The Euro opened the new trading week by opening with a gap at 1.4426, 146 pips up from Friday’s close of 1.4279. News over the weekend that the ECB will act to stop Europe’s debt crisis from engulfing Italy and Spain helped lift the euro. The ECB showed willingness to buy Spanish and Italian debt. Meanwhile, the U.S. credit rating downgrade by Standard and Poor’s caused a massive dollar sell off and kept it under pressure.
Sterling imitated euro’s movements and opened Asia at 1.6459, up from Friday’s close of 1.6386. The big dollar sell off shot up the price of Cable, which soon fell 1.6383. As risk aversion picked up on concerns of the growth of the world’s largest economy, investors will turn away from risk currencies like the Pound. A dim outlook on the British economic recovery also discourages investors from buying into the Pound.
USDJPY opened the week at 77.9, down from Friday’s close of 78.37 as the bad news over the weekend made investors prefer the yen over dollar as the Japanese currency tends to perform well during times of financial turmoil, perceived as a safe haven. However, the Bank of Japan will not let yen gain too much and could intervene in the currency markets again as they did last week.
The Swiss franc hit new records against the dollar gain due to heightened risk aversion sentiment in the markets, causing demand for the safe haven currency again. USDCHF hit a low of 0.7555 early in the trading session. However, last week the Swiss central bank intervened to curb the franc’s strength so investors are cautious this could happen again.
The Australian dollar reacted negatively to the news of the U.S. credit rating downgrade as most commodity-linked currencies tend to suffer during global financial crisis. AUDUSD opened down at 1.0423 versus Friday’s close of 1.0438. The aussie was already on a downtrend after the Reserve Bank of Australia’s pessimistic monetary policy statement on the slowdown of the global economy, in reference to the U.S. fiscal problems and euro zone debt issues. Today’s disappointing data on Australian job advertisement numbers falling did not help the AUD.
Gold jumped to new record highs after the disappointing news of the U.S. credit rating downgrade, and opened Asia at $1,685.50, over $20 up from Friday’s close of $1,663.37. Demand for the safe haven asset picked up as investors fear that the world’s largest economy may be sliding back into recession. Meanwhile, euro zone debt woes still lingering in their minds.