US dollar pessimism heightened as fresh data hampered the growth outlook for the troubled economy. As market participants sold off risky assets, including forex carry trades, the Swiss franc and Japanese yen gained against the US dollar. Against the European counterparts, the greenback dropped versus the euro as ECB President Trichet’s commentary suggested little chance of a rate cut in the near-term, while the British Pound trailed behind. Conversely, the US dollar picked up against the New Zealand and the Canadian dollar, while the Australian dollar inched up to hold near the 0.9200 level.

Turmoil for the US economy persists as growth prospects deteriorated, with the housing market continually facing the repercussions of the credit crunch. Durable Goods Orders unexpectedly fell by minus 1.7 percent as demands for machinery fell to a record low – raising speculation that businesses are tightening their pockets as recessionary fears loom for the US. New Home Sales plunged to a 13 year low as tightened credit conditions paired with falling home values deferred home investments, and pushed the index lower to minus 1.8 percent from minus 1.6 percent. On the contrary, the MBA Mortgage Application index surged to 48.1 percent from minus 2.9 percent as refinancing rose at its fastest pace in seven years due to lower borrowing costs.

The stock markets slid as the pessimistic data pressed on the growth outlook, with market sentiment turning sour as Oppenheimer & Co lowered their earnings forecast. Consequently, the DJIA shed 109.74 points to leave the index at 12,422.86 points, with Exxon and Chevron posting the biggest gains as oil prices climbed just shy of 106 a barrel. Among the broader indices, the S&P500 lost 11.86 points to leave the index at 1,341.13, with Alliance Data Systems topping the losers.

The rise in risk aversion pushed many investors into the safe haven of risk free bonds, and sent US Treasury prices higher. Consequently, the benchmark 10-Year yield dropped to 3.46 percent from 3.50, while the 2-Year yield fell to 1.63 percent from 1.77 percent.

Looking ahead, we expected increased volatility to take hold of the US dollar tomorrow as the GDP and Personal Consumption index will kick off the morning at 12:30 GMT. Fresh employment data due out for release at the same time and forecast a dollar sell-off as we anticipate a decline in the labor force.

David Rodriguez is a Currency Analyst at FXCM.