EURUSD settled and consolidated after a huge drop in the European session when the euro fell against most if its counterparts after a report today showed European Central Bank President Jean-Claude Trichet commented yesterday the central bank is reviewing its assessment of inflation risks as economic growth has slowed down in the euro zone. This fuelled speculation that there will be no more interest rate hikes until mid 2012. This dampened risk sentiment, which was worsened after poor U.S. consumer confidence data. EURUSD fell 145 pips to 1.4384 before flattening out after U.S. session opened, trading between 1.4399 and 1.4452. A further fall in the euro was cushioned by the FOMC minutes which indicated that some members called for more measures to be taken to stimulate the U.S economy, causing dollar to slide as soon as the minutes were released, and euro gained 30 pips within 15 minutes of the news. If more measures are taken, it could mean more dollars flooding the system, consequently weakening the currency.
GBPUSD extended its fall from the prior session into the U.S. session, touching as low as 1.6254. Sterling was under pressure today after weak U.K. economic data that showed a drop in lending as well as the number of mortgage applications remaining flat. This highlights the sluggish recovery of the U.K. economy as many Britons are unable or unwilling to take out loans or mortgages to buy new homes. General risk off sentiment weighed on the pound today, though it remained supported by a weakening dollar towards the end of the session, due to the release of the Fed minutes.
USDCAD traded higher in the U.S. session today compared to Monday as the loonie fell after weak U.S. consumer confidence data and renewed euro zone debt concerns. Three quarters of Canada’s exports go to the United States so if economic recovery is sluggish there, then this will spill over to Canada. That is why bad U.S. economic data also affects the Canadian currency. USDCAD peaked at 0.9815 but fell towards the end of the session as the greenback weakened after the FOMC minutes, on speculation that the Fed could still take more measures to stimulate the U.S economy since the report said more members wanted to take stronger action.
The Australian dollar climbed to its strongest level in four weeks against the U.S. dollar to extend gains for the fourth straight day. The aussie surged after release of the FOMC minutes suggested the dollar could weaken if the Fed takes additional measures to stimulate the economy. AUDUSD hit a high of 1.0717. Meanwhile, the Chinese yuan touched 6.3705, its strongest level since the country unified the official and market exchange rates in 1993. China is Australia’s major trading partner so a stronger yuan could buy cheaper Australian exports.
USDJPY opened New York at 76.76 and edged down as yen gained strength against dollar following weak U.S. consumer confidence data. However dollar was supported at 76.60 and hovered around that low as FOMC minutes contributed to dollar weakness. Investors are cautious of not letting yen gain too much strength due to risk of BOJ intervention.
Gold rose sharply since the open of the New York session, gaining around $45 a troy ounce to peak at $1,837.02. Prices accelerated after FOMC minutes suggested dollar could weaken if the Fed were to take measures to stimulate the U.S. economy. Gold and dollar have an inverse relationship. Also, spot gold prices were lifted as a result of increasing physical demand for the precious metal as the festival season is about to begin in India, which is one of the largest users of gold, customarily used in wedding s and religious festivals.