EURUSD plummeted 145 pips since opening the European session as the euro took a hit after a report on European Central Bank president Trichet saying the bank will be reassessing its view on inflation, thereby fuelling speculation that there will be no more interest hikes at least until next year. Added to this concern was weak demand at an Italian bond auction, indicating borrowing difficulties faced by the peripheral euro zone economies. Meanwhile, there is continued disagreement between EU members on the terms of the Greek bailout package, with Finland demanding collateral from Greece. EURUSD dropped to a session low of 1.4384 from the open of 1.4529. A strengthening dollar ahead of the FOMC minutes later today helped push euro lower.
GBPUSD fell over 140 pips to a low of 1.6276 as the British pound was under pressure following poor economic data that showed a drop in lending as well as the number of mortgage applications remaining flat. This highlights the sluggish recovery of the U.K. economy as many Britons are unable or unwilling to take out loans or mortgages to buy new homes.
The Swiss franc remained under pressure against the dollar as expectations that the Swiss central bank may take more steps to curb franc strength also hampered the currency. USDCHF rose to 0.8231 from 0.8119. The swiss also struggled against the euro, which despite being weaker today due to euro zone debt concerns and Trichet’s dovish comments on inflation, EURCHF managed to rise above the franc to recover early session losses.
USDJPY rose to 76.88 but soon fell to 76.65 as investors adjusted positions ahead of U.S. economic data that were to show predictions of falling consumer confidence. Also the FOMC policy meetings from the August 9 meeting will be released at 18:00 GMT. Investors chose the safe haven yen, though with caution, for fear of an intervention by BOJ if yen gains too much strength.
Gold surged over $40 after a mostly flat session, hitting a high of $1,831.77. Alot of it has to do with rising physical demand for the precious metal as the festival season is about to begin in India, which is one of the largest users of gold, customarily used in wedding s and religious festivals. Also, spot prices of gold were pushed up due to risk sentiment waning ahead of the FOMC minutes later today and investors are uncertain of the outcome so they want to protect their assets in the safe haven.