The Euro recovered losses sustained yesterday when Italian bond yields soared to 11-year highs, flaring concerns of debt contagion. Dollar fell after Republicans delayed the vote on a debt plan to reduce the budget deficit and raise the debt ceiling, refusing to back the plan proposed by their own congressional leaders. This helped Euro gain some ground, closing up at 1.4338 from the open of 1.4327.
Cable saw choppy action in the Asian session, falling off the prior session high of 1.6381to drop sharply to 1.6321 following news that the U.S. debt vote was postponed again. Risk aversion resurfaced, hurting the Pound despite an earlier report showing U.K. house prices are stabilising. The monthly report from Nationwide Building Society indicated that prices across the UK rose by 0.2% in July. However, this may not be enough to change the view that the British economy is still sluggish, since there have been more weak economic data than strong ones recently.
The Yen gained as the dollar came under pressure after the U.S. House of Representatives delayed a vote on a Republican proposal to raise the debt limit, adding to uncertainty ahead of an Aug. 2 deadline. USDJPY sank to a four-month low again to 77.44 from an earlier high of 77.85. Meanwhile, some Japanese economic data showed manufacturing PMI rose at the fastest rate in 5 months. CPI also rose and unemployment rate remained steady. Japanese Finance Minister Yoshihiko Noda repeated his warning that an intervention in the markets could happen when necessary in order to control Yen’s rise.
The Australian Dollar moved downwards against the Dollar in the Asian session. Despite the broadly weaker greenback that was hit by the delay in the U.S. debt vote overnight, the Aussie began to fall due to profit taking after recently outperforming and breaking records. Elevated gold prices will keep the AUD supported as it is commodity-linked currency.
Spot gold has not made any significant advancement after reaching record highs earlier in the week, and has more or less paused as investors are waiting for some kind of deal to be reached on the U.S. debt. The House of Representatives vote on Speaker John Boehner’s deficit-cutting plan was delayed again yesterday, which sank the Dollar, helping keep gold prices supported due to the inverse relationship between gold prices and gold prices. Gold will remain strong as long as uncertainty remains on the U.S. debt issue as well as in Europe.