US Dollar Plummets as US Assets Lose "Safe Haven" Luster, Japanese Yen Mixed Ahead of BOJ Announcement

The combination of the plunge in the US dollar and Treasuries, vast drops in FX carry trades, the equity markets, and oil, along with a jump in the CBOE's VIX volatility index tells us one thing: the greenback and US assets in general may be losing their luster as "safe haven" assets. Following S&P's downgrade of the UK's economic outlook from "stable" to "negative" due to "deteriorating public finances," there has been increased discussion of the same thing happening to the US as national debt levels soar in light of the government's efforts to bail out Main Street and Wall Street. However, the Japanese yen did, to a certain degree, maintain its link with risk trends.

Meanwhile, the release of the US Labor Department's jobless claims report reflects very little change in the employment outlook, as initial claims fell by 12,000 during the week ending May 16 to 631,000 while continuing claims jumped by 75,000 during the week ending May 16 to another record high of 6,662,000. Indeed, these moves suggest that while the pace of job losses, as reflected by non-farm payrolls (NFPs, will slow further, the unemployment rate is likely to continue climbing higher. This was something projected by the Federal Reserve during their April policy meeting, as the FOMC meeting minutes showed that the range of forecasts shifted from 8.0 percent - 9.2 percent up to 9.1 percent - 10 percent.

In more positive news, the Conference Board's leading economic index jumped 1.0 percent in April, the first increase since June 2008 and the biggest increase since November 2005. The improvement was led by components such as average workweek, jobless claims, consumer goods orders, stock prices, interest rate spread, and consumer expectations. Also, the Philadelphia Fed's manufacturing activity index rose to -22.6 in May from -24.4, signaling a slower contraction.