The Euro opened the Asian session very choppy but soon jumped against the Dollar after news leaked out that the U.S. debt deal was close to being reached. By 12:40 GMT President Obama announced that an agreement has been reached between the Republicans and Democrats on reducing debt by $1 trillion over 10 years and avoiding default. The bill will be voted in Congress later today. Finally reaching a deal and ending days of political wrangling boosted market sentiment and help the Euro gain. EURUSD jumped from a low of 1.4352 to a session high of 1.4401. However, many investors are cautious since after the initial sense of relief, the market focus will soon shift to the structural debt problems afflicting the Euro zone as they cannot forget Italy’s debt issues and Italian bond yields that soared last week.
Sterling mirrored Euro’s movements and rose against the Dollar following the news that a debt plan has been agreed upon, finally the deadlock in talks between the two house parties and will be voted on later in the day. GBPUSD rose to a high of 1.6473 from a low 1.6385. However, the Cable’s rise may be capped as U.K. economic data will be out soon on Manufacturing PMI, which is expected to drop and may weaken the Pound.
The Japanese Yen dropped against the Dollar as investors cut safety trades after Washington reached a last-minute deal easing concerns of an imminent U.S. debt default. Investors rushed to unwind safe haven plays and sold off Yen, causing USDJPY to move off four-months lows touched on Friday at 76.71 and jumped to a session high of 78.02 after the news.
The Australian Dollar climbed against the Dollar to reach close to its all time high of last week following the news of the debt agreement. After President Barack Obama announced a last-minute deal to raise the U.S. borrowing limit, AUDUSD rose from a low of 1.0982 to a high of 1.1057 as risk sentiment picked up again.
Gold fell to $1,608.77 after news came out that U.S. lawmakers had finally reached a deal to reduce the county’s deficit, which if approved in Congress today would remove the threat of a default. On Friday spot gold prices reached a record high of $1,632.43 as disagreement between Republicans and Democrats on a debt deal caused market nervousness. However, gold prices will remain supported until Congress actually votes in the debt plan later today.