The euro fell against the dollar in the U.S. session, tracking weakness in European shares as some EU countries extended a short-selling ban in equity markets, which was introduced last month in an effort to stabilize markets and prevent further debt contagion after European banks including Societe Generale SA hit their lowest levels since the credit crisis of 2008. Also markets were spooked on rumours that Germany may follow and also introduce the ban. This helped push the dollar higher. Meanwhile, dollar strength is also attributed to investors having cut back expectations that the Federal Reserve Chairman will signal a third round of quantitative easing, which has weighed on dollar sentiment in recent weeks. EURUSD fell 130 pips to a session low of 1.4328.
GBPUSD dipped over 110 pips to 1.6261as dollar strengthened ahead of the central bankers meeting in Jackson Hole, Wyoming where U.S. Fed Chairman Bernanke will give a speech and he is expected to hint on if there will be QE3 or not. Under quantitative easing, the Fed effectively prints money to buy bonds, and this increase of money supply would also erode the value of the dollar relative to other currencies like the British pound. But speculation is now that there will not be a QE3 so dollar is expected to rise.
Yen hit its lowest level the dollar in almost three weeks as the greenback continues to gain on speculation that Federal Reserve Chairman Ben Bernanke refrains from signalling a new round of quantitative easing through bond purchases to stimulate the economy . USDJPY rose to 77.68 from an early session low of 77.04.
The Swiss franc strengthened against the dollar and the euro as investors believe that Friday at Jackson Hole will be a non-event if Bernanke does not unveil further quantitative easing because they are looking past the meeting when euro zone debt issue and the slow recovery of the U.S. economy will still be there. So if no fundamental measures are taken by the Fed, the global financial turmoil will still go on, so investors are positioning themselves and prefer to protect their assets by investing in the safe haven Swiss franc. EURCHF fell to 1.1398 from 1.1516 and USDCHF fell to 0.7923 from a session high of 0.7988.
The Canadian dollar briefly hit a one week high against the U.S. dollar after news of an agreement by billionaire investor Warren Buffett’s’s Berkshire Hathaway Inc. to invest $5 billion in Bank of America Corp, lifting market sentiment since the move may shore up the company in the same way as Buffett helped prop up Goldman Sachs during the financial crisis of 2008. However, the spur in demand for risk soon petered out and investors got out of risk (the Canadian dollar) and back to the greenback. USDCAD briefly spiked down to 0.9789 on the news and headed back up to 0.9877, 2 cents short of parity for both currencies.
Gold rebounded in the New York session, snapping the biggest decline since 2008, as slumping global equities revived the appeal of the precious metal as a safe haven asset. Global stock markets fell, sending the MSCI World Index of equities down as much as 1.4 percent in North American trading. On Tuesday gold had began its decent from its record high as investors booked profits ahead of the Jackson Hole meeting betting dollar would rise. But that has changed today as speculation is that Friday will not reveal any new measures on quantitative easing. Gold rebounded to $1,774 from a day low of $1,702. After such magnitude of a drop, it was normal for a correction in prices.