Risk aversion re-enters the market. Credit issues linger. USDJPY reaches multi-year lows

U.S. Dollar Trading (USD) was mixed in overnight trading as risk aversion played on the psyche of market participants. Goldman Sachs downgraded its rating on HSBC to “sell” claiming more losses from sub-prime exposure for the bank. Concerns are strengthening that the Federal Reserve may look to cut rates again in their December meeting to insulate against credit issues. In U.S. share markets the NASDAQ was down by 55 points (-2.1%) whilst the Dow Jones also fell by 237 points (-1.8%). Crude oil gave up some gains, falling by US32c a barrel to US$97.86. Looking ahead, Federal Reserve’s Plosser will speak on the economic outlook.   

The Euro (EUR) initially weakened then strengthened against the greenback as concerns about financial stocks and the health of the housing market in the US weighed on the dollar.

Overall the EURUSD traded with a low of 1.4806 and a high of 1.4887 before closing the day at 1.4878. Looking ahead, German IFO is due out today.

The Japanese Yen (JPY) rallied against the greenback in light of further risk aversion in the markets, holding close to 2-year highs against the battered US Dollar. Overall the USDJPY traded with a low of 107.23 and a high of 108.79 before closing the day at 107.25. Looking ahead, both BoJ Governor Fukui and Deputy-Governor Iwata speak today.  

The Sterling (GBP) also benefited from a weaker US dollar and an improvement in the European corporate bond risk as investors sought to buy the highest yielding currency in the G-7. Overall the GBPUSD traded with a low of 2.0506 and a high of 2.0721 before closing the session at 2.0708. Looking ahead, BoE’s Blanchflower and Sentence both speak today.

The Australian Dollar (AUD) was weaker, hampered by the return of risk aversion in the financial markets causing sell-offs in AUDJPY positions. The AUDUSD traded with a low of 0.8668 and a high of 0.8779 before closing the day at 0.8689.

Gold (XAU) was little changed in what was a volatile overnight session, finishing higher by US20c to US$824.90 an ounce.
 
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