The global equity markets continued to slump following Monday’s Dow Jones meltdown, but the dollar is holding strong against other currencies during the stock selloff.
USD lifted as stocks dive
The Dow Jones stock index fell almost 5% Monday or more than 1,100 points. Markets in Asia and Europe continued the downward trend. But the U.S. dollar is lifting, with the EUR/USD and GBP/USD pairs hitting fresh lows.
EUR/USD is trading in the mid-1.23s on dollar demand. Positive factory order numbers from Germany today didn’t seem to help the euro as the markets have now had time to react to the news if they were going to.
GBP/USD is reaching two-week lows near the 1.38 midpoint off of softer U.K. economic data from yesterday and a resurgence in USD demand. The Federal Reserve’s James Bullard is speaking today in Kentucky on monetary policy, but that and other economic events on the agenda for today will likely not impact the pair much. Investors are looking ahead to Thursday when the Bank of England holds its “Super Thursday” monetary policy announcement.
Dollar’s demand fighting JPY
The equity market woes impacted the USD/JPY pair overnight as it fell below the 109 mark due to investors looking to the safe haven of the Japanese yen. The dollar regained some traction this morning, trading in the mid-109s.
An increase in the dollar’s demand seemed to be the main factor in the pair’s rise, but it was capped by a weaker-than-expected U.S. trade balance announced today. The Commerce Department said the trade deficit grew to $53.1 billion dollars in December – the highest since October 2008. An increased demand of food, capital and consumer goods imports grew the deficit.
Oil, dollar pressuring loonie
The stronger U.S. dollar is pushing USD/CAD to multi-week highs, trading in the mid-1.25 levels. With oil prices dropping the loonie is under pressure, but so far the currency has been resilient.
The Canadian trade deficit came in worse than expected, increasing to $3.19 billion in December. As far as economic data that could impact the pair, the Canadian Ivey Purchasing Managers Index and the U.S. JOLTS jobs data will be released this morning.