Forex U.S. Review – Euro tumbles, Swiss franc, yen rebound as risk aversion returns

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The Euro continued to tumble against the dollar in the U.S. session, totalling losses to 260 pips on the day after opening Asia at 1.4370 and reaching bottom at 1.4110. Investors were disappointed by the ECB’s new policy announced today after holding rates unchanged and found ECB President too dovish, and were expecting more to be done to deal with the flaring debt crisis that could lead to contagion. Yields on Italian and Spanish bonds that had briefly eased, soon surged to new highs again, causing a sell-off in the euro.

 

Sterling followed the euro’s direction as risk aversion picked up and GBPUSD plunged 116 pips today since the Asian open of 1.6438 to 1.6252. The Bank of England also held back from raising rates and kept the record low 0.5 percent benchmark rate, cementing investors grim outlook for the British economy’s recovery.

 

The yen pared losses against the dollar during New York trading hours on fears a recovery in the global economy is losing momentum. USDJPY fell from 79.80 to 78.65 after having earlier been on the upswing due to Japan intervening in the currency markets to weaken the yen. The was short-lived and the dollar may continue to be under pressure tomorrow if the crucial U.S. non-farm payroll data come in worse than expected.

 

The Canadian dollar fell to its lowest level in five weeks against its U.S. counterpart, amid mounting fears of slower global growth, especially south of the border since the United States is Canada’s main trading partner and will have spill-over effects. The loonie was also weighed down by falling commodity prices, especially crude oil which Canada exports, fell to US$ 86.04. USDCAD rose to 0.9793 from the open of 0.9727.

 

The Swiss franc rebounded against the dollar only briefly remained off record highs against the dollar and soon rebounded in the U.S. session due to risk-off sentiment in the markets on concerns of a global economic slowdown and possible double-dip recession. Due to lack of other safe haven currencies, investors turned back to the safer Swiss franc, much to the discomfort of the Swiss National Bank which only yesterday cut rates in efforts to curb the franc’s rise. USDCHF fell to 0.7652 from 0.7750.

 

Gold hit its third record high in four days in New York trading, peaking at $1,681.92 before dropping to $1,639.97 as prices reached overbought territory and investors began profit taking. The precious metal is expected to remain supported and pull back due to an increasingly bleak global economic outlook. Also U.S. non-farm payroll report due this Friday may disappoint and push investors back to safe haven gold.