The euro gained across the board on the news that Italy has pledged to speed up its fiscal reform consolidation program, including introducing a balanced budget rule, which helped ease some concerns of debt contagion in the euro zone after Italian bonds surged to record euro-era highs. The ECB agreed to buy Italian debt based on an agreement if these reforms are put through. Risk appetite picked up following an optimistic U.S. non-farm payroll report, suppressing fears that the U.S. is heading to recession. EURUSD was propelled to 1.4296 from the U.S. session open of 1.4162.
Sterling followed the euro’s direction as “risk on” sentiment pushed investors away from safe havens into riskier assets like the Pound. GBPUSD soared over 100 pips to 1.6395 from the session open of 1.6292. Cable retraced by the end of the session and some speculate the Pound could weaken next week ahead of the Bank of England quarterly inflation report due on Wednesday,which if includes a negative growth outlook for the U.K. economy, will hurt the Pound.
USDJPY was trading flat all session, above a 78.30 support level. Dollar briefly spiked against the yen to 79.07 after the U.S. non-farm payroll report showed more jobs than expected were created, boosting confidence of economic recovery. For now the yen has managed to remain low and close to levels the Bank of Japan is comfortable with, after a surprise intervention in the currency markets on Thursday to curb yen strength. Some speculate this will be short lived during a global financial crisis mode.
The Canadian dollar gained against the greenback immediately after the U.S. non-farm payroll report which showed more jobs were created south of the border, and as the United States is Canada’s main trading partner it will have spill-over effects to the Canadian economy. USDCAD fell after the NFP report to 0.9739 from the pre-news high of 0.9831.However, the pair was very volatile throughout the session and see-sawed as the commodity linked currency followed crude oil movements which briefly fell and rebounded, as well as followed the TSX Toronto Stock exchange which also was up and down. Investors are not sure which way to go since global growth concerns are still existent, and there were even rumours late in the trading day that S&P will be downgrading the U.S. soon, though the ratings agency denied the rumours.
Gold dipped after the strong U.S. jobs report which gave investors who invested in the safe haven precious metal, the opportunity to sell and take profits. Gold prices remained firm though, not falling below $1,647.62 and closing up at $1,660.62 as investors still want to be cautious considering the existing debt issues in the euro zone, and that the U.S. is still not completely out of the woods.