The Dollar strengthened against most currencies on Friday as risk aversion set in amidst panicky markets. Investors sought safety as fresh debt concerns emerged from Hungary and rumours circulated that a major European bank might be about to fail. The eagerly awaited non-farm payrolls report did little to reassure as it came out well below estimates and most of these jobs could be explained as being created temporarily by the Census Bureau as it prepares to carry out the next US census. Equity markets around the globe crashed as panic set in and investors sought safety, fearing once again the European debt crisis might become contagious and derail the fragile global recovery. The Greenback ended the day up against the Euro at $1.1938 and up against Sterling at $1.4436 to the Pound.

   The Euro tumbled amidst sovereign debt fears as the Eastern European fairy tale took a dark twist. This time it was Hungary which was on the brink of default as Peter Szijjarto, a spokesman for Prime Minister Viktor Orban, was quoted as saying Hungary’s economy was in a “very grave situation” and compared the country’s economic problems to those of Greece. Investors fled as concerns mushroomed that the whole of Eastern Europe might be in similar straits and that this might infect the global economy due to open contagion lines with European banks who had over-lent in the good times. Woe upon woe piled high for the common currency as rumours then circulated that a major European bank might be on the brink of failing and Société Général shares plunged over 3% as a result. The Euro fell to 4-year lows against the Dollar, closing at around $1.1938 and fell to record lows of F1.3916 to the Swiss Franc.

   The Pound suffered from being tethered to its European neighbours as markets reeled from the bad news in Europe and risk aversion set in. Mixed economic data did not help to minimize losses much as vehicle registrations showed a small increase but housing data from the Halifax showed a house price dip. Investors turned to Yen and the Dollar safety instead as equity markets sold off. The Pound closed at $1.4436 to the Dollar and £0.8250 to the Euro.

   The Yen strengthened further as financial markets across the globe fell amidst fresh fears of financial crisis in Europe. Despite losses earlier in the week due to political uncertainty the Yen rebounded in trading on Friday. Investors had sold earlier in the week on the news that the most likely replacement for the outgoing Japanese Prime Minister was averse to a strong Yen. Naota Kan, the Finance minister was known for supporting a weaker Yen to stimulate exports and is said to have a more interventionalist bent to his predecessor; but the Yen’s safe haven status once again trumped political and economic factors as the main driver of value as it strengthened across the board. The Yen gained against the Dollar to close at ¥91.88 and rose against the Euro to end the week at ¥109.94.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst