By FX Empire.com

The strong wave of pessimism continued to dominate global financial markets on Tuesday, pushing the U.S. dollar sharply higher against major currencies, as investors sought lower yielding assets amid rising risk aversion, which pushed higher yielding assets including equities, commodities, and major currencies lower.

Greek Prime Minister George Papandreou surprised markets by calling a referendum on the bailout package that was approved last week by EU leaders. Moreover, the failure of MF Global Holdings continued to weigh down on confidence, as traders sold higher yielding assets and targeted lower yielding ones, which provided the U.S. dollar with strong bullish momentum.

Moreover, the Institute for Supply Management released the manufacturing index for the month of October, where the ISM manufacturing index eased to 50.8 from the prior estimate of 51.6 and below median estimates of 52.0, the worse than expected expansion in the manufacturing index also spread jitters across markets over the outlook for growth in the world’s largest economy, which further boosted the pessimism in markets.

The U.S. dollar extended its sharp gains against a basket of major currencies on Tuesday, where the U.S. dollar index was trading at 77.41, compared with the opening level at 76.54. The Euro fell sharply against the Dollar for a second day, where the EUR/USD pair traded at $1.3685, compared with the opening level at $1.3859, the British Pound also suffered heavy losses against the Dollar, where the GBP/USD pair traded around $1.5946, compared with the opening level at $1.6076, and the U.S. dollar was little changed against the Japanese Yen after the BOJ intervention on Monday, where the USD/JPY pair was trading around the opening level at 78.31.

Stocks in the United States fell by opening on Tuesday, as the Dow Jones Industrial Average was lower by nearly 1.80% to trade around 11,740, while the S&P 500 index was down by nearly 2% to trade around 1228. European stock indexes were also lower before closing on Tuesday, where FTSE 100 was down by nearly 2.30% to trade at 5416 and the DAX was down by nearly 3.90% to trade around 5900.

Gold prices were fell on Tuesday to trade now around $1705 an ounce and crude oil prices also fell to trade around $90 a barrel.

Read Currency Market News here.