Forex Asia Review – Yen and Aussie drop against stronger Dollar

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The Euro extended losses into the Asian session, weakening against all of its 16 most-actively traded counterparts. Risk signals for financial stability in the Eurozone are flashing “red” as the debt crisis threatens to infect banks, European Central Bank President Jean-Claude Trichet said late yesterday in Frankfurt. Investors are watching to see what European finance officials will decide on July 3 whether Greece has met conditions for the next aid payment. EURUSD dropped to a session low of 1.4285 from 1.4357.

Sterling plummeted to a three-month low against the Dollar, to 1.6017 from yesterday’s high of 1.6261, still bruised by the BoE Minutes released on Wednesday June which signalled UK interest rates were unlikely to rise from their record low 0.5 percent this year and hinted a greater chance of the Bank opting instead for more quantitative easing. This is in contrast to the US Fed which announced yesterday that it will not provide further quantitative easing.

Then Yen weakened against the Dollar as USDJPY advanced further in Asian trading to a high of 80.63 from the pre Bernanke speech lows of 80.00, based on Dollar demand by sovereign buying and Japanese importers buying the cheaper Dollar. USD strengthened after the Fed reiterated it doesn’t intend to add to its bond purchases so investors are buying back the cheaper dollar because there’s less expectation the Fed will take additional easing measures.

The Australian dollar dropped against the greenback after Ben Bernanke announced the Fed lowered its forecast for U.S. economic growth, discouraging demand for higher-yielding assets. Meanwhile, HSBC’s China flash PMI data released this morning came out slightly lower than previous. This was a sign of a weakening Chinese economy which could pressure risk trades and commodity currencies such as the Aussie. AUDUSD dropped to 1.0531 from yesterday’s high of 1.0649.

Gold extended losses in the Asian session after the Fed announcement. Despite cutting its forecasts for U.S. economic growth, it offered no hint of further monetary support, saying the recovery should gradually pick up heading into 2012. This gave some optimism and helped lift the Dollar. When USD rises, gold prices fall as they tend to have an inverse relationship. Meanwhile, investors are waiting to see whether European leaders who meeting on Thursday and Friday will a workable plan to help Greece avoid a debt default and return to financial stability. Spot gold dipped to $1,544.43 from yesterday’s high of $1,557.88.

Note: Daylight Saving Time is in effect for GMT