NEW YORK (BBH FX Strategy) -- Negative sentiment continues following the U.S. downgrade by Standard & Poor's and despite European Central Bank support of Spanish and Italian bonds.
The dollar is mixed in its classic risk aversion pattern, weakening around 1% against CHF and JPY but strengthening against most other currencies. EUR/USD dropped to 1.4260 from trading over 1.44 earlier today. Similarly, European stock indices opened higher, supported by a strong performance in the financial sector, but they have since reversed those gains and are now down as much as 3%.
U.S. futures are pointing to a 2.7% lower open. In fixed income markets, U.S. Treasury yields are lower by 4 to 8 basis points across the curve. In Europe, periphery yields are down sharply on the back of ECB buying. In the 10-year sector, Italian and Spanish bonds yields are down 75 and 83 basis points, while falling 19 basis points in Greece and 9 basis points in Ireland.
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