The Japanese Yen continued to rally higher against its higher yielding counterparts, as continued tumbles in the Dow Jones Industrial Average led to pronounced carry trade liquidation. The US dollar also had a strong day of gains, matching its largest intraday advance in six months. A flight to safety across the board led to continued volatility across all asset classes, with especially pronounced moves in interest rate and stock markets.

Euro traders saw the single currency lose another 140 points against the Japanese Yen, leaving the EURJPY at its worst peak-to-trough drawdown since March. The high-yielding British Pound was likewise among the worst performers as it shed an incredible 250 points to ¥240.56. Finally, US dollar traders saw the greenback remain relatively stable against its Japanese counterpart, adding a minimal 6 points to ¥118.77 through time of writing.

A positive surprise in US Gross Domestic Product data lent the dollar support through early morning trade, with continued flight to safety leaving the greenback higher on the New York afternoon. The US economy grew at a faster pace than expected through the second quarter of the year, registering a 3.4 percent annualized expansion versus 3.2 percent expected. The attached Price Index was slightly subdued, however, adding weight to the argument that inflationary pressures are receding in the world's largest economy. The result shows that the economy posted a strong recovery from the first quarter's dismal 0.6 percent annualized rate, with a sizeable improvement in the Trade balance and Government Consumption spurring a jump in GDP. Yet not everything is rosy on the release; Personal Consumption fell to a 2.7 percent annualized pace, worse than the 3.4 percent expected and considerably below the 4.2 percent clip seen in the first quarter. The net implications of the report are arguably mixed, but such a strong rebound in headline GDP rates nonetheless quelled fears of a continued US economic slowdown.

Strong GDP rates were unable to hold back equity market tumbles. Continued risk aversion led the Dow Jones Industrial Average another 94 points off to 13,379 by 17:34 GMT. Losses were actually worse earlier in the day, but bears were unable to drive the closely-followed index beyond yesterday’s panic-lows. The S&P 500 posted a similar 0.71 percent decline to 1,472, while the tech-heavy NASDAQ Composite had the largest percentage drop at 0.86 to 2,577. Continued gains in corporate bond yields and overall credit concerns brought financial shares lower, while speculators cut back expectations of mergers and acquisitions for the same reasons.

Fixed income markets showed small gains on the session, sending yields further from their recent highs. The benchmark 10-year note inched up 3/32 points to 97 and 7/8, with the yield losing a single basis point 4.77 percent. Treasuries had moved considerably higher in early trade, but a subsequent stabilization may signal a pending turnaround in markets. A bounce in yields would certainly boost the dollar, offering better rates of return to the yield-hungry international investor.

John Kicklighter is a Currency Strategist at FXCM.