Forex US Review – Global growth concerns boost dollar, hurt euro and sterling

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EURUSD fell to a fresh eight month low in the US session as escalating concerns about downside risks to the global economy prompted investors to dump riskier units in favour of the world’s most liquid currency. The US Federal Reserve statement on Wednesday that the global economy may deteriorate dampened market sentiment. Euro was battered by weak manufacturing data. A European Central Bank study stating that the whole common currency project was in danger due to fiscal imbalances hit risk appetite further by highlighting the prospect of a Greek default that could deeply affect other euro zone states. EURUSD fell to 1.3384, its weakest since January before consolidating for the rest of the session.

 

GBPUSD fell sharply early in the US session to reach a one year low as investors dumped currencies perceived to be risky. Since the Federal Reserve policy statement yesterday warned about significant downside to the U.S. economy, general risk aversion is rife in the financial markets. GBPUSD plunged to 1.5323, its lowest level since September 2010.

 

The Swiss franc weakened sharply since the Fed statement on Wednesday, as a result the dollar rose to 0.9181 francs early in the US session, its highest level since April. The safe-haven franc also weakened against the euro. EURCHF which had hit its highest level since July in the previous session, changed direction and fell sharply in US trading to drop to 1.2168 from that 1.2343 high.

 

 

The Canadian dollar fell to its weakest level since October 2010 against its US counterpart following weak Canadian retail sales data which declined 0.6% in July, much more than forecasted. USDCAD hit an eleven month high of 1.0360 following the news. The Canadian dollar has been weakening sharply since the Fed statement on Wednesday sent the greenback soaring across the board due to its liquidity value. This initiated the change in market sentiment as risk was dampened and commodity-linked currencies like the Canadian dollar was hurt, especially crude oil prices tumbled. Crude is Canada’s main export.

 

The yen gained against most major counterparts today, knocking the British pound to record lows. The Japanese currency is usually bought as a safe haven asset during times of financial stress and pessimism about global growth. EURJPY fell to a US session low of 102.20, its weakest since mid-2001. The pair reached over sold territory and retraced to 103.27 before consolidation. The dollar dipped not to far way from record lows against the yen, reaching 76.09 and raising the risk of intervention by the Bank of Japan.

 

Gold fell to a one month low in New York, opening the session at $1,751.65 and reaching a low of $1,720.60, in reaction to the dollar gaining strength following the Federal Reserve statement on downside risk to growth and unveiling “Operation Twist”. Gold and dollar have an inverse relationship.