The euro was fell against the dollar since the open of the session until the close, from 1.4266 to a low of 1.4151. EURUSD accelerated its fall after the European Central Bank announced it kept interest rates on hold at 1.5 percent as widely expected. What the market was focused on was ECB President Jean-Claude Trichet’s speech at a press conference. Euro’s further fall was halted after Trichet mentioned that the ECB will continue the government bond-buying program given the situation in euro zone peripheral debt markets.
Sterling weakened against the firmer dollar throughout the session. The news of the day was that the Bank of England left interest rates unchanged at the record low 0.5 percent, though widely expected. The Monetary Policy Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion. The markets will now focus on the BoE quarterly inflation report due on Wednesday, to see what is forecasted for inflation and growth to see if another round of quantitative easing may be needed to revive the sluggish British economy. GBPUSD dropped from a 1.6394 high to a 1.6283 low. Meanwhile, Sterling gained against the weaker euro which briefly touched its lowest since May 31, at 0.8670, weighed down by concerns over euro zone debt.
USDCHF remained steady, with the dollar hovering around its highest level since climbing for a second day from a record low against the Swiss franc. Yesterday Switzerland’s central bank cut interest rates to counter the franc’s rise, citing it was overvalued and hurting exporters. The Swiss currency had rapidly strengthened recently as concerns over global growth and debt issues in the E.U. and U.S. boosted its safe haven demand. USDCHF hit as high as 0.7799 in the session.
The yen weakened significantly against the dollar after Japan intervened to curb the currency’s strength that was hurting the export-led economy. BOJ governor Shirakawa has repeatedly mentioned every day in the past two weeks that he is keeping an eye on the markets and will intervene if necessary. A strong Yen is harmful for the export-reliant economy. Yen extended losses in the European session, leading USDJPY to rise to a high of 80.22 from the pre-intervention level of 77.10. Yen selling against the dollar boosted also the euro, which rose to 114.15 yen in the European session from the pre-intervention level of 110.67.