The Euro rebounded against the Dollar after a steep fall in the previous session when news that Moody’s downgraded Portugal to junk status caused the Single Currency to plummet. EURUSD reached a low of 1.4395 in US trading but then slowly edged up to 1.4465 overnight in t he Asian session as it retraced from a downtrend, as investors unwound some short positions from the earlier sell-off. Euro’s downside maybe halted for now as the possible ECB rate hike on Thursday will keep it supported.
Sterling followed a similar direction to the Euro and moved downwards against the US Dollar as it pulled back from the prior session low of 1.6038, rising to 1.6087. The Pound has been very vulnerable recently due to a spate of weak economic data giving evidence of a still weak UK economy. A housing industry indicator, the Halifax HPI is due out later today and will shift Sterling downwards again if the indicator shows home prices fell.
USDJPY fell from 81.11 to 80.80 as investors who had bought up the Dollar when it was cheaper since June 30, are now unwinding their long positions. As news emerged that U.S. debt limit talks broke down, investors may prefer to stay away from the Dollar for now. Meanwhile, EURJPY was rangebound throughout the Asian session after having plummeted in the prior session due to the Moody’s downgrade of Portugal. The pair stalled above the 116.72 level, a further Euro decline supported by the ECB rate hike optimism.
The Australian Dollar traded in a range most of the session until it finally broke out and rose against the Dollar. The Aussie yesterday had weakened after the Reserve Bank of Australia kept interest rates unchanged. However, as gold prices have been moving up since yesterday due to safe haven demand based on Greek and Portuguese debt issues, this helped lift the AUD. The Aussie is a commodity-linked currency, and Australia is a major gold producer, so it has a tight correlation with gold prices and usually mirrors them. AUDUSD rose to 1.0732 from 1.0677.
Gold hovered around the two week high that was reached yesterday at $1,516.48. The precious metal is used as a safe haven investment to shelter from Euro zone debt problems, mainly Greek debt and now Portugal debt after Moody’s downgraded Portugal to junk status last night.