The euro posted steep losses against the dollar on mounting concerns about a slowing global economy and European banks’ exposure to the euro zone debt crisis, exacerbated by weak U.S. data showing a sharp contraction in August business activity in the U.S. mid-Atlantic region and an unexpected 3.5 percent drop in existing U.S. home sales last month. This heightened the market’s aversion to risk and drove investors away from the risky euro and into the relative safe harbour of the U.S. dollar. EURUSD opened North America at 1.4372 and plummeted down to a session low of 1.4273.
GBPUSD extended its fall from the European session after disappointing U.K. retail sales data battered the pound. Cable opened New York at 1.6495 and dipped to 1.6419 before rebounding to 1.6516. Investors realized that compared to the U.S. and Europe, the U.K. is more stable from a political and ratings perspective, so Sterling is the preferred currency versus euro and dollar. EURGBP opened at 0.8711 and plunged down to 0.8674.
The Swiss franc gained against both the euro and the dollar as investors ran to the safe haven currency after risk aversion rose amid falling equity markets and dismal economic news out of the U.S. indicating a slowdown in manufacturing and home sales as well as rising consumer prices. USDCHF fell from an early high of 0.7969 down to 0.7856. EURCHF fell to 1.1238 from a high of 1.1454.
Yen gained against the dollar as poor U.S. economic data rattled financial markets, with global stock markets tumbling on fears that the economy may be sliding back into a recession. This combined with growing concerns over the European sovereign debt crisis had investors feeling to the relative safety of the Japanese yen. USDJPY opened at 76.64 and fell to 76.44 before rebounding to 76.57 as currency traders feared letting yen gain too much since the BOJ threatened intervention to curb yen strength.
The Canadian dollar fell against the greenback after U.S. jobless claims rose in the latest week and U.S. consumer prices rose faster than expected in July. The United States is Canada’s main trading partner so any weakness south of the border will spill over to Canada. USDCAD rose to 0.9936 from the open of 0.9849. Oil prices were also down on the day, which often influence the direction of Canada’s commodity-linked currency.
Gold rallied to its second record high in a week, hitting $1,828.62 in the U.S. session. Aversion to risk swept financial markets today as European equities suffered their biggest daily fall in two and a half years. On Wall Street, the three major indexes were all down more than 3 percent . Investors realize that we are entering a period of persistent inflation combined with stagnant growth and high unemployment. So gold is the perfect hedge against inflation.