Rising risk aversion paired with slowing inflationary pressures heightened US dollar volatility as it swayed throughout the trading session. Against the European currencies, the US dollar moved slightly lower against the euro as investors increased their bets of another rate cut by the Fed, while it accelerated against the British Pound as growth prospects look dim for the UK. The US dollar declined the most against the low yielding Swiss Franc and Yen as investors moved out of the higher yielding assets. As a result, the US dollar picked up against the commodity currencies, with the New Zealand dollar taking the biggest plunge as the pair dropped to the 0.7960 range.

Mixed data for the US continues to hamper the outlook for the economy, but falling inflationary pressures increased bearish sentiment for the US dollar as market participants increase bets of another rate cut. Personal income surpassed expectations as it rose for the first time in seven months to 0.5 percent from 0.3 percent, while Personal Spending dropped to 0.1 percent from 0.4 percent – raising growth concerns as consumers tighten their purse strings. The Core Personal Consumption Expenditure dropped to 0.1 percent from 0.3 percent on a monthly basis - spurring speculation that the Fed will lean towards a 50bp rate cut next month as inflationary pressures slip.

Stock market sentiment turned sour as financial companies persist to face liquidity pressures – with JC Penny lowering sales forecasts as consumers cut back on spending. As a result, the DJIA lost 86.06 points to bring the average down to 12,216.40, with only 7 of the big 30 advancing. Among the broader indices, the S&P 500 moved 10.54 points lower to 1,315.22 points, with 185 stocks falling to new 52 week lows.

US Treasury demands picked up as risk adverse investors moved into the safe haven of risk free bonds, and pushed bond prices higher. Consequently, the benchmark 10-Year yield plunged to 3.44 percent from 3.52 percent, while the 2-Year yield dropped to 1.65 percent from 1.69 percent.

Looking ahead, the Chicago PMI and the NAPM-Milwaukee index will kick off the first week of April, and will be released during the morning at 13:45 and 14:00 GMT respectively. Following Monday’s release, all eyes will turn to the ISM Manufacturing index due out on Tuesday April 1st at 14;00 GMT, and is expected to add downward pressures for the US dollar as the index is forecasts to fall to 74.5 from 75.5.

Antonio Sousa is a Currency Analyst for FXCM.