Pummeled, this is the only word that comes to mind when I think of what happen to the USD in overnight markets. Last night trigger was news that Singapore widened the trading band for its currency in response to rising market volatility. Effectively, Singapore's move is a form of policy tightening aimed at containing rising inflation and is a signal that officials are embracing a stronger currency after already seeing about an 8% currency appreciation so far this year. With interest rates at record lows in developed countries, yield-hungry investors are piling cash into emerging markets. The tide of money is rising ahead of an anticipated second round of quantitative easing by the Fed. Also out of Asia, the verbal jousting between South Korea and Japan demonstrates the tensions ahead of a G20 meeting next week. State media in South Korea reported Seoul had complained to Japan after Tokyo questioned its leadership of the G20 forum of major economies because of repeated intervention to curb the won. Seoul was angered by unusually direct remarks on Wednesday by Japanese Finance Minister Yoshihiko Noda, who said emerging market countries with current account surpluses, like China and South Korea, should allow their currencies to be more flexible. In Europe, the Euro surged to over 1.41 as the USD continues to move lower in anticipation of QE2.0. Riksbank Deputy Governor Barbro Wickman-Parak said Sweden’s economic recovery calls for more interest-rate rises and any delays in continuing monetary tightening might require more dramatic increases in future. Policy makers have raised the repo rate twice since July, bringing it to 0.75% at their September meeting. They announce their next decision on Oct. 26. Elsewhere, the USD dropped below 81 Yen for the first time since April 1995 as initial jobless claims unexpectedly rose and the trade deficit widened. Trade during August resulted in a deficit of $46.3 billion, which is up from the $42.6 billion deficit recorded for the prior month. It was also worse than the $44.5 billion deficit that had been generally expected among economists. In Canada, the CAD pushed through parity against the USD for the first time since April in overnight trading, but was unable to sustain that move on news that Canada’s trade deficit narrowed more than expected in August from a record the previous month, as imports fell and shipments abroad increased.
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