginning of the month. Implied volatility for currencies of the G-7 nations advanced to 15.56, the highest since May 2010, a JPMorgan Chase & Co index showed.
COMMODITY ROUT
The Australian dollar dropped below parity with its US counterpart for the first time since August 9 after an index from HSBC Holdings Plc and Markit Economics predicted China’s manufacturing might shrink for a third month in September, the longest contraction since 2009. China is Australia’s largest trading partner.
