The euro clawed back losses in the European session as overall market sentiment improved, including European bourses. After a huge sell off in the Asian session following the downgrade of Italy’s credit rating by S&P, bargain hunters bought back the euro as they look forward to more optimistic news from the second conference call today between Greece and the IMF-EU. There was relief today that Greece fully paid two bond coupons amounting to 769 million euros, helping prop up the single currency. Meanwhile, data showed this morning that German investor confidence fell less in September than had been forecast. What helped support EURUSD was a cut back buying dollars ahead of a policy announcement by the Federal Reserve on Wednesday. Some speculate the U.S. central bank will announce more monetary stimulus, which could lead to quantitative easing, which weakens the dollar. Weak data on US housing starts kept dollar gains in check. EURUSD opened Europe at 1.3612 and climbed to a high of 1.3743.
GBPUSD pared losses made in the previous session and took direction from EURUSD to move well off its eight month low from yesterday lifted by sovereign buyers looking to profit from the lower sterling value.. Overall upbeat market sentiment gave investors risk appetite. GBPUSD opened at 1.5663 and rose to a high of 1.5730. EURGBP opened at 0.8687 to reach 0.8735 by the end of the European trading session.
EURCHF initially remained in a tight holding pattern in the mid 1.2000s, which is the level introduce by the Swiss National Bank on September 6 to control franc strength. But just before the end of the European session, EURCHF shot up to 1.2176 within minutes. Similar action by USDCHF which fell throughout the session by falling to 0.8789, before suddenly jumping to 0.8886.
USDJPY remained weak in the European session as investors were reluctant to go long the dollar ahead of the crucial US Federal Reserve policy meeting tomorrow. If the Fed signals more monetary stimulus to boost the ailing US economy, this could give rise to re introducing QE3, and more quantitative easing results in a weaker dollar as it means flooding the system with dollars. USDJPY touched a low of 76.39 but bounced off that to jump to 76.65 before the end of the session, taking direction from EURJPY which soared to 105.17 from 104.17 on a broadly stronger euro.