Forex Europe Review – Euro, sterling fall after central banks leave rates unchanged

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Forex Asia Review - Euro temporarily retreats from recent losses; Euro debt woes still persistEURUSD hit an early session high of 1.3397, the highest in four days after European Commission President Jose Manuel Barroso said policymakers are proposing coordinated action to recapitalise the region’s banks. Euro began its decline after German industrial orders fall unexpectedly in August to minus 1.4 percent. The forecast was for an increase of 0.3 percent. The euro tumbled sharply after the European Central Bank kept interest rates unchanged at 1.5 percent today, disappointing some investors who were expecting a rate cut of at least 25 basis points. EURUSD reached a low of 1.3240. All eyes are now on ECB President Jean-Claude Trichet’s last press conference as head of the central bank. The conference is due to start at 1230 GMT.

 

GBPUSD fell to its lowest in 14 months after the Bank of England kept rates unchanged at 0.5 percent and the monetary policy committee voted to buy 75 billion pounds more in assets to support the flagging British economy. Sterling tumbled over 180 pips after the MPC announcement. GBPUSD fell to 1.5279 within a minute of the news from 1.5462. Quantitative easing weakens sterling because as a result of the Bank of England’s bond buying program, it effectively floods the system with more pounds.

 

USDCAD soared to as high as 1.0476 to pare all losses from yesterday. The Canadian dollar weakened sharply against its U.S. counterpart after the European Central Bank announced it kept interest rates on hold. This disappointed investors who are nervous about the European debt crisis and were hoping for a rate cut in order to stimulate growth in the region. Risk aversion pushed investors into the safety of the liquid US dollar. Crude oil which had risen to a high of US$81.11 earlier in the session, also tumbled to $79.64, also weighing on the commodity price-sensitive Canadian dollar. Canada is a major oil producer.

 

EURJPY fell to a session low of 101.68 from a high of 101.68 after the ECB announcement that rates remained at 1.5 percent and disappointed investors who preferred a rate cut. As a result of renewed concerns of the euro zone debt crisis, investors turned to the safety of the US dollar which is more liquid. This lifted the dollar against the yen to 76.83 from 76.55 yen. Investors no longer want to push the yen too strong for fear of a BoJ intervention so they turn to the dollar as the next best safe haven . Dollar was further boosted by a fall in US unemployment claims that was announced at the end of the European session.