Dollar Pares Early Gains

The US dollar has seen its initial gains scored in Asia pared, but the risk is that North American players resume the buying of the greenback. The euro initially fell to about $1.1876 in early Asia before recovering. The $1.2000-$1.2050 area may be sufficient to cap the single currency. There is some chatter that of some official interest that might have helped stabilize it, but it is difficult to verify. Other major currencies have also seen initial losses pared. In the yen’s case, the opposite: early gains have been pared. The dollar largely held JPY91 support. The euro fell to almost JPY108 before find a big, but now approaching JPY110, may also seen fresh North American sales.

Global equities are broadly lower, even if the sharp losses in the European bourses have been recouped a bit. Concerns about the growth trajectory, in light of the disappointing private sector job gains in the US and the G20 shift toward endorsing greater fiscal consolidation, coupled with a general risk averseness continues to take its toll. The MSCI Asia-Pacific Index was off 2.3%, with the Nikkei dropping 3.8%, its biggest loss in around 14 months. European bourses are off around 1%. Technology, telecom and utilities have been hit the hardest. Financials and oil and gas are also lower, but faring the best.

It is difficult to find the safe haven bid for bonds today, though the JGBs rallied, pushing the 10-year yield to near a 2-year low and 10-year bund yields touched a record low (~2.54%), but is unchanged on the day. US 10-year Treasuries are slightly lower. European spreads over Germany are continuing to widen. This is not just a peripheral development as illustrated by the continued widening of the German-French spread (+5 bp on the day to 47 bp). It has widened 20 bp over the past five sessions. Pressure is also evident in Belgium (+6 bp on the day to 998 bp). It has widened almost 50 bp over the past five sessions, though new supply today may be taking a bit of an extra toll. Hungary returned to the spotlight due to the strength of the Swiss franc and to ill-timed comments before the weekend, It’s 10-yeat yield is up 19 bp today to 8.18%.