The Euro continued to advanced against the Dollar well into the Asian session to hit a new three week high at 1.4534. Despite the Euro zone’s debt woes, the Euro was a preferred currency over the Dollar, with interest rate differentials helping. Without a deal to raise the debt ceiling by next week, the U.S. is in danger of default, which would result in a lower credit rating. This makes investors nervous in being exposed to the Dollar and prefer to reduce holdings for now.
Sterling extended gains against the weaker Dollar, and has been rising in the past four session straight to hit a new six-week high at 1.6437. The British Pound has been on a roll since yesterday following GDP data from the U.K. which indicated the economy grew by 0.2 percent as expected in the second quarter. Some investors expected the economy contracted and were bracing for lower numbers, but were relieved with the data, consequently buying up the Pound which was seen more favourable versus the Dollar at the moment.
USDJPY hit a four-month low yet again at 77.77. The Dollar has been falling continuously for a week as the U.S. debt talks are stalled. However, markets are beginning to get cautious that the Yen’s appreciation will soon be halted since the Bank of Japan may step into markets unilaterally to slow its currency’s gains. BoJ governor Shirakawa reiterated that he is closely watching the markets.
The Australian Dollar jumped to a post-float high above 1.1061 after second quarter inflation figures were higher than forecast, squeezing investors who had recently increased bets that the Australian central bank would cut rates this year. The Aussie is also supported as the U.S. debt impasse sent investors to currencies backed by stronger economies.
Gold prices hit a record high at more than $1,622.69 an ounce as news out of Washington indicated politicians were making little progress in ending the deadlock over lifting the U.S. debt ceiling. The precious metal is likely to remain in demand as a safe haven investment until the U.S. Congress agrees on a plan to cut the U.S. deficit and raise the debt ceiling. Gold prices and the Dollar have an inverse relationship.