Forex Europe Review – Swiss Franc hits new records against Euro and Dollar ahead of U.S. debt vote

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EURUSD trading was choppy today. Euro initially gained against the Dollar by 75 pips to 1.4451 as the U.S. debt deal struck overnight gave investors a much-needed confidence boost, but lingering uncertainties soon capped further gains, sinking the Single Currency back down to 1.4394. Risk aversion turned investors away from riskier currencies like the Euro, to wait for the outcome of the vote on the debt deal in the U.S. Senate and the House of Representatives later today. Although the vote is expected to pass, what concerns investors is the possibility that this may not be enough to avoid a downgrade by the ratings agencies, which would knock the U.S. from its top notch triple A rating for the first time in history.

 

Sterling fell against the Dollar following UK manufacturing activity data which showed the PMI dropped more than expected from 51.4 to 49.1. This caused a sell-off in the Pound, knocking it off the Asian session two month high of 1.6473 down to 1.6387 by the end of European trading. The disappointing data adds to a series of other recent poor U.K. data which remind investors of downside risks to the economy. Due to the data, Sterling also slid against the Euro which held stronger between the two as Euro zone manufacturing data met expectations at 50.4. EURGBP rose to 0.8792 from 0.8746.

 

The Swiss franc hit record highs against both the Dollar and Euro throughout the whole session as demand for the safe-haven Swiss currency was boosted by fear of a possible U.S. credit ratings downgrade and uncertainty of what could arise from the U.S. debt vote in Congress later today. Additionally, traders cited large banks selling off the two currency pairs. USDCHD fell to an all-time low of 0.7813. Risk aversion also sent EURCHF to a record low of 1.1261. Meanwhile, the focus will turn to U.S. economic data due later on manufacturing and construction, which are expected to be weak, and could cause Dollar to fall further.

 

USDJPY fell close to last week’s four-month low as the Dollar only briefly enjoyed an increase in the prior session after news of a debt compromise being reached. Investors soon began selling of the Dollar as their concerns grew over a possible U.S. ratings downgrade. The planned deficit cuts may not be considered sufficient for the economy to improve its fiscal position, which may lead to the ratings agencies to cut its AAA rating. The Yen strengthened against the Dollar as it tends to during times of crisis. USDJPY fell to 76.84 from an Asian session high of 78.02. Against the Euro, Yen also gained, with EURJPY falling to 110.78 from 112.22. However, investors remain cautious of Yen appreciating too much since the BOJ and finance official have repeatedly warned of an intervention in the markets if necessary to control Yen’s rise.