It is not often that we can see the US dollar hit a 23 year high against one currency and a 13 year low against another on the very same day. However that was exactly what happened this morning when the greenback surged against the British pound and collapsed against the Japanese Yen. Volatility ripped through the foreign exchange market as central bank and other US officials comment on their economies and currencies. The milestones were not limited to the GBP/USD and USD/JPY as the NZD/USD and EUR/JPY also fell to a 6 year low intraday. However what was most impressive is the fact that none of the staggering losses were sustained.

The US dollar strengthened across the board today following better than expected economic data and more clarity from the Federal Reserve on their plans to stimulate the economy going forward. However the strength of the greenback could be fleeting particularly against the Japanese Yen as the upside surprises in US data masks underlying weakness. The December retail sales report is due for release tomorrow. Even though there is a chance that we may see an upside surprise, consumer spending is still expected to be negative for the sixth consecutive month.

It is a new trading week and growing doubt about the global economy has seeped through the financial markets once again. For the foreign exchange market, we are seeing broad based liquidation or weakness in all of the major currency pairs. The concerns are not unique to the US economy which is why we have not seen any consistent behavior in the US dollar. The greenback weakened against the Japanese Yen but it rallied against the Euro, British pound and the commodity currencies. For currency traders who simply have a view on the US economy and nothing else, the price action of USD/JPY has been best aligned with the trend of the US economy. All of the other currency pairs are diluted by speculation about upcoming interest rate decisions and commodity prices.

The US dollar is selling off aggressively ahead of Friday’s non-farm payrolls report on the fear that for the second month in a row, job losses may have topped 500k. The recent moves in the currency and equity markets suggest that everyone expects a very weak labor market report. Although the consensus forecast is -520k, the whisper number is closer to -650k to -700k. Sentiment is strongly skewed in one direction which can be dangerous considering the fact that some of the leading indicators for non-farm payrolls call for a rebound.