The Euro dropped over 100 pips against the Dollar in the European session as risk aversion grows over concerns of debt contagion, pushing Italian and Spanish bond yields to 14-year highs. EURUSD dropped to the lowest level since July 21, touching 1.4149. Euro began to pull back up close to the end of the session after the release of weaker than expected personal spending data made Dollar fall. The economic health of the U.S. has been in the spotlight lately, causing market nervousness despite a deal finally being reached by U.S. lawmakers to avert a default. The focus now turns to whether ratings agencies will downgrade the U.S. top credit rating based on these growth concerns.
Sterling fell against the Dollar despite better than expected U.K. construction data for July, though still marginally lower than June data. Construction in the U.K. is a small sector and does not have much impact on the Pound. Meanwhile, recently there has been a spate of poor economic data that show that growth outlook for the British economy is still lacklustre. General risk aversion in the market today kept Cable on the downside, with GBPUSD falling from an early high of 1.6322 to a low of 1.6222.
Swiss franc rose to a fresh record high versus the Euro at 1.0985 francs as concerns about Euro zone debt issues and global growth push investors towards safe-haven assets. Risk aversion picked up today as Italian and Spanish government bond yields rise to record highs. Meanwhile, USDCHF hovered around the Monday record low, touching 0.7756 in the European session today. A last minute deal by U.S. policy makers to raise the debt ceiling and avert a default brought little relief to markets, with investors wary that ratings agencies may still downgrade the U.S. top notch AAA rating.
USDJPY traded flat between a range of 77.15 and 77.45, Then Yen usually tends to do well in times of risk aversion as investors perceive it as a safe haven asset, however today investors were cautious about holding the Japanese currency after a report yesterday implied that intervention to weaken the currency is possible should Yen strengthen too much which is harmful for the export-reliant economy.