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Dollar, Yen Broadly Higher; Euro Declines

The U.S. dollar was broadly higher Tuesday, alongside the Japanese yen, amid heightened anxiety over the possible stalling of the global economic recovery and the fragility of the banking system.

The euro has borne the brunt of the adjustment. Not only has the euro fallen below its 20-day moving average against the dollar for the first time in a couple of weeks, but it has fallen to its lowest level against the yen since late 2001 and has slumped to levels not seen since late 2008 against sterling, while continuing to make new record lows against the Swiss franc. Sterling has been knocked back after meeting a wall of offers above $1.51, but remains fairly resilient, maintaining a foothold above $1.50.

Global equity markets were experiencing steep declines Tuesday. The MSCI Asia-Pacific Index fell 1.6%, with Chinese shares seeing the largest selloff and sending the Shanghai Composite to its lowest level in 14 months. News that the April leading economic indicator, compiled by the U.S. Conference Board, was revised from 1.7% to 0.3% due to a calculation error weighed on sentiment.

In addition, the recent decline in Chinese equities made for a difficult environment to launch the last initial public offering of a major Chinese bank and reports suggest that the Agriculture Bank has had to cut its price.

European bourses were off 2% to 3%. The global slowdown story is taking a toll on basic materials, industrials and oil and gas. Financials are also outpacing the overall market to the downside. Steep losses are expected in the U.S. markets in the early going.

Safe-haven demand has pushed the U.S. two-year note to a new record low yield, driven the 10-year yield below 3% and the 30-year bond yield below 4%. In Europe, core bond markets like Germany, France and Netherlands, and U.K. gilts are also seeing strong safe-haven demand. However, peripheral bond markets are doing worse and spreads are widening out.
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