Risk aversion spiraled again today, pushing investors to seek safe havens such as the yen and gold, while the US dollar and global equities tumbled. Today’s sell off from risky assets extends from Wednesday following Fed Chair Janet Yellen’s testimony to the US Congress and her acknowledgement of intensifying risks in the US and global economy, while also suggesting the Fed was in no rush to hike rates.
Gold prices soared to a one-year high above $1240 on safe-haven demand, while the Japanese yen strengthened across the board. As a result, the USD/JPY pair plunged below 111 yen to lows not seen since 2014.
The euro was driven higher against the dollar to the upper $1.13’s, reaching the highest level since October 2015 at $1.1367. There were no economic data releases today from the Eurozone, leaving the single currency to be driven by risk sentiment.
The pound fell below $1.144 against the dollar, dragged down by the drop in GBP/JPY to a more than two-year low below 160 yen.
Oil continued lower today, dipping below $27 per barrel. One catalyst was the record number of US crude inventories based on a report released on Wednesday. Oil’s fall was also part of a general move by investors away from riskier assets.
The main news event out of Europe today was the rate cut by Sweden’s central Bank. The Riksbank took markets by surprise by delivering a bigger-than-expected cut in its repo rate by 15bps to -0.50% from -0.35%. Analysts were expecting only a 10bps cut to -0.45%. The Swedish krona tumbled by around 1.3% against the euro after the announcement but soon recovered its losses throughout the day. The euro jumped from around 9.48 kronor to a 5½-month high of 9.6105 kronor immediately after the announcement.
Data out of the US showed initial jobless claims dipped more than expected last week to fall to 269,000 claims from 285,000 the week prior. Economists expected the figure to fall to 280,000.The data are a good indication that the US labor market is going strong despite a slowdown in the overall economy.
Focus now turns to Fed Chair Janet Yellen’s second day of testimony. Yesterday she appeared before the US Congress and today she will be at the US Senate.
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