The Euro was volatile today as investors are concerned ahead of the European bank stress test results that are due at 16:00 GMT today. EURUSD initially slid early in the session down to a low of 1.4094 after opening at 1.4167. Euro zone trade data lifted the Single Currency to an intra-day high of 1.4178 as the balance was brought back to zero due to increased exports. The focus is now turned to the bank stress tests as speculation is growing that the Euro zone banks may show they have insufficient capital to weather the debt crisis. Trade volumes were thin as investors were reluctant to open new positions ahead of the test results. Meanwhile, markets are also waiting for a final approval to an Italian austerity plan due later today, though it is expected to pass the vote. EURUSD closed down at 1.4118 after US inflation data lifted the Dollar towards the end of the European session.
Sterling reached a new one-month high against the Euro early in the session as investors were nervous that stress tests on European banks may show lenders need to raise more capital than their U.K. counterparts. EURGBP fell to 0.8744 from the open of 0.8768 but soon rebounded to a session high of 0.8793. Traders said corporate and leveraged demand for the euro helped lift it back off the low. Meanwhile, GBPUSD fell 78 pips from the open of 1.6155 down to 1.6084 early in the session. Absence of UK economic data releases today pushed investors to focus on the Euro zone. General risk aversion limited gains for the Pound, especially since a recent series of data provide a gloomy growth outlook for the British economy. Also before the session close, Dollar was boosted by US inflation data showing lower costs of fuel. This brought GBPUSD to close down at 1.6089.
The Swiss Franc is seen as a safe haven currency against problems facing the Euro and US Dollar. The Franc is usually used in times of crisis to hedge against downside risks to other currencies. Today markets are jittery ahead of the European bank stress tests creating risk aversion towards the Euro. Investors are also leery of buying the USD long-term since ratings agencies to downgrade the U.S. triple-A rating if Congress does not reach an agreement to raise the government debt limit by August 2nd. The Swissie hovered not far from record levels reached yesterday against the Euro as EURUSD reached lows of 1.1515. USDCHF traded as low as 0.8153 before rebounding to a high of 0.8184 following CPI data from the US late in the European session.
USDJPY fell for most of the session down to a low of 79.01 from the open of 79.26 as the greenback is under bigger downward pressure due to the situation in the United States regarding the government debt ceiling as well as a threat by ratings agencies for a downgrade of US credit. The Dollar soon recovered due to short-covering and importers buying on dips. Some speculate that gains in Yen are limited due to the risk of possible Bank of Japan intervention to halt the Japanese currency appreciating further since a strong Yen is detrimental to Japanese exporters. Just before the end of the European session, USDJPY was lifted following US inflation data. USDJPY ended at 79.17.
Note: Daylight Saving Time in effect for GMT