Euro rebounded slightly from its big drop against the dollar yesterday, opened Asia t 1.4174 and edged up to 1.4245., mostly lifted by dip-buying rather than any change in risk appetite. Euro’s fall though will be supported by the fact that the ECB is attempting to contain debt and has pledged to continue buying Italian and Spanish bonds.
Cable opened the Asian session at 1.6316 following an extreme risk-off session overnight. From an early high of 1.6334, it fell to 1.6264 as Asian stock exchanges plunged and bruised overall market sentiment, then rebounding before the close. EURGBP opened at 0.8688 and rallied its way up to a high of 0.8710. The Bank of England quarterly inflation report is due on Wednesday, which if has a negative tone will sway the Pound downwards.
The Yen continued to gain strength leading USDJPY to extend its decline to 77.03 as Asian stock exchanges took a dive, prompting investors to dump the dollar and hold on to the safer yen. The Japanese currency tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital. Before close, USDJPY moved off the level at which the Bank of Japan intervened at last week.
The Swiss franc is drawing extremely strong demand as plunges in global equities are having a major psychological impact on investors, forcing them to withhold from risk assets. The franc hit a record high against the euro in the session, as EURCHF touched 1.0660. USDCHF hovered around the record low of 0.7480.
The Australian dollar continued to slide against the greenback as it reacted to the negative sentiment in Asian stock markets. Risk off sentiment pushed investors to sell off risk currencies, especially commodity-linked currencies like the aussie. AUSUSD fell to a five-month low of 0.9925, its lowest level since March 17, before rebounding after reacting to data from China that showed inflation accelerated by its fastest pace in three years. This indicates that the Chinese economy is still expanding, which is good for Australia, being a major trading partner.
Gold jumped to new record highs, gaining over $55 an ounce. Spot gold opened Asia at $1716.87 and soared to a new all time high of $1,771.97. Demand for the safe haven asset picked up as investors fear that the United States may be sliding back into recession, causing a ripple effect across the global financial system.