Concerns about the health of the global economy led to another sell-off in equities today with Asian stock markets following Wall Street’s lead on Monday to drop sharply. The S&P 500 closed 1.6% lower yesterday, the Nikkei 225 index was down 2.4% but shares in China were the most hit with the Shanghai Composite index plunging by 6.4%.
The People’s Bank of China tried to allay fears of a liquidity crunch by pumping 440 billion yuan into the banking system. It also kept the yuan’s daily midpoint stable and the currency was steady in onshore trading at 6.5781 per dollar.
The yen was firmer on heightened risk aversion in today’s Asian trading. The dollar briefly climbed above 118 yen in late session before dropping back to 117.72 yen. The dollar is likely to stick to its recent range as the Fed starts its two-day policy meeting later today with the decision and meeting statement expected tomorrow.
The euro also gained on safe-haven appeal, climbing to 1.0871 dollars. But it was weaker against the yen and slipped to 127.96 yen in late session.
Sterling lost ground against the dollar and was struggling to hold on to the 1.42 level.
Oil prices reversed last week’s two-day rally to drop around 7% on Monday. US and Brent crude futures were back below $30 a barrel today at around $29.50. Reports that oil production in Iraq had reached record levels last month weighed on the supply glut.
Commodity-driven currencies fell as a result of the drop in oil prices and in Chinese equities. The Australian dollar was down at 0.6931 against the greenback and its New Zealand counterpart was lower at 0.6440. The Canadian dollar also fell sharply with the US dollar reclaiming the 1.43 handle versus the loonie in late Asian trading.
With little on the data front to keep traders busy today, markets are likely to focus on tomorrow’s policy announcement by the Fed.
Risk Warning: Forex, Commodities, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure.