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Downward pressures persists for the US dollar as fresh economic data added to recessionary concerns and pushed the crumbling dollar to new record lows. The US dollar touched new record lows against the Swiss franc and the euro, while the yen - pulled lower by risk aversion - tested the intervention-friendly 100 level for the first time since 1995. Elsewhere, the commodity currencies surged against the US dollar, with the New Zealand and Australian dollar picking up the biggest gains with help from their respective economic calendars. The Canadian dollar found its leverage through $110 oil and gold touching a record high of $1000. And despite its tepid interest through the SSI positioning, GBPUSD rallied to 2.04 .

The dollar continued to suffer the brunt of the pain delivered to the financial markets by news that Carlyle Capital would have to surrender all of its assets to its lenders after failing to meet a $400 million margin call. Not only does this stoke fears that other hedge funds and more mainstream investment houses are at risk of the same fate, but it also means another $16.6 billion in debt could be dumped on an already saturated market very soon. Under normal circumstances, such news would actually favor the dollar against high yielders; but this wasn’t the case this time around, as fears of a recession and President Bush’s admission that the economy is weak has refreshed dollar traders concerns. The economic docket further weighed on the greenback. The frequently market moving retail sales report added another reason for economists to forecast and policy officials to fear a coming recession. Sales dropped 0.6 percent, with an expected decline in discretionary spending meeting an unexpected drop in gas and food sales. Upstream inflation is still threatening to give the Fed a hard time after the import price index merely ticked lower to a still oppressive 13.6 percent annual rate. Even unemployment benefits filings were weighing the dollar down as continuing claims rose to a two year high.

The stock markets turned around after taking a dive during the morning session as Standard and Poor’s stated that the write-downs from the subprime mortgage crisis may soon come to an end with total losses estimated at $285B. As a result, the DJIA retraced the 200 point plunge in the morning - gaining 35.42 points by the end to bring the index to 12,145.66. Out of the big 30, Boeing and McDonalds picked up the biggest gains, while AIG and IBM topped the losers. Among the broader indices, the S&P500 picked up 6.71 points with LDK Solar shares picking up the most, while Virgin Mobile and Thornburg Mortgage shares lead the losers.

Investors left the safe haven of US Treasuries after Standard and Poor’s lifted spirits by forecasting an end is near for subprime writedowns. As a result, the benchmark 10-Year yield jumped to 3.52 percent from 3.46 percent while the 2-Year yield increased to 1.61 percent from 1.60 percent.

Looking ahead, tomorrow could potentially be an eventful day as traders take in the consumer price index and University of Michigan’s consumer sentiment survey for readings on both inflation and growth - the defining components of the Fed’s next rate decision.

DailyFX

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