The Euro plummeted against the Dollar as risk aversion reigned in the market due to uncertainty of the outcome of the U.S. debt vote tonight or on Tuesday, as well as disappointing U.S. manufacturing data which spurred fears about the global economic recovery. The European debt issues also spread these global growth concerns as bond yields are widening in the debt-ridden peripherals, which may prompt the ECB to change its hawkish stance on monetary policy. EURUSD fell 250 pips from the U.S. session open of 1.4432 down to a low 1.4182.
Sterling mirrored the Euro’s movements in the session and plunged against the Dollar by 188 pips from the open of 1.6421 to a session low of 1.6235. Strong risk aversion sentiment in the markets turned investors away from riskier currencies like the Pound, which has been dogged by weak U.K. economic data recently, underpinning sluggish recovery in the British economy. Poor UK manufacturing PMI released today added to speculation that the BoE will not raise rates until the end of 2012.
The Yen fell against most counterparts after the Nikkei newspaper reported the Japanese government is preparing steps to reverse the currency’s recent appreciation and the BOJ may consider expansion of a 40 trillion yen asset-buying fund at an Aug. 4-5 meeting in order to be able to intervene in the markets if and when necessary. A surging Yen is detrimental to Japanese exports. The Yen has not been strengthening due to its own fundamentals but due to Dollar weakness, and as Finance Minister Noda mentioned that the recent market moves are one-sided. USDJPY fell to 76.28, its lowest level since the G8 intervention following the March earthquake, then retraced up to 77.26. But the surge was not a result of any intervention, possibly just due to unwinding of short positions on profit taking.
The Canadian Dollar weakened to its lowest level in two weeks against the U.S. Dollar after and U.S. manufacturing growth data fell below market expectations. Slow growth south of the border also affects the Canadian economy since the United States is a major trading partner. USDCAD jumped after the news to a high of 0.9602 from a low of 0.9500. The loonie was also weighed down by falling commodity prices, especially crude oil which dropped to USD 93.44, its lowest level since June. The Canadian Dollar is a commodity linked currency, hence affected by commodity prices.
The Swiss franc continued to appreciate against the Dollar and Euro hitting record highs yet again, beating the highs reached in the prior European session. Investors were fleeing to safety due to mounting concerns about fiscal trouble and weak growth in the U.S and Euro Zone. After data showed U.S. manufacturing slowed much more than expected in July, with the ISM index falling to 50.9 from 55.3, the Dollar plummeted against the Franc to 0.7729 from an early session high of 0.7870. EURCHF tanked down to 1.1027 from the 1.1353 session open due to concerns of Euro zone debt issues, and last week’s Moody’s downgrade of Spain.
Gold prices rose New York trading after weak U.S. manufacturing PMI data fuelled concerns about economic recovery which might prompt the Fed to ease monetary policy further in order to stimulate the economy. Consequently, inflation rises, so investors hedge against inflation by investing in gold. Spot gold hit $1,631.70, near Friday’s record high but soon pulled back to $1,618.77 on profit taking. The precious metal is expected to remain supported until some indication is given by ratings agencies if they will downgrade the U.S. credit rating.