The U.S. dollar was mostly higher on disappointing German, U.K. and New Zealand economic data. However, Japanese Prime Minister Naoto Kan succeeded in holding off the challenge at the DPJ leadership contest, easing the threat on the margins of intervention, which helped lift the yen to new 15-year highs against the dollar.
Like the yen, the Swiss franc also drew succor from the reduced appetite for risk and the dollar briefly traded through CHF1.00 for the first time since late last year. Euro support is seen near $1.2800 and sterling already successfully tested support near $1.5340. Risk-off sentiment may in some ways be seen as a correction to Monday's near-euphoria. Currencies perceived as leveraged for growth, the dollar-bloc, the Scandis, and most emerging market currencies are on the defensive.
Weak German confidence numbers appear to be the catalyst for the recent market selloff. European stocks declined as the ZEW Center for European Economic Research index of investor and analyst expectations dropped for a fifth month, to minus 4.3 from 14 in August. In addition, U.K. housing data increased the sentiment in risk aversion, leading to the decline in U.K. stocks.
Meanwhile, high-beta countries like Norway, Greek and Spain sold off the most as stocks in those countries were down by 1%, 0.85% and 0.42%. In addition, Asian stocks were mixed as the surprise elections results in Japan were seen to maintain the status quo. The prime minister's challenger Ichiro Ozawa was viewed as the interventionist hawk and suggested last week Japan needed unilateral action to stem the currency's rise. With Kan's re-election, currency intervention seems unlikely which has weighed on the Nikkei.
